According to Knight Frank, which today hosted its annual Central London Office Market breakfast at The Dorchester, London, West End office rents are continuing to increase, with investment yields across Central London softening by the end of Q4 2008,

Knight Frank predicted regarding office leasing market that Prime headline rents in the West End core will increase by 5% to £115.50 per sq ft by end Q4 2008 and by a further 2% by end of 2009 to £118.00 per sq ft (Q4 2007: £110.00 per sq ft), securing it as the most expensive place to rent office space in the world.

About the office investment market they are of opinion that Prime yields in the West End will soften to end Q4 2008 at 5.25% (Q4 2007: 5.00%) while Prime yields in the City will soften to end Q4 2008 at 5.75% (Q4 2007: 5.25%)

Re. Residential Development Market, value of completed Central London new residential property (£2 to £10 million) will increase by 3% to end Q4 2008, while value of completed Central London super prime new build residential property (£10 million plus) will increase by 5-8% to end Q4 2008.

According to James Roberts, head of Central London Research, Knight Frank, as the balance of the market is tipping in favour of the tenant, the City has a challenging two years ahead. They are not seeing the market flooded with sub-let space from banks, as it had been in 2002 and 2003. West End is not affected as lack of supply seems to be providing insulation against the cooler economic environment. Contrary to what people would expect, the fund managers and private banks in Mayfair and St James’s are still taking space.

John Snow, Head of Central London, Knight Frank commenting on the office leasing market said, “The City office market in the medium term will be defined by how much potential demand converts back to active. In the West End, the eclectic mix of tenants combined with shortages of supply should keep the market in check. Prime rents in the West End will continue to grow albeit at a marginal rate.”

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