Office rents in London’s skyscrapers rose almost 10 percent in the second half of last year as city-center vacancies fell to a 15-year low, according to an index compiled by broker Knight Frank LLP, and are set to continue climbing.
Annual skyscraper rents in the U.K. capital surged to $126 per square foot because of rising demand for prime office space amid a supply shortage, the 21-city index showed. That was the biggest increase in the index and follows a similar gain in the first half. Hong Kong, the most expensive location, gained 3 percent to about $263.
"International companies have had the benefit of tower space across the world, and until recently London hasn’t provided it," said Will Beardmore-Gray, Knight Frank’s head of tenant representation and agency business. "We’re starting to see more tower buildings in central London that you could put in any capital and be proud of."
Demand for prime offices is soaring across London as the city’s improving economic prospects encourages companies to upgrade their space. Central London’s office vacancy rate fell to 4.2 percent at the end of 2015.
Developers are racing to close the gap, with 12.2 million square feet (1.1 million square meters) under construction at the end of last year, 56 percent more than a year earlier, according to Knight Frank. That follows a period in which very few towers were constructed.
Tenants in the Walkie Talkie and Cheesegrater skyscrapers in the City of London financial district had the highest rents in 2015. New buildings that are drawing demand include 100 Bishopsgate, which is due to be completed by Brookfield Property Partners in 2018.
"The availability of tower space compared to the rest of the market is still minute, and the new construction is coming into an already very tight market," said Beardmore-Gray. As a result, rents in the city will rise further in 2016, he said.
Rents in New York skyscrapers climbed 1.1 percent to $155 per square foot, while Tokyo had a 1.3 percent increase to $128.8. Technology hub San Francisco outstripped other U.S. cities with a 4.8 percent gain. Singapore rents dropped 4.8 percent, the worst performance among the locations surveyed by Knight Frank.
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