London’s Office Market is Exploding, Here’s Why.
London’s Office Rental Values Have Reached Over 10% Annual Growth
London’s office real estate has been booming for the past several years. As of October 2015, rental values have officially grown over 10% in the past year. This is the first time the annual growth has hit double digits since 2008.
Rapidly rising rents might deter some prospective companies from moving into London, but overall, it looks as though demand outstrips supply. Office space is being leased at a rate higher than the 10-year average, implying that prices might still have to rise further before demand is level with supply.
However, these statistics may not only be due to London’s status as an economic hub. On the whole, office real estate has done well in the UK recently. Rental values grew an average of 1% in October, compared with 0.4% for all commercial properties. Investors are receiving increasing returns in the office real estate market, making it all the more appealing for future development.
As it stands, London’s office market is at the highest that it has been since the financial crisis.
This is good news for the city’s future economic growth. For one, high prices do not necessarily mean that the market is in a bubble. London will always be a relevant city in the UK, and businesses have good reason for wanting to operate out of it. With that in mind, these office properties may not be overvalued, despite the fact that they’re constantly growing in value.
This level of growth may, however, provide difficulties for early stage startups to set up shop in London. Seed round capital may not be enough to reasonably fund a London work space, even a humble one—to say nothing of the aspiring entrepreneurs who need time to develop their products pre-seed. People in this situation may have to settle for coworking spaces or the old-fashioned home office.
The good news is that, for the startups that manage to grow past the initial stage, the opportunities for office expansion are endless. With developers eager to work on new projects, there’s little doubt that a larger company will be able to find their dream office—for the right price.