COMMERCIAL property developers in London’s financial district are being forced to offer sweeteners to tempt companies into their empty office blocks.
Incentives such as rent-free periods have ballooned in the past two years as rents in the Square Mile have fallen by 25 per cent since the 2000 boom.
Figures from Drivers Jonas, the property adviser, show that rent-free periods on a typical ten-year lease have soared from four months in spring 2001 to 24 months.
The company’s central London research team believes that the slump in rentals is likely to get worse, with rent-free periods in the City rising to 26 months on a ten-year lease within the next six months and to 28 months by this time next year.
Although only a handful of big office lettings have taken place in the City this year, most have included large incentives. According to Drivers Jonas, ICAP, the broker, was granted 17 months rent free to sign a 13-year lease at 1 and 2 Broadgate, while Barts London NHS Trust was granted 21 months rent free for a lease until 2015 at 9 Prescot Street, E1.
Advertisement
At Lion Plaza in Old Broad Street, near the Bank of England, White & Case, the law firm, was granted three rent-free years plus a capital sum towards its office fit-out in return for signing a 20-year lease, while British Land offered the European Bank for Reconstruction and Development three years and five months rent free to extend its lease at Broadgate until 2022.
Chris Williams-Ellis, director at Atis Real Weatheralls, the property adviser, believes the market has further to fall. “Rent-free periods are still growing, but it seems the rate of increase is slowing,” he says. “I would say we are heading towards the bottom of the market, but we haven’t quite reached the trough yet.” The rise in rent-free periods comes as rents in the City of London, which have already dropped by more than 20 per cent in the worst cases, are expected to fall another 12 per cent in the next 12 months, from £47.50 per sq ft for the best space to £42.50 per sq ft. Drivers Jonas says City rents are unlikely to stop falling until mid-2004.
The situation is equally bleak in London’s West End. Drivers Jonas reports that rent-free periods have risen sixfold in the past two years — from three months for a ten-year lease in spring 2001 to 18 months — and forecasts that they will increase further.