Knight Frank suggests that banks and financial institutions have increased their demand for short-term lets by over 80% in the last few months, taking up contracts of around 18 months. In the past, the period involved would have been anything from 10 to 20 years.
This change of heart reflects the theory that many of the major banks are considering sizeable redundancies in the face of the credit crunch. As these are implemented, the demand for renting larger buildings looks set to decrease and this will in turn drag the rest of the market price tags down. Investors had been setting their sights firmly on Canary Wharf and offices in the City as the new rental hot-spots, but a drop in demand has already reduced the rise in rents that were anticipated to last until 2010.
With the rest of the market following the banks, demand for office space is slowing, forcing landlords to lower their prices. Whilst they may not want to do this, it is a more prudent move than having their office space in London sitting empty until the economy recovers. Those taking advantage of the lower priced offices in London are also finding it quicker to find suitable property. A recent report by The Daily Telegraph has found that most tenants are able to find London offices and are viewing between just six and ten properties, compared with much higher viewing figures over the last few years. In short, as a result of the credit crunch the office rental market in London has become a tenant’s market.
The Royal Institute of Chartered Surveyors has made a prediction that could spell further bad news for landlords, and offer further benefits for tenants. They foresee that the growth for office rental in London could fall to ‘sub-inflation’ levels by the end of the year. The reason behind this is that, with so many offices threatening to become unoccupied, there is also an excess of supply over demand. This looks set to work in the favour of the tenant. Add this to the fact that there are over 12 million square feet of office space being built in the capital, and the future for landlords looks pretty bleak.
London’s office tenants look set to be able to enjoy a side benefit produced by the credit crunch, as the state of the economy forces landlords to push their prices down or face a situation where many of their offices remain empty and unused.
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