Please Note: This Article is 3 years old. This increases the likelihood that some or all of it's content is now outdated.

Recent researcher at EY analysed real estate transactions by London businesses from 2010 to 2015, across a range of sectors including retail, tech, media and telecoms (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, says:

“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.

Clerkenwell, Farringdon, Shoreditch, and St James’ saw commercial property rents double. Average rents increased from £33 per square foot in 2010 to £55 in 2015. According to EY Shoreditch saw the largest increase (181%), while Aldgate the lowest with 42%. Farringdon and the Southbank have developed into new hubs for serviced offices and energy companies respectively.

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EY point out that average rents have 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 saw 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.

EY found St James’s 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. The Docklands on the other hand was the area with the cheapest average rents at an average of £32 psf, followed by the Southbank (£39), Aldgate (£41), Euston/Kings Cross (£45), Clerkenwell (£45) and Farringdon (£47).

“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,” Mr Gardner said.

A change driven by rising commercial rental costs and the search for value for money, EY points out, is changing the character of areas of London. Areas once characterised and favoured by particular industry sectors are now attracting businesses from different industries:

“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.

“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,” Russell Gardner concluded.

Please Note: This Article is 3 years old. This increases the likelihood that some or all of it's content is now outdated.
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