October 13, 2009 10:25 pm

City poised to outpace continental office rents

City of London office rents are forecast to rise again next year compared with most other large European cities where the slowdown is set to continue.

London is leading the European property cycle, according to DTZ, the global real estate adviser, with City rents for the best-quality office space set to rise 8 per cent in 2010. Rents in other European cities are forecast to continue to fall or stabilise at best.

DTZ has upgraded its forecast for London, reflecting the generally more positive market sentiment over the past few months. The rental market is perceived to have reached a low point following a two-year slump.

Availability fell in the third quarter of 2009 in central London, according to DTZ, marking the end of seven consecutive quarters of rising vacancy rates.

Agents see the letting of Watermark Place to Nomura on very attractive terms as being a turning point, with few new buildings now available in the City. There is also much less new development. although the amount of second-hand space is still high.

Martin Davis, head of UK research, said: “In the key central London market, pricing responded very quickly, given its exposure to the downturn in the financial sector. Now, with yields starting to move in, and occupier markets showing early signs of recovery, London once again seems to be leading the way.”

DTZ expects rental values to fall across Europe by an average of 13.4 per cent in 2009, slightly worse than the 11.9 per cent fall forecast in May. There is also a more upbeat outlook for the investment market, where DTZ said that many established market yields had stabilised ahead of expectation.

DTZ believes that the scale of the falls in prices for prime property has meant that several markets – including London, Paris, Berlin and Brussels – now represent “fair value” for long term investors.

In some locations experiencing continued rental falls, DTZ said that yields look to have further to rise, but there should be a second wave of markets to reach fair value in the first half of 2010 including Frankfurt, Düsseldorf, Madrid, Barcelona, Paris La Défense, Copenhagen, Amsterdam, The Hague and Warsaw.

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