Office space renting to become costlier in London next year

Office spaces in London could be more expensive to rent next year due to a supply shortage, as developers are limited from building new spaces and leases have begun to shorten.

Analyst Tim Leckie predicts a 38 percent increase in active demand for premium office space in 2030, but that supply will tighten starting in 2023, with increased impediments to creating new facilities.

“By 2025, demand for London prime space could be 1.8x that available, and premier vacancy will be close to zero, putting upward pressure on prime rent,” he said, adding that the brokerage expects rental rates to rise 10% annually.

After rentals plummeted during the pandemic, and people are again returning to the important office hub of London, British commercial property developers recovered to profit in 2021, bolstered by strong leasing momentum.

Tenants will opt to utilise existing premises, according to Leckie, while enterprises face investor and government pressure to fulfil net zero standards, generating a supply glut.

The brokerage upped its rental growth projections for Great Portland Estates (GPEG.L) and Derwent London (DLN.L) and upgraded them to “overweight” from “neutral” on Wednesday.

Derwent London shares jumped 2.24 percent to 3190p on the UK mid cap index (.FTMC), while Great Portland rose 1.28 percent to 712p.

The firm reduced the stock’s recommendation from “overweight” to “neutral” because it sees limited gain for Land Securities (LAND.L).

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