LONDON (Reuters) - A lack of top-quality offices in London’s financial district was keeping incentives for companies to rent them in check, despite the poor economic backdrop, the chief executive of Britain’s largest listed property company Land Securities said.
The shortage meant an average 12-month rent-free period on a five-year lease - a typical incentive used to attract new tenants - was unlikely to increase, Rob Noel said after a trading update on Wednesday.
“Modern efficient space is evaporating,” said Noel, describing the London market for top quality office space as “supply-constrained”.
Incentives like rent-free periods or paying for an office fit-out become more generous depending on the strength of the lettings market.
Land Securities is developing the skyscraper known as the Walkie Talkie with Canary Wharf Group in the heart of London’s insurance district, a sector doing relatively well despite the wider economic crisis due to its counter-cyclical nature.
A 20-year deal with insurer Markel for the 26th and 27th floors of the building at a rent of 65 pounds ($100) per square foot included a rent-free period of 32 months. Noel said there were no extra incentives despite recent media reports that other sweeteners may have been included.
Land Securities said 19 percent of the office floor space in the tower was already let or going through the legal process in its trading update.
The Walkie Talkie is one of several skyscrapers under construction in central London that have suffered from a muted lettings market following of the global financial crisis.
The Shard, the European Union’s tallest skyscraper, opened earlier this month, outside the financial district, though it has yet to announce its first office tenant.
Developers are betting that a wave of lease breaks and expiries over the next few years will prompt tenants to move into high-quality new offices.
Editing by Erica Billingham