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South East England office market sees rents plummet

The annual M25 office market survey from Knight Frank said it expects rental values to fall by a further 11.1% this year and another 7.5% next year, with no recovery until 2012.

The steepest decline was in Uxbridge where rents fell by 35%, followed by Maidenhead and Slough, both down by 30% and Hammersmith, Reading and Watford recording declines of around 10%.

The severity of the decline suggests that the M25 market has seen the brunt of the decrease in rental values in the region and the trend is expected to continue, the reports point out. Further falls of 9% are predicted for the M25 area.

The towns with the most supply, such as Hammersmith, Bracknell and Reading, may see the most activity and it will be those offering the most competitive packages that will recover first.

'I believe occupiers aggressive negotiating stance in this downturn will mean they are attracted to those towns and buildings which offer the most competitive rental and concessionary packages. It will be the oversupplied towns which will see most deal activity because more competition will sharpen terms,' said Emma Goodford, head of south east offices at Knight Frank.

The report also found that most interest is coming from UK property companies, funds and private investors rather than from overseas real estate investors. In particular they are for safe investments with long income, sound covenants and good locations.

According to Jeremy Waters, an investment partner at Knight Frank the best opportunity lies with multi-let prime buildings. 'This type of product is now priced correctly and, although requiring more detailed analysis will provide the most potential,' he said.

And although the M25 investment market has seen an increase in activity, with 17 key deals worth more than £155 million completed since the start of 2009 and £110 million of deals under offer a sudden recovery is not expected.

'The worst of the pricing impact is behind us, particularly for more prime stock, and the investment market is slowly making its way towards recovery. However, occupationally we've really only just started. We are less than a year into this downturn. In the 90s, rental values took six years to recover. Although I'm more optimistic for this cycle, I do expect it to take another three years for rental values to recover,' concluded Claire Higgins, head of commercial research at Knight Frank.