Why are UK office rents increasing?

Property consultants Jones Lang LaSalle (JLL) recently reported that prime headline office rents have grown by an average of 4.3% across the UK’s eight largest metropolitan economies (the ‘Core 8’). Somewhat shockingly, the report stated that Manchester and Leeds, rather than London, have seen the most significant increases in commercial rents. What’s causing this surge?

Rising demand

As ever, the biggest reason behind rising rents is increasing demand. The period covered by JLL's report saw 1.3 million square feet of commercial property rented in Manchester and Birmingham alone, suggesting that many companies are recruiting and out-growing their current locations.

Dwindling supply

Increased uptake doesn’t always go hand-in-hand with higher rental prices, but in the present situation, a lack of investment in prime commercial property has created a shortage of high-quality office space. Given that this shortage has coincided with a period of growth for many businesses, it's easy to see why rents are taking a hike.

The figures reflect the above narrative: JLL say that the overall vacancy rate across the Core 8 has fallen from 9.1% to 8.2%, with that number declining to just 2.4% for Grade A space.

A sign of things to come?

While commercial landlords will benefit from rising rents in coming months, there are signs that things could change after the year's end.

Accountancy and business advisory firm BDO's 'optimism index', which is based on an average of the results of the UK's main business surveys, showed a dip in business optimism for the fifth consecutive month in August. This can be attributed to many exporters and investors wondering how the recent market turmoil in China will affect the global economy.

Another factor that could put an end to the surge is an increase in available commercial property. JLL report that 5.36 million square feet is to be built in 58 speculative developments across the Core 8, which is a significant increase on the 3.3m square feet built in the first half of 2014.

In order to deal with this uncertainty, commercial landlords should ensure that their tenants have signed up to fair deals with clear terms. Being realistic and transparent will help to prevent clients having to default on rents. If things do go wrong, landlords should have measures in place to ensure that unpaid debts are collected promptly and efficiently.

For more information about efficient debt collection and commercial rent arrears recovery services, contact us today.