London's Office Market Badly Hit By Crisis: Report

Sourc : The Business Times, January 13, 2009

(LONDON) London's office market was ravaged by the global financial crisis in 2008, as more than one-in-ten offices were left vacant and rental rates dived 19 per cent, a research report said yesterday.

Prime office rentals fell from £65 per square foot (psf) at end-2007 to 52.50 pounds psf at end-2008, while vacancy rates rose from 9.6 per cent at end-September to 11 per cent at end-December, property agency NB Real Estate said.

The damage was heaviest in London's prestigious West End, home to the city's once-ubiquitous hedge funds, after the industry's collapse caused rents in the area to dive 29 per cent to £85 psf in 2008, NB said.

London's West End was ranked the world's most expensive office location by consultants Cushman & Wakefield in February last year, followed by Hong Kong and Tokyo.

'The boom in the hedge fund sector meant they paid scant regard to the property costs they were taking on,' said James Gillett, NB's director for Central London Markets.

'That mentality and the rental legacy it leaves behind is far removed from the current day post-Madoff situation,' said Mr Gillet, referring to Bernard Madoff, whose alleged US$50 billion hedge fund scam has further sullied the industry's reputation.

Industry analysts claim the current record rent of £140 psf in the West End was agreed by Permal Investment Management Services, a fund of hedge funds, for offices at 12 St James's Square in October 2007. Rival funds ZBI, GLG and investment house Warburg Pincus are also believed to have agreed rents of about £110 psf for office space in the West End, one industry source said.

NB said yields on prime City offices at end-2008 are 6.75 per cent, up from 5.5 per cent a year ago, which 'looks increasingly attractive to investors in a low interest rate environment'. - Reuters