There’s some good news for those looking for new investments in London’s commercial property market. Midtown experienced the highest level of rental growth of any office market in London, with rental increases of 5.9% in the six months to June 2014. Given that the West End posted 5.6% and The City posted 4.7%, this is certainly impressive. Midtown’s continued upward trend has lasted five years, making for an attractive investment proposition. LDG, an estate agents in the West End have looked at the finer points of Midtown’s success while keeping an eye on the future of this exciting market.
Midtown Has a Strong Occupational Market
Midtown has a considerable supply/demand imbalance, and it’s predicted that office availability is likely to drop to below 4% in the future. As London’s most over-subscribed market, leases are being negotiated at unprecedented levels, fuelling rental growth and providing excellent capital growth returns.
Rents Compared With Recession Levels
As Midtown attracts office tenants across a variety of industries, the office-market recovery has helped boost rental growth to the levels seen at the moment. Midtown’s prime buildings now have rents exceeding £70 per square foot, outstripping 2008 levels by 1.3%.
Capital Values Are a Key Driver
Capital value shot ahead in Midtown, driving returns of 11.1% in the first half of 2014, almost double the returns posted in the first half of last year and well ahead of the 10.6% posted across the central London office market. Significantly, Midtown only posted returns 0.3% lower than the West End, which is impressive given that the West End regularly outperforms the entire European market. Capital values grew 9% in the first half of 2014 alone, well ahead of the central London average of 8%, and marginally behind the West End’s growth of 9.5%.
Forecasting the Future
The upward trajectory of Midtown is forecast to grow, as vacancy levels plummet over the next 12 months. Some researchers are predicting rents for prime located Grade A office spaces in Midtown to grow by an impressive 7.4% over this time. This will be driven by the increasing exodus of office tenants from the West End’s powerhouse addresses of Mayfair, St James’s, Marylebone, North Oxford Street, and Soho. Interestingly, this migration is partially due to unsustainable rent increases, but also due to a significant number of West End landlords displacing tenants in order to refurbish and renovate their properties. Midtown is also expected to see an increase in speculative office development and refurbishment, due to the improved availability of development finance. Furthermore, the supply shortage is forcing tenants to start their searches early. These are all compelling factors for prospective investors considering Midtown.
The Challenge for Investors
All areas of commercial property investment present unique challenges and it’s not surprising that maintaining liquidity is the big one when it comes to investing in Midtown. However, if you’re unafraid of entering a competitive market, the returns forecast for the future are excellent.