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London landlords becoming more generous

Citigroup Inc and other financial services companies with empty London offices are trying to lure tenants with discounts and decor as the amount of vacant space expands to the size of 360 soccer fields.

Rent-free periods for tenants in Europe's biggest financial center have more than doubled to two years, agents said. Landlords competing for tenants in the City and Docklands are offering more benefits such as free furnishings and installation of cables.

"When times are tough, landlords will do a wide variety of things to secure tenants," said Peter Damesick, head of UK research at Insignia Richard Ellis. Central London office vacancies have risen for nine straight quarters, he said.

Citigroup, Lehman Brothers Holdings Inc, Credit Suisse First Boston and rivals leased millions of square feet during the late 1990s and are trying to sublet space after firing workers. That's putting pressure on owners of buildings such as Canary Wharf Group Plc, whose shares fell by a third in the past year.

In the fourth quarter, companies signed leases for 28,000㎡ in the City of London financial district, the lowest quarterly total on record, according to data from Insignia.

Rents peaked at about US$100 for every 0.09㎡ in 2001 in the City. They may drop 10 percent this year and continue falling in 2004, said Andrew Penny, an analyst at J.P. Morgan Chase & Co.

When law firm Allen & Overy chose its new home last year, sweeteners were one reason why it opted for Spitalfields at the edge of the financial district instead of Canary Wharf in the Docklands, said Andrew Clark, a partner at Allen & Overy.

The landlord is waiving initial rents and contributing to the cost of installing cables, floors, and furnishings.

"A lot of people just focus on the rent but the fit-out can be expensive," Clark said. "What matters is the overall cost of the package."

A developer might have handed over a bare office when demand was stronger, leaving tenants to put in ducts and cables for computer systems, according to real-estate agents.

Office space available in the City has quadrupled since 2000 to 850,000M2, or 15 percent of the total, and vacancy rates may reach 16.5 percent this year, Damesick said.

"The market is starved of transactions," said Philip Pearce, head of City office rentals at Savills Plc.

A tenant signing a 15-year lease on a quality building in mid-2001 might have got six months of free rent, analysts said.

In central London, 1.9 million square meters of space is available, the most since 1994. The minimum size of playing field for a top-division soccer stadium is 5,350㎡.

Landlords signing on new tenants now are giving up 40 percent of the first five years in rental income.

"There've been stories of tenants asking for as much as four years in free rent," J.P. Morgan's Penny said.
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