During 2015, growth in commercial property rents across London resulted in a total return of 18.1% from investments in the capital, according to the London Markets Analysis report by Levy Real Estate and MSCI.
The report, which analysed over £30bn of assets across 20 key submarkets, showed an increased pace of rental growth year-on-year, from 7.8% in 2014 to an average uplift of 8.5% in 2015.
One of the largest contributors to the strong rental growth was the Camden/King’s Cross submarket and the continued success of the King’s Cross Central development, which saw the level of rents grow on average by 17%.
Other drivers of rents include high occupier demand and lack of space. Mayfair for example, where continued conversion of office properties to residential has resulted in limited supply of new space, saw rental growth of 11.9% in 2015.
Simon Heilpern, Levy Real Estate Investment Partner, comments: “The latest research shows a market which still has significant momentum.
“Returns are now increasingly being driven by a growth in rents and this suggest that London’s commercial property investment sector can expect further sustainable growth in values.”
Vice President of MSCI, Colm Lauder, concluded: “The London investment market had another good year in 2015, with strong returns on the back of healthy rental value growth across the commercial property market.”
He continues: “Pricing in the London market also strengthened further during the course of 2015, but the rate of yield compression has slowed as key market locations begin to reach record yield levels which question price fundamentals.
“This has resulted in rental growth taking over as the main performance driver, as confident, and expansionary, businesses compete for space.”
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