Operating & Financial Review

Offices

London is a financial centre of global importance with competitive advantages including its highly skilled and flexible labour force, ideally located time zone, stable political, economic and legal system and a workable regulatory environment.

The Central London office occupier market has been through a testing few years with tenant demand subdued and rental values declining. During the last 12 months tenant demand has picked up and is now running at a level around the average for the last 10 years. Occupiers are seeking well designed and high quality space. British Land design and development standards have met these requirements and our developments have let well. Overall in the year we have agreed lettings of 63,000 sq m (680,000 sq ft) of City office developments.

Projected City rents:	Range £psf	Agents’ consensus Average increase	BL City rent reviews % of rent roll
2005	45.00-48.00	+1.9%	14
2006	47.50-50.40	+5.1%	19
2007	52.50-55.40	+9.3%	14
2008	57.00-59.00	+8.3%	23
2009	59.75-63.00	+5.1%	28

As the City office market is now considered to be in the early stages of recovery with demand for space at trend levels, the take up of space is expected to increase. Due to reduced availability of required accommodation as a result of new speculative developments all but ceasing in 2003, rising rental values can be expected from 2006. Agents’ forecasts show an average increase in headline City office rents in the range of 5-9% per annum over the next three/four years. We are aware of early indications of new development starts increasing, but any potential increased supply will only arise in the longer term cycle.

City office headline and effective rents - forecast to rise

City employment set to rise

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