News

City: echoes of the ’70s, say RE

News

Estates Gazette

21 February 1987

by Duncan Lamb

Although the rise of top City office rents in 1986 outstripped their predictions at the beginning of the year, agents Richard Ellis have tempered their latest forecast with some caution.

They predict that rents will hit £50 per sq ft by the end of the year — rumours are that this has already been achieved — but after that progress will be slower, with the end of the decade establishing £55 per sq ft.

While rents currently being achieved might tempt many to make statements along the lines of “You never had it so good”, RE devote a section of their latest City Office Review & Forecast to a comparison of the prevailing market with the last boom of 1977-78.

They note: “The transformation in the City property market over the past two years has reawakened distant memories of the overheating which took place during the early and late 1970s.”

The good news would seem to be that although supply is running at a much higher level than in 1977-78, so is space take-up — exceeding the previous peak by over 40%. However, the markets now and in 1977-78, say the agents, have many characteristics “similar in nature”.

Even if the boost in supply (Docklands, Fleet Street, London Bridge City etc) can be balanced against the boost in demand — the results of Big Bang — there must be some concern about the cyclical nature of the market asserting itself and a slump in rents similar to that of 1981-84.

However, 1986 provided the evidence of the new market — a general increase in the size of unit required; a strong presence of owner-occupiers; and the proliferation of prelets.

The year saw a record level of new supply — 4.9m sq ft — half of it secondhand space. The majority of development space was marketed early, often before completion, and over the 12 months 4.6m sq ft was placed under offer — excluding a further 1m sq ft which was purchased for owner-occupation.

Looking ahead to the end of this year, RE expect the supply of new space to be in the order of 4.5m sq ft to 5m sq ft with rents advancing to that £50 per sq ft mark from the present £42.

by Duncan Lamb Although the rise of top City office rents in 1986 outstripped their predictions at the beginning of the year, agents Richard Ellis have tempered their latest forecast with some caution. They predict that rents will hit £50 per sq ft by the end of the year — rumours are that this has already been achieved — but after that progress will be slower, with the end of the decade establishing £55 per sq ft. While rents currently being achieved might tempt many to make statements along the lines of “You never had it so good”, RE devote a section of their latest City Office Review & Forecast to a comparison of the prevailing market with the last boom of 1977-78. They note: “The transformation in the City property market over the past two years has reawakened distant memories of the overheating which took place during the early and late 1970s.” The good news would seem to be that although supply is running at a much higher level than in 1977-78, so is space take-up — exceeding the previous peak by over 40%. However, the markets now and in 1977-78, say the agents, have many characteristics “similar in nature”. Even if the boost in supply (Docklands, Fleet Street, London Bridge City etc) can be balanced against the boost in demand — the results of Big Bang — there must be some concern about the cyclical nature of the market asserting itself and a slump in rents similar to that of 1981-84. However, 1986 provided the evidence of the new market — a general increase in the size of unit required; a strong presence of owner-occupiers; and the proliferation of prelets. The year saw a record level of new supply — 4.9m sq ft — half of it secondhand space. The majority of development space was marketed early, often before completion, and over the 12 months 4.6m sq ft was placed under offer — excluding a further 1m sq ft which was purchased for owner-occupation. Looking ahead to the end of this year, RE expect the supply of new space to be in the order of 4.5m sq ft to 5m sq ft with rents advancing to that £50 per sq ft mark from the present £42.