London’s Midtown saw highest levels of commercial rental growth in first half of year

Taylor Scott International News

Midtown experienced the highest levels of rental growth of any central London office market in the first half of 2014, according to new research by IPD and Farebrother. Offices rents in Midtown increased 5.9% in the six months to June 2014, ahead of the West End and The City, which posted growth of 5.6% and 4.7% respectively. Data from IPD and Farebrother shows that rents in Midtown, which exceed £70 per square foot at prime buildings, now exceed pre-2008 levels by 1.3%. The unparalleled rental growth in Midtown, driven by a strong occupational market, is pushing capital forwards and the data shows they grew 9% in the first half of the year alone. This was comfortably ahead of the central London average of 8%, albeit marginally behind the West End, where values increased by 9.5% over the same period. Capital values have been the key driver of performance in the Midtown office market, where returns surged to 11.1% in the first half of 2014, almost double the performance posted in the same period last year. This is set against a backdrop of central London Offices delivering a return of 10.6% for the same period, with only the West End, perennially Europe’s best performing market, delivering superior returns at 11.4%. ‘Midtown is central London’s most over-subscribed office market. The demand/supply imbalance means that availability is likely to drop below 4% at some point,’ said Alastair Hilton, head of investment at Farebrother ‘The strength of the occupational market is really driving rental growth, and we are seeing leasing deals being done at unprecedented levels on prime assets. This is really underpinning performance throughout Midtown, where returns have increased significantly since the same period last year. The challenge for investors is the lack of liquidity in the market set against an increasingly competitive background,’ he added. According to Colm Lauder, IPD senior associate, Midtown has proven to be a strong location for investors since the central London office market started to recover, leading investor total returns for six of the quarters in the last two years. ‘Over the past five years, capital values and rents have been on an upward trajectory in Midtown, driven by robust occupier demand across a broad spectrum of industry sectors,’ he pointed out. ‘Given these market fundamentals, Midtown will remain one of central London’s most compelling investment propositions for the foreseeable future,’ he added. Continue reading →

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