London office rents will fall over the next year, experts warn

 
Helen Cahill
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The Scalpel is set to open in the City this year (Source: Getty)

Rents for London offices are expected to fall over the next year, experts have warned, despite an overall recovery in the UK commercial property market.

Chartered surveyors at the Royal Institution for Chartered Surveyors (Rics) have said that rents in both prime and mid-tier office spaces are at risk over the next 12 months.

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Investment into London offices has improved in recent months, Rics said, but occupier demand is low, meaning the London market is lagging, while the rest of the UK is recovering from a lull experienced following the EU referendum.

The fastest growth in office rents is pegged for the east and the south east of England over the next year.

Industrial assets have been outperforming retail and offices and were the most sought-after asset in the first quarter of 2017, according to the Rics survey. Asset values are expected to rise over the next quarter, and surveyors also said demand for industrial space was on the rise. Consequently, the strongest growth in rents is expected in the industrial sector, with rents in retail expected to "hold steady".

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"We are in unchartered waters," said Anthony Bianchi, of Bianchi Chartered Surveyors. "The economy is generally strong but there is an underlying nervousness that is akin to being within a recession. Dealers will either do very well or very badly. Institutions will hedge their bets and confuse the markets as always."

Simon Rubinsohn, Rics chief economist, said: "The results of the latest commercial property survey chime with much of the recent generally more positive economic news flow.

"Significantly, the forward looking indicators are also proving relatively resilient although it would not be a surprise if activity slows somewhat ahead of the forthcoming general election.

"Although around one-sixth of respondents continue to report enquiries from British businesses looking to find space to utilise elsewhere in the EU, foreign investment into the UK is continuing to recover with the Rics overseas demand indicator rising for all sectors at a headline level and in most parts of the country."

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