Office rents in the City of London are defying signs of an economic downturn to soar ever-higher, with eyes now on a fringe redevelopment that could set a “landmark” price.
Work is underway on Chinese Estates Holdings’ £429m redevelopment of 120 Fleet Street, EC4 – the former Daily Express headquarters and latterly the HQ of investment bank Goldman Sachs – into a 660,000 sq ft, 21-storey office building called Evergo Tower.
The owner said it aimed to achieve a rent of between £80 and £100 per sq ft, with Cushman & Wakefield acting as leasing agent. Given that average rents across all office types in the City currently stand at £70-£75 per sq ft, according to Michael Pain, head of tenant advisory at Carter Jonas, the proposed three-figure rent appears to be a “very bullish” target.
If achieved, it would be “very much a landmark rental” for the local area, Pain added. He said rents for the upper floors of high-rises were “one area of the City of London market where we have seen rental growth post-Covid”.
Sight lines of St Paul’s Cathedral mean neighbouring buildings are typically mid to low-rise builds. Evergo Tower will be a rare high-rise for Fleet Street, with no directly comparable rents. The building is expected to open in 2026.
A shift in priorities toward high-quality, grade-A office space that enhances companies’ ESG strategies is driving demand for City tower offices, as is the “war for talent”. Pain said of plans for Fleet Street: “There is no harm in asking, and time will tell if they achieve it, but I think there will be resistance as the rents haven’t jumped to that extent.”
But they might. At Savills, City analyst Will Wilson said the agency had tracked prime rents as of the end of August at £83.68 per sq ft – higher than any annual prime rental figure on record.
“[Last year] annual prime rent averaged £82.30 per sq ft – therefore 2022 thus far is up 2%,” Wilson said. “Moreover, Savills’ research forecasts the 2022 annual figure to be closer to £86 per sq ft, with a predicted year-on-year growth of 3.3%.”
The agency, which calculates prime rents by taking the average of the top 10% of achieved grade-A rents, excludes the top floors in towers from its figures, but Wilson noted that this year Savills had “seen 20 transactions achieve more than £80 per sq ft, with two topping £100 per sq ft”.
Wilson said: “In 2022 so far, 65 transactions achieved a rent of over £70 per sq ft – this is a third of all known rents for this year. To put that into perspective, for the entirety of last year 26% of rents achieved over £70 per sq ft and the five-year average is 20%.”
James Townsend, co-founder of Kontor, said £100 per sq ft should be achievable given the demand and supply imbalance in the market. He pointed to “many occupiers taking less space [by] sq ft but increasing their spend to buy quality” and added that, although Fleet Street has historically been a niche occupier market, “with the right occupier and limited competing stock, rents could meet the landlord’s aspirations”.
He added: “We have seen incentive packages remain generous for secondary space, with rents generally remaining flat. Rents for grade-A space have slowly been increasing and incentives reducing, therefore net increasing the cost of quality stock.”
Agents pointed to increasing numbers of premium rents being secured for terrace floors in the City, including £93 per sq ft achieved on level 10 at 100 Liverpool Street, EC2, last year and premium rents in the range of £90 to £100 per sq ft achieved at 22 Bishopsgate, EC2, in recent months.
At Colliers, Chris Dunn, head of insights in the London offices team, expects to see growth in prime rents in the City, adding that targets for Evergo Tower are “feasible”. He said: “Buildings of this quality are able to command higher rents, with 120 Fleet Street providing terraces on most floors, which attract a rental premium.”
To send feedback, e-mail chante.bohitige@eg.co.uk or tweet @bohitige or @EGPropertyNews
