An overview of the commercial property market in City of London

As of 2012, there are 9 million square feet of commercial property in the City of London. Overall vacancy rates for new build properties have been estimated at 3.9 per cent, a figure that is slightly higher than in other areas of central London.

Current take-up rates for all three types of commercial floor space are in the region of 6 million square feet. However, there is a large number of pre-let deals in the City of London, which means that actual availability is only 4.4 million square feet. This situation points towards under-supply, particularly since the development of new Grade A office space is affected by policy constraints and by the financial limitations of potential occupiers.

Commercial property analysts working for Land Securities have noted that in 2013 there will be a high number of commercial properties whose lease is due to expire. A large number of these properties have become unsuitable to meet the requirements of modern businesses, so it is expected that this fact, together with a relatively low proportion of completion of Grade A commercial floor space, will result in diminished choice for prospective occupiers.

Despite the above, the investment market remains active and strong, particularly as foreign investors continue to look for deals in the City. In 2012 alone, overseas investors paid more than £30 billion for commercial floor space in this area, a figure that represents a 15 per cent increase over last year's numbers. Investment yields average 5 per cent.

Office space in the City of London

GVA property consultants have published a report detailing the latest data on the availability and costs of office space in the City. Although during the first half of 2012 take-up rates were up by almost 9 per cent when compared to the same period last year, the third quarter of 2012 has seen a dip in office floor space take-up rates. These currently stand at 1 million square feet (in other words, 25 per cent lower than during the previous quarter). It is believed that the celebration of the Olympic Games is one of reasons contributing to these subdued rates.

Being the United Kingdom's key centre of financial and business activity, it is not surprising to find that office floor space dominates the commercial property market in the City of London. As it would be expected from a global city, headline rents for office space in London are the highest in the country, and currently reach values of £57.50 per square foot and up, with a lower amount of rent-free periods than in other parts of the country. Rent prices continue to increase and are currently 4.9 per cent higher than in 2011, with the last quarter of 2012 accounting for an increase of 1.5 per cent.

The latest data show that current vacancy rates for office space stand at 7.2 per cent, which means that approximately 6.6 million square feet of office space are still available in the area. Overall, the supply-demand ratio for office space in the City has been lower than forecasted at the beginning of the year.

When it comes to future predictions, analysts point at the 7 million square feet of office space that is currently under construction in the City of London, particularly around the areas of Moorgate and Cannon Street. Although some of the new properties have already been pre-let, it is believed that demand will continue to remain strong over the next 10 years. However, researchers affirm that the office property market in central London is likely to experience fierce competition from developments in east and west London and in fringe areas like Farringdon or Westminster.

Retail space in the City of London

Despite the generalised recession, the retail industry in London has remained strong when compared to other regional centres in the UK. However, demand for retail space has experienced a slight decrease over the past year, although vacancy rates for shop units are still among the country's lowest, at minimal rates of 2 per cent.

Retail property occupiers also have to deal with the fact that unlike in other parts of central London, the City of London operates a Monday to Friday working week, which means that both turnover and rental levels are lower. Average rental costs for retail properties in the City are £200 per square foot.

Industrial space in the City of London

The clear dominance of the office and retail markets in the City of London mean that the supply and demand for industrial space in this area are low. Industrial stock is mainly taken up by companies in sectors like printing and office equipment suppliers, although increasingly more, this type of space is being reconverted into grade B office space or residential property.

The few industrial properties available in the area fetch rental prices that are on a par with those of the lowest grade of office space.