Office rents to rise - commercial mortgages

31 January 2007

Office rents are expected to rise due to significant growth within the financial sector, while rental growth in retail properties is forecast to fall, according to one expert.

Investors, such as those with commercial mortgages, are likely to see rental growth in retail property decrease from two per cent this year to 1.8 per cent in 2008, City Wire quotes Elliot Caldwell of ING Real Estate Investment Management as saying.

By contrast, office properties are expected to offer stronger returns, with ING predicting that rents in central London offices will grow from 10.7 per cent in 2007, to 12.6 per cent next year

Rental growth for south-east offices is also expected to double over the next year.

"We expect the high street and shopping centre markets to underperform," Mr Caldwell said.

"Stronger returns are expected to be seen in the Open A1 retail warehouse sector where supply is more constrained."

Quentin Fitzsimmons, head of government bonds at Threadneedle Investments, recently suggested that higher interest rates are less likely to have a "major impact" upon commercial property returns than in the residential sector.