London City property on the brink
Friday, 18 Apr 2008 09:28
London City property on the brink
Rental property in the City is likely to experience a "slowing trend more acute than the national picture", argues the Royal Institution of Chartered Surveyors (Rics).
Prices in the central London district, home to the country's financial sector, are more volatile than other regions of the capital, and consequently are likely to be adversely impacted by the ongoing credit crunch.
"We expect average office rental growth based on the IPD index to fall sharply to sub inflation by the end of 2008 although there will be some markets like the City where the slowing trend is more acute compared to the national picture as they are typically more volatile," explained Oliver Gilmartin, senior economist at Rics.
The opinions support those of Lehman Brothers, which said demand for rental property in the City was "slip, sliding away", faced with a chronic oversupply.
"In terms of the supply side of the situation, people do point to the fact that there is more supply coming into the City market over the next couple of years, and that can only further reduce the impetus to any kind of rents that may have been gained from the low vacancy rate that we still currently see," continued Mr Gilmartin.
Research from property consultants CB Richard Ellis published in January shows a total of 12.8 million square feet of construction activity is currently underway across Central London, which is the highest level since 2003.
The bulk of this activity is in the City, where 7.4 million square feet is being built.
Furthermore, this year will see a total of 7.5 million square feet being brought to the market in Central London, marking the development peak, with a further 5.2 million expected in 2009.
"We would agree that we are expecting rental growth to turn negative at a national level in 2009 so it would make sense that the city market will under perform the national picture," added Mr Gilmartin.
Rics expects rental yields nationally to fall from a high of eight per cent last year to around one per cent by the end of this year.