The strong performance of the leasing market for both the City and the West End, combined with the low levels of available supply and constrained pipeline have resulted in strong rental growth forecasts across the whole of central London for the next five years. For clarity, our average prime rents are calculated using actual transactional evidence and are the average of the top 10% of the known rents within the time period.

Furthermore, these forecasts are all assuming that we are able to successfully transition out of the EU by the end of 2020 on favourable terms that still allow us access to the European financial markets. If this transition period takes significantly longer than anticipated or we fail to agree access to the financial markets through the method of ‘equivalency’ then we can expect to see the rental growth prospects hindered, albeit the quantum is difficult to accurately forecast.

Looking at the West End, the average prime rent for Q4 last year settled at £114.00/sq ft, up on Q4 2018 by 10.3%. Although we are not expecting there to be falls in either grade for the next five years, we are forecasting average annual growth of 2.5% for West End prime rents over the next five years, and 2.0% per annum for average Grade A rents. This will result in the average prime rent reaching £129.25/sq ft and the average Grade A rent reaching £79.00/sq ft by Q4 2024.

In the City, the average prime rent for Q4 last year settled at £78.03/sq ft, up on Q4 2018 by 4.7%. Due to the constrained current level of supply and future pipeline along with the increased likelihood of West End occupiers migrating over to the City, we are forecasting average prime rents in the City to grow by an average of 3.5% per annum for the next five years, 100 bps higher than the West End. We are also forecasting average Grade A rents in the City to grow by 2.9% per annum for the next five years. This will result in the average prime rent for the City reaching £92.50/sq ft and the average Grade A rent reaching £73.75/sq ft by the end of 2024.

We are expecting locations that are currently starved of supply and that will benefit from the arrival of Crossrail, and innovative new buildings to grow at the fastest rate. Hence the West End North (NOX East & West, King's Cross & Euston, and Paddington) is forecasted to grow at the fastest rate of 4.5% per annum for prime rents for the next five years due to the arrival of Crossrail, which will directly benefit this submarket and a number of new schemes planned that could achieve high rents.

We are also expecting the City Core and the City Fringe West to grow at a rate of 3.5% per annum for prime rents for the same reasons but also due to the high levels of demand from the Insurance & Financial sector and the Technology sector for office space in these locations, who typically can afford to pay the higher rents.

_{Read the other articles within Spotlight: Central London Office Outlook  below}