London commercial property rents rise by 70% in five years, EY research reveals
11 April 2016
- Clerkenwell, Farringdon, Shoreditch, and St James’ see commercial property rents double
- Average rents increased from £33 per square foot to £55 between 2010 and 2015
- Shoreditch saw the largest increase (181%), while Aldgate the lowest with 42%
- Transaction trends reveal Farringdon and the Southbank as new hubs for serviced offices and energy companies respectively
Commercial property rents in London have risen by an average of 70% in the last five years, new research by EY reveals today.
Average rents increased from £33 per square foot (psf) to £55 psf, with four areas of the capital seeing their commercial property rents double (Clerkenwell, Farringdon, Shoreditch, St James’s).
Shoreditch has seen the highest growth in average rent in the capital with rents rocketing from £17 psf in 2010 to £48 psf in 2015 – an increase of 181%. Aldgate saw the lowest percentage growth in average rent (42%), from £29 psf to £41 psf.
St James’s was found to have the most expensive average commercial rent for 2015 with £91psf, up from £43 in 2010, followed by Mayfair with £82 psf and Belgravia/Knightsbridge with £72. At the other end of the scale, Docklands was the area with the cheapest average rent at an average of £32 psf, followed by the Southbank (£39), Aldgate (£41), Euston/Kings Cross (£45), Clerkenwell (£45) and Farringdon (£47).
EY’s research analysed real estate transactions by London businesses from 2010 to 2015, across a range of sectors including retail, TMT, charities, education/public sector and energy, among others. The areas of London observed spanned from the West End and Midtown to the City of London and Docklands.
Russell Gardner, UK & Ireland Head of Real Estate at EY, comments: “London’s property market is and has been a special case. With a growing population, strong economic performance and a shortage of new properties, the challenges in the capital are a result of London’s own success. Businesses appear willing to pay more for suitable office space, wherever that might be across the city.
“To see four areas of London with over 100% increase in average rent per square foot in only five years is testament to this and reiterates just how popular central London is to a wide range of industries. Businesses are happy to increase their spending on commercial property to be alongside their competition in the same sector.”
Rental costs changing ‘traditional’ face of London
EY’s commercial property research also shows that areas of London once characterised and favoured by particular sectors are now attracting businesses from different industries, a change driven by rising commercial rental costs and the search for value for money.
Southbank has experienced a near 40% increase in transactions by the energy sector since 2010, while Victoria has seen a 29% increase in transactions by the services sector. There has also been a rapid increase in transactions involving serviced offices across central London, with Paddington seeing a 32% increase since 2010 and Farringdon and Shoreditch experiencing rises of 52% and 43% respectively.
The services sector looks to be moving out of midtown and west London, with Covent Garden and Euston/Kings Cross reporting decreases in transactions of 48% and 40% respectively, and Belgravia/Knightsbridge and Marylebone experiencing transactions decreases of 34% and 31% respectively. Farringdon has seen a near 30% decrease of education/public sector transactions, as well as a 24% decrease by those in the retail sector, with Belgravia/Knightsbridge potentially picking that business up after seeing a 28% increase in retail transactions between 2010 and 2015.
Russell Gardener continued: “The face of London is rapidly changing and shows no signs of slowing. With businesses willing to capitalise on opportunities away from the traditional areas for their sector, hubs are developing across the capital and sectors are settling in areas which are new to them. This, coupled with the ever-improving transport links, means that many employers may prioritise creativity and flexibility when assessing their commercial office space.”
Businesses in London will continue to search for value for money
Russell Gardner concluded: “London’s X factor is having a direct impact on the capital’s commercial property market. Currently, rents are on an unrelenting rise and as such are having a dramatic effect on the way the city is made up. A London-only approach may be necessary to keep the right balance between the capital being open for business, and at the same time affordable.”