London's West End on track to break world office rental records

BNP Paribas Real Estate predicts office lettings in the West End will top £300 per square foot by the end of next year, as demand outstrips constrained supply

Office buildings in the Mayfair district of London's West End. Getty Images

Office rents in London's West End could break world records by the end of next year, according to latest analysis.

Rents in the West End, which is home to several large hedge funds, could reach up to £300 ($364) per square foot by December 2024, a report from BNP Paribas Real Estate suggests.

That would make the lettings the world's highest office rentals, topping Hong Kong which has for several years been the most expensive place to lease office space, some reaching £260 per sq ft.

Rents in New York have hit £230 per sq ft in the past but never broken the £300 barrier.

“You don’t need a crystal ball to see where the super prime West End office market is headed," said Simon Knights, head of West End agency at BNP Paribas Real Estate.

"We predicted last year that leasing events, business growth plans and the importance of employing talent would drive the market and all the cynics accused us of being terrifyingly optimistic, and look, we’ve seen rents of over £200 per sq ft regularly discussed on prime buildings."

His prediction of rents of £300 per sq ft is based on several observations, from growth in West End rents to higher demand for office space from banks and financial institutions, and low vacancy rates.

In the West End, the take-up of office space climbed from 520,000 sq ft in the second quarter of this year to 746,000 sq ft in the third quarter, while the vacancy rate stood at just below 6 per cent. In Mayfair and St James’s, vacancy rate of Grade A office properties is 3 per cent.

Banks, hedge funds and other finance houses are the big players behind the surging demand, accounting for 32.6 per cent of take-up across 20 deals totalling 243,000 sq ft.

Meanwhile, prime West End rents in the third quarter stand at about £150 per sq ft, a 7.1 per cent year-on-year increase.

But several deals have beaten that average, including 30 Berkeley Square (£277.50 per sq ft), 65 Davies Street (£185 per sq ft) and 75 Grosvenor Street (170 per sq ft).

Rents in a 'pressure cooker'

Several well-known hedge funds and investment companies have increased their office footprints in the area recently.

Eisler Capital, whose profits rose 73 per cent to £45 million last year, increased its West End office space by 317 per cent.

Meanwhile, Blue Owl Capital and Blackstone expanded their West End office footprints by 475 per cent and 105 per cent, respectively.

“Office-based employment growth statistics, the aggressive expansion of the financial sector and how it compares against the pipeline of stock is massively important to this success story, regardless of whether it slows down or not," Mr Knights said.

"This uptick against the constrained supply will only aggravate bidding even further and will act essentially like a pressure cooker on the rents.

"Reputations are on the line for these predominant occupiers and they will not give up without a fight if the space meets their needs.

"We might see some new kids on the block as a result, sure, but my money is on those guys to continue ruling the school.”