Office spaces in London could be expensive to rent next year due to a supply crunch, J.P. Morgan analysts said on Wednesday, as developers are being restricted from creating new spaces and leases have begun to shorten.

Analyst Tim Leckie expects active demand for prime office space to grow 38% in 2030, but said supply would become tight from 2023, with increasing barriers on developing new spaces.

"By 2025 demand for London prime space could be 1.8x that available, and prime vacancy will be close to zero, putting upward pressure on prime rent," he added, with the brokerage forecasting rentals increasing 10% per year.

British commercial property developers returned to profit in 2021, buoyed by strong leasing momentum, after rentals fell during the pandemic and people now return to the key office hub of London.

Leckie said as companies face investor and government pressure to meet net zero targets, tenants will prefer to reuse existing spaces, causing a supply glut.

The brokerage on Wednesday upgraded Great Portland Estates and Derwent London to "overweight" from "neutral", and also raised its rental growth expectations for the companies.

Shares of Derwent London were among the top percentage gainers on the UK mid cap index, they rose 2.24% to 3190p, while Great Portland gained 1.28% at 712p.

The brokerage said it sees limited benefit for Land Securities and cut the rating on the stock to "neutral" from "overweight".

 

 

(Reporting by Aniruddha Ghosh in Bengaluru; Editing by Amy Caren Daniel)