London's commercial property market is a bubble - but it's not ready to burst

 
Adam Blaskey
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"This bubble is unlikely to burst anytime soon" (Source: Getty)

Commercial property and office rents have reached all-time highs across the West End, midtown and the City and headlines have recently been dominated by a spate of high-profile tech firms making a home for themselves in the capital.


With 15 years’ experience in the London property market, I keep a watchful eye on the capital’s residential and commercial property markets. Like the residential market, without doubt, London’s commercial property market is a bubble, quite separate from the rest of the country - but it’s not necessarily a bubble that’s ready to burst.

Following recent lettings and the record breaking rents that have made headlines such as £90 per square foot in The Shard and £185 per square foot in St James’s Square, last week we heard that Facebook is moving into Fitzrovia by leasing 227,000 sq ft. Paying £74 per square foot, this highlights that top rents are no longer confined to the West End, and tech companies don’t just want to be based near Silicon Roundabout.

Read more: London rents climb higher as affordability falls across the UK

With such demand, this attracts investors looking for a safe haven for their money and a decent return, which is why according to DTZ/Cushman & Wakefield, we have seen £12.6bn of commercial property traded so far this year in London, of which £4.2bn was in the West End and 70 per cent purchased by foreign investors.


With rents spiralling higher, supported by both investor and occupier demand, a recovering economy and a reduction in supply due to increased conversions of commercial to residential, it’s easy to see why this bubble is unlikely to burst anytime soon.

Facebook’s move highlights a growing trend across London. No longer are areas restricted to specific businesses or industries – every area is sought after.

Gone are the days of midtown being dominated by law firms, Fleet Street by the media and Mayfair by hedge funds.

All roads lead to London. But with businesses facing sky-high rents, it doesn’t necessarily make the best financial sense for all companies to secure their own offices on long term leases in the city.

Read more: Renters on living wage priced out of every postcode in the capital

For businesses to succeed and thrive in today’s competitive and increasingly disruptive economy, having access to a flexible, cost-effective alternative to an office in the capital has never been more crucial.

Businesses members clubs offer an alternative to growing businesses, but also provide the right corporate image when meeting clients, partners and investors along with offering a productive work environment for members of your team who work remotely.

So whilst rents are on the up, there are smarter and more flexible ways of doing business in London which at the same time allows business overheads to be kept to a minimum.

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.

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