The Canary Wharf office market will see the strongest rental growth in central London this year, according to Knight Frank.
The firm, which holds its influential central London breakfast this morning, has forecast 12.8% growth for Canary Wharf, followed by 10% growth in Shoreditch and 9.6% in Midtown.
It said the relative affordability of the Docklands compared to other central London markets was the main driver for the increase, together with the imminent arrival of Crossrail which will better integrate Canary Wharf with the rest of central London.
Knight Frank expects tenants in search of high quality but affordable office space to move eastwards given the severe supply shortage elsewhere in the capital.
Expansion by technology and creative firms will contribute to the shift, as well as continuing to benefit the Shoreditch sub-market where rents grew 24% in 2015, double the rate of increase in the City.
Overall the central London vacancy rate is at a 14-year low, with the West End at 3.4% the lowest since 1989.
Dan Gaunt, head of city leasing, added: “The gap between rents in traditional core areas and other sub-markets has never been so small. Occupiers are making decisions based on quality of product and amenity, availability of scale, adjacency of workforce, and not by postcode.”
The low vacancy rate encouraged more investors into the West End in 2015 with a record £7.4bn invested despite low yields of just 3.5%, according to Knight Frank’s research.
Two thirds of the West End’s total transactions were by overseas capital.
The City increased total investment to £10.7bn, a 7% rise on the previous year, and the second-best performance on record.
Knight Frank now expects development and refurbishment projects to be the main targets for investors as the lack of supply will provide the basis for ongoing rental growth.
Anthony Barnard, head of west end capital markets, said: “With the West End office market achieving record capital turnover in 2015, reaching a total of £7bn, up 13% from the previous year – this further reinforces the West End’s status as the ‘gold bullion’ of real estate.”
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