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Recovery in London office rental market well underway but regions still seeing declines, report says

After falling up to 40% in the global financial crisis, prime rents in the City of London financial district could rise by 10% by the end of 2010 while those in the West End are forecast to increase by 7.6%, says the report from property consultants King Sturge.

This would mean rents in the City averaging £47.50 per square foot and in the West End some £70 per square foot. The predicted improvement in rents may ease investor fears that the UK commercial property market's price rebound could be short-lived due to continued tenant weakness.

Recent threats by banks and other financial institutions to shift offices from the UK to other countries with friendlier tax jurisdictions are likely nothing more than ‘sabre-rattling’, according to Mark Bourne, King Sturge's head of London Office Agency.
‘They are just using what they normally do, in terms of planning at the start of each year, to send a message to the government. The real impact on the UK market, I believe, will be negligible,’ Bourne said at a press briefing.

British newspapers reported last month that JPMorgan was mulling scaling back its new offices in London's Canary Wharf, after the US bank’s chief executive officer Jamie Dimon expressed concerns about the new tax on bankers’ bonuses.

While London is poised for recovery, in the rest of the UK, where the peak-to-trough rental fall has been smaller at up to 10%, King Sturge predicts rents will continue falling due to weak demand, although at a slower pace than in 2009.
‘Regional markets relied heavily on local public sector deals to support take-up in the downturn, and may be hit harder as the UK government battles to cut its huge fiscal deficit post-election,’ Bourne said.

Experts have said the poor outlook for the regional markets could further widen a pricing gap between prime commercial properties and lower-grade assets, and this could postpone a general recovery in the sector by five years or more.
‘The secondary market is affected by many issues at the moment. The occupational market is so tough. Not a lot will happen until banks start lending significantly to prospective buyers again,’ said Neville Pritchard, head of UK investments at King Sturge.