Riskiest London offices lure investors as rents soar

Central London office buildings considered riskier bets are commanding higher prices as a shortage of properties available to lease sends rents soaring.

Office buildings where leases are close to expiring rose 19.6 per cent in value in the year to June, compared with a 14.9 per cent gain for the longest-leased workspaces, according to data compiled by Investment Property Databank.

Rents jumped 10.4 per cent for properties with the shortest leases, compared with a 6.5 per cent increase for properties being occupied the longest, the research firm said.

Buying properties with leases nearing their end is risky because tenants can move out, leaving the landlord without income.

Yet, the amount of central London workspace for rent was at its lowest in seven years, Deloitte Real Estate said in May, reducing the risk of vacancy even as rents rose.

Investors including Blackstone Group, the world's biggest buyout firm, and London developer Workspace Group have been buying short-lease buildings to take advantage of the trend.

The gains for short-leased office space showed that "growing occupier demand for space in London is encouraging investors to look for assets that they can actively manage to generate higher income returns upon tenant expiry", said Phil Tily, a managing director at IPD.