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London's commercial property boom and where the market's headed next

The latest research from commercial estate agents Cushman & Wakefield shows that tenants took up 2.4m square feet of office space in the capital during the first quarter of 2015. It's the best start to a year since the financial crisis, but will it continue?

Steady growthDukes-CommercialPropertyBoom

According to Schroder Asset Management, low levels of development and rising confidence in the economy have swung the balance of supply and demand in favour of commercial landlords – and Cushman & Wakefield's stats agree. In fact, the top floor of the 8 St. James's Square development was let for a record £185 per square foot this month. Hardly surprising when West End vacancy rates have fallen to 2.3%: their lowest levels since 2000.

Commercial property investors CBRE UK predict these positive returns should continue through the year, delivering sustainable growth rates of around 13%, compared to 20% last year. Although they add that the lack of good quality new commercial properties and uncertainties over the general election pose significant risks.

New property

Balancing the need to identify and develop new properties and maintain price growth will be especially tough thanks to the pressures of the residential property market, particularly in prime areas of Central London.

Estate agents Knight Frank report that many period commercial properties in the areas surrounding the City of London, including Farringdon and Whitechapel, are being converted into prime residential property. This is a trend found across the capital that will challenge commercial landlords throughout 2015, and potentially force the market to expand further outside London.

The election

The general election situation is more complicated than it may first appear. A number of high profile property bigwigs have warned against a Labour government that, they argue, would "threaten jobs and deter investment". However, other commentators, including Guy Grainger, CEO of JLL (formerly Jones Lang LaSalle), have highlighted the risks of a Conservative re-election: including the damaging effects of an EU referendum, which could hit trade with the continent and affect equity markets. So although there is cause for optimism, several uncertainties will have a big impact in the months ahead.

If you want advice on how to manage commercial rent arrears and improve your cashflow, contact a us at Dukes today.

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