Average Grade A rents in London’s City Fringe market have increased by 87% in the last six years according to international real estate advisor Savills with the best new buildings now trading at a discount of only 3.5% to the same quality of building in the City Core (a saving of circa. £1 per sq ft). The once ‘cheap’ office location of Central London has matured into a leading global tech address and, with a number of new mixed use developments underway and more planned, Savills says its success is set to continue.
According to Savills research, the first quarter of 2016 saw average Grade A rents in the City Fringe reach £59.42 per sq ft (compared to £61.60 per sq ft for non-tower Grade A office buildings in the City Core). Accelerated by new office developments including Derwent’s White Collar Factory and Helical Bar / Crosstree’s Bower Development, both EC1, and key deals to Adobe, BGL Group, Stripe Limited and CBS Interactive.
Ben Raywood, associate in the research team at Savills, comments: “The City Fringe emerged as a fall-out office location offering lower rents to the prime City Core and West End markets. It has grown in tandem with the success of the tech sector to become the phenomenon of London’s offices market and a globally recognised business location. Landlords that have adapted buildings to suit these new generations of prevalent tech and digital occupiers have seen the best rents and the ‘right’ buildings are likely to continue seeing strong rents and possible growth.”
The rental increase in the City Fringe, according to Savills 12 Cities report, is not unique to London. The research shows tech, creative and digital office rents in Hong Kong and San Francisco rose by 52% and 48% respectively between December 2008 and December 2015, while worldwide rents in this sector increased on average by 12.8%. In cities including Sydney, Dubai and Paris the rental gap between tech occupiers and the financial sector, typical of the City Core, has already closed.
Paul Bennett, director in the Central London team at Savills, adds: “We think cost-savings are no-longer the main driver for businesses locating to the City Fringe; its vibrant neighbourhood, with an ever stronger tenant mix and an abundance of retail and leisure, is unrivalled in London. Occupiers looking to attract young, bright talent will continue taking space there and pay the price to do so.”
Meanwhile Savills says occupiers driven by a desire for cheaper office space, once the product of the City Fringe, will look to new neighbourhoods giving way to a series of new office markets. Investors who can read the headwinds, act quickly and provide the right environments for this sector will see the best returns.
