Analysts have said the London office market has turned a corner after two major commercial real estate investors released positive results.
Dewent London reported rental growth doubling to 4.3 per cent, the highest since 2016, and it expects estimated rental value growth – an estimate of the rent that a property could earn if it were leased on the open market – of three to six per cent in 2025.
“The London office market feels like it has definitively turned,” analysts at Panmure Liberum said.
“As analysts it’s easier for us to be more aggressive with forecasts, and we reiterate our view that prime new build London office rents are to double vs 2021 levels,” they added.
Derwent reported rental income of £214.8m in the year ended December 31, up 0.8 per cent year on year, with open market lettings last year 12.3 per cent ahead of 2023 values.
Panmure Liberum analysts said that Derwent’s 2m sqft regeneration pipeline is “well positioned” to take advantage of the upswing.
Chief Executive of Derwent London Paul Williams said the shift to more office-based working has helped boost occupancy.
“Last couple of years, it’s been very quiet. But we’re seeing a pickup this year, a bit more interest. We see a few more investors coming over, having a look,” Williams said.
“Business leaders across sectors want their teams in the office and London’s workplaces are busy,” Williams added.
A number of large firms have ordered workers back to the office, particularly banking companies.
“We’re seeing good ERV growth for those buildings that are in really good central locations – near the Elizabeth line or another big transport railway station,” he added.
According to global property consultancy Knight Frank, availability in newly constructed office buildings has fallen to 0.3 per cent in the West End Core – which includes Mayfair and St James’s – and 0.5 per cent in the City of London.
Mixed-use REIT Shaftesbury Capital reported a similarly strong set of results for 2024, with the value of its portfolio up 4.5 per cent year on year and rental growth of 7.7 per cent.
“There are excellent levels of activity, limited vacancy and a number of customers taking multiple units across the portfolio,” the company said.
“London and particularly our West End portfolio continues to display its enduring appeal as a leading global destination, with international arrivals now ahead of 2019 levels.”
Like Derwent, Shaftesbury pointed to the arrival of the Elizabeth line as a key footfall pull for the sector.
“Our West End estates continue to be busy and vibrant with high footfall and customer sales growth,” CEO Ian Hawksworth said.
“There continues to be strong leasing demand… with our strong balance sheet, we are well-positioned to capitalise on market opportunities,” Hawksworth added.