Occupier demand in the Square Mile for the first quarter of 2010 reached its highest level in a decade, according to statistics released this month by property consultant CB Richard Ellis. Just over 2m square feet of office space was leased in the first three months of this year, the second highest recorded total since 1984.
The bullish mood is reflected in the City investment market, with Tower 42 placed on the market with a £300m price tag last week. But the recent dearth of development finance means very few office schemes have broken ground in the last 18 months, with high profile City towers from and put on hold. Now, agents predict a spike in City rents in 2011-2012, when the space shortage is expected to be the most acute.
"Some City occupiers have to move, and others quite sensibly think its a good time to be doing a deal," says Tony McCurley, co-founder of City property specialists GM Real Estate. "We haven't seen a major deal over £50 per square foot in the City yet, but we will."
Rising rents and property values mean that new development is once again viable - but securing bank finance to start building is another matter. Banks will only lend up to 60 per cent of a project's value, meaning developers need deep pockets, or wealthy partners. In either case, pre-letting deals will invariably be required.
Land Securities is now searching for a joint-venture partner on its "Walkie Talkie" tower, which it hopes to complete in 2014. A fortnight ago, Great Portland signed a JV with Canadian giant Brookfield Properties to develop a 40-storey City office building. And has been linked to several potential development deals in the Square Mile.
Mr McCurley thinks the banks reluctance to lend is good news; "We shouldn't have the same problems of over-development as everyone rushes back in," he adds.
