August 2008 Archives

With ever more pressure being placed on landlords to fill their properties, and the floundering current economy resulting in low demand for space, we are beginning to see many incentives being offered to prospective tenants. One of the common incentives being seen at this time is the offering of rent free periods.

With several proposed properties in the City being put on hold recently, would it not be wise for more landlords to start marketing their proposed floor plates with rent free periods to cover the lag time between lease start dates and actual physical occupation? After all, surely a committed tenant would help increase the prospects of secured funding to get some of these builds underway?

After the hint of a stamp duty holiday brought the residential market to a standstill, fears that the commercial market could suffer the same fate are beginning to materialise. The Treasury has refused to discuss the details of the chancellor's next budget, but despite this, the possibility of commercial land tax relief being offered could not be ruled out.

It is true that capital land values would have to fall significantly further for this to happen, but with demand in areas such as the City remaining low and several tenants putting their requirements on hold, the possibility must not be overlooked.

A new skyscraper dubbed the 'can of ham' because of its distinctive shape is set to to be built in the City. An application has been submitted by developer Targetfollow for the unusually shaped proposed property at 60-70 St Mary Axe, EC3, and would house a groundscaper office scheme. The plans have been carefully adjusted, after the initial desire to build a 40 storey high tower block was scrapped due to concerns surrounding restricted lines of sight in London and protection of historic landmarks.

Morgan Stanley recently stated that the forthcoming rating revaluation, set to be introduced in 2010, is likely to prompt many tenants to make a move from the West End to the City market. Tenants are appearing to be ever more interested in the total cost of occupying space as opposed to the headline rents being released for an area.

Recent research from Jones Lang LaSalle has predicted that rates in Mayfair, W1, could increase by 127% - from £22 per sq ft to £50 per sq ft - by 2015. In contrast the City of London is estimated to increase 56%, rising from £16 per sq ft to £25 per sq ft over the same period of time.

These figures would suggest that the lure of the West End niche markets may no longer be strong enough to temp potential occupiers, and a rise in incentives being offered by landlords may have to occur in order to swing those considering alternative locations.

This said, we must understand that Mayfair and St James's Square are not typical representatives of the West End market as a whole and that those wishing to take occupancy in these prestigious locations are likely to still want to do so despite any rising costs.

The newly introduced requirement to pay full rates on empty commercial properties, which came into force in April 2008, is already beginning to show negative effects. In some cases property landlords and developers are even resorting to demolishing any empty buildings to avoid the extra costs they would otherwise face under the new ruling.

Vacant office units now become liable to such charges after a period of three months and the newly introduced costs are apparently designed to encourage landlords to refurbish vacant properties where necessary in order to secure a letting, or to boost the supply of good quality stock on the market.

Despite this, the new policy has actually started to have the opposite result and the ruling has become subject to criticism from the commercial property industry, which is concerned that it may actually discourage speculative development and result in an increasing number of demolished sites across London.