Average Grade A rents in London’s City Fringe market have increased by 87 per cent in the last six years meaning the best new buildings now trade at a discount of only 3.5 per cent on the same quality of building in the prime City Core market. We say this is a saving of approximately £1 per sq ft.
The City Fringe was once the ‘cheap’ office location of Central London, but today it has matured into a leading global tech address. With new office developments such as Derwent’s White Collar Factory and Helical Bar/Crosstree’s Bower Development, key deals with Adobe, BGL Group, Stripe Limited and CBS Interactive saw average Grade A rents in the first quarter of 2016 reach £59.42 per sq ft (£640 per sq m). This compares with £61.60 per sq ft for non-tower Grade A office buildings in the City Core (£663 per sq m).
The City Fringe’s success has grown in tandem with that of the tech sector and landlords who have adapted buildings to suit the new generation of occupiers have seen the best rents. We forecast that the ‘right’ buildings will continue to benefit from the area’s continued popularity. Why? Because this rental growth is not unique to London. Our 12 Cities report shows tech, creative and digital office rents in Hong Kong and San Francisco rose by 52 per cent and 48 per cent respectively between December 2008 and December 2015, while worldwide rents increased on average by 12.8 per cent. 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.
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 occupiers driven by a desire for cheaper office space, once the product of the City Fringe, will look to new neighbourhoods creating 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.