Commercial property rents in London are facing a potential freeze as negotiating power passes to tenants post the Brexit vote

 
Tracey Boles
General Election - Economy
City rents could freeze or fall (Source: Getty)

COMMERCIAL property rents in London could be frozen for the next five years as Brexit uncertainty puts negotiating power in the hands of those tenants whose rent reviews fall this year.

“Frozen”, or even falling, rents would put more pressure on commercial property funds that have already seen high levels of redemptions since the referendum.

Landlords affected include those whose next quarterly rent day falls on 29 September, as well as those who saw rent negotiations delayed from the last rent day on 24 June, which was just after the referendum.

There will also likely be a knock on effect to the investment side of the market as domestic landlords looking to invest will find the prospect of rents not rising for five years less attractive.

However, rents held at 2016 levels spell good news for corporate tenants with rent reviews this year: they are set to save millions over the life of a commercial lease which is typically 15 to 25 years' long.

"The uncertainty and apparent absence of market lettings makes it difficult to argue that rents should rise. It is dashing expectations that commercial rents will increase on rent reviews,” said Michael Madden, rent review solicitor at global law firm Winston and Strawn.

“There is a very strong argument by tenants for a nil increase in rent. Funds may well have to adjust their books,” he added.

According to Joseph Kelly chief executive and co-founder of property data experts DealX: "London office and retail rents already at the end of their most recent cycle will come under significant downward pressure due to investment uncertainty, and business exposure to European single market access."

But Ben Seager-Scott of Tilney Bestinvest said: “Only if you seen a significant increase in void rates - if you start to see corporate defaults - would we see landlords become more permissive."

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