Rent Guarantee – London property market faces sluggish first half

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Rent Guarantee – London property market faces sluggish first half

The economic uncertainty and sluggish growth that weighed on London office leasing in 2011 will continue into the first half of this year, according to property consultant Jones Lang LaSalle, with the majority of demand for space coming from technology companies and renewals.

A report by Jones Lang LaSalle, published this week, showed firms across London remain wary of the health of the economy and are as a result more likely to renew in place rather than spend money moving to new offices.

Jones Lang LaSalle said that natural churn in the market, such as lease expirations, would translate into 6.2 million sq ft of demand in 2012, but take-up overall will be far lower than average.

In the West End, the consultant predicted 2.8 million sq ft of leases would be signed, compared to the 10-year average of 3.1 million sq ft. The City of London is likely to see just 3.7 million sq ft of take-up, compared to the average 5.1 million sq ft.

Rental growth in the City of London, home to much of the UK’s financial sector, was stagnant in 2011, but is poised to grow 4.5% in 2012, Jones Lang LaSalle said.

The West End, which has traditionally housed many of London’s hedge funds, saw rents climb 13.1% in 2011. But the consultant said the area is unlikely to experience rental growth over 2012.

However, the longer companies wait to sign leases, the fewer options they will have as London’s supply of office space dries up, warned Neil Prime, international director and head of UK agency leasing at Jones Lang LaSalle.

The consultant compared London’s average leasing pace to the supply of existing and planned office space and said there is just an 11-month supply of grade-A space in the City of London. In the West End, there is only eight-months worth of supply .

Technology firms including LinkedIn, Skype and Nokia are all expected to sign large leases in 2012, despite concerns about the economy.

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Prime said: “If we get some stability in the market over the course of the year there will be a significant increase in pre-letting in the second half of the year.”

Double digit rental growth will not return to London until at least 2013, according to Jones Lang LaSalle.

Demand from investors for commercial property, however, remains strong, especially among high-net worth individuals and sovereign wealth funds that have access to cash.

Sovereign wealth funds will see an added boost in 2012 from changes to rules governing real estate investment trusts, according to Deloitte’s 2012 real estate predictions published Wednesday.

guaranteed rental income
guaranteed rental income

The scheduled removal of a 2% entry charge for joining Reit schemes in July, as well as the government’s move to relax diverse ownership rules governing them, are two key factors Deloitte expects will encourage investors this year.

Those changes are also likely to spur the UK’s first residential Reit.

In November, London and Stamford Property announced plans to set up the country’s first residential Reit as a result of the regulatory changes, The Wall Street Journal reported.

Source: by Sarah Krouse http://www.efinancialnews.com/story/2012-01-06/london-property-faces-a-slow-first-half-of-2012?mod=sectionheadlines-home-AM

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