London office costs 19th January 2014

Occupiers in London’s West End have been hit with the sharpest rises in combined office cost across all of the capital’s sub-markets in recent years, according to a new report prepared by Carter Jonas.

The report finds that, since Q3 2009, the prime West End office locations - Mayfair and St James’s - have seen rent, rates and service charge costs increase by between 55% and 81% from £85-£118 per sq ft to £154 to £182.50 per sq ft per annum.

Conversely, Canary Wharf has recorded the lowest rates of increase in office costs, reflecting the fact that it is the only sub-market that currently has an oversupply of vacant office space due to the significant ‘downsizing’ in headcount in the banking and legal sectors. Combined costs increased by between 10% and 14% from £54-£67 per sq ft in Q3 2009 to £61.69-£73.94 per sq ft pa by the first quarter of this year.

The City’s combined costs increased by 21% from £67-£78.25 per sq ft to £81.50-£94.50 per sq ft pa during the same period.

In Midtown, in areas such as Covent Garden and Holborn, combined costs have risen by between 37% and 43% from £64.75-£78.25 per sq ft in 2009 to £92.50 - £107.50 per sq ft per annum to date.

In South Bank, combined costs have increased by between 23% and 38.5% from £50.50- £67.25 per sq ft in 2009 to £70.00-£82.75 per sq ft per annum.

Rent, business rates and building service charge costs are the principal outgoings associated with leasing office space in a multi-tenanted building. A note in the report said: “2009 is the year that immediately preceded the UK wide business rates re-valuation of commercial property which took effect from 1 April 2010.

The re-valuation has resulted in significant above inflation increases in business rates payable in many Central London locations - most notably in the West End in areas such as Mayfair, St James's, Marylebone / North Oxford Street, Soho and Victoria.” However, in the last year, rents in the City fringe saw the highest rise, from £37.50-£47.50 per sq ft in Q1 2013 to £42.50 - £55.00 per sq ft – representing an increase of 13.3-15.8%. Rents in the City core rose the least, registering a rise of 4.8% during 2013 from £52.50-£59.50 per sq ft to £55 and £59.50 per sq ft.