London's office market is set for headline rents to rise in its City location this year to £56 per sq ft, and in the West End in 2011 to as much as £98 per sq ft compared to 2009 levels of £47.50 per sq ft and £88 per sq ft respectively.

These increases, according to international real estate advisor Savills, are due to a decline in availability of new stock as the market moves into a period of record low levels of development completions which will support the investment market in 2010. The research was presented 19 January 2010 at the firm's annual client presentation in conjunction with corporate broker Oriel Securities in the City of London.

Savills suggests that amidst shortages of new prime stock in the City and West End markets, a flight to refurbishment will be followed by a development bulge. The research finds that development completions will hit lows of circa 500,000 sq ft in the City of London in 2012 and in the West End in 2011, compared to average annual completions of 3.2m sq ft and 1.8m sq ft respectively. Vacancy rates have already declined across the entire City market from 15.6% to 14.2% following circa 4.5 million sq ft in take up during 2009 and will continue to fall through 2010. London's West End vacancy remains characteristically low at 6.7% at the end of December 2009.

Peter Thursfield, Director of Savills City Agency, says: "We anticipate a firm recovery in the City market this year closely followed by the West End in 2011. Headline rental growth will occur in both markets driven by shortages in new stock but we do not expect a boom in take up as uncertainties in taxation, regulation and public spending will continue to hang over the wider economy at least until post budgets and election."

Tracy Collins, Head of West End Agency, adds: "As supply lessens, the good news for landlords is there will be demand for good quality refurbished stock, whilst tenants who wish to get a good deal will need to act quickly as the window of opportunity is closing."

In the investment arena there has been at least a 100 bp hardening of prime yields was recorded across both City and West End markets in 2009, following a significant increase in investment volumes during H209. With UK institutions returning to buy in these markets this will offset any potential reduced interest from international buyers and so Savills predicts there will not be a double dip in yields in the office market in 2010.

Mat Oakley, Head of Savills Commercial Research, says: "The recovery in leasing markets is good news for the investment market and will provide stability to prevent a double dip this year. We expect to see an increase in tactical selling from vendors encouraged by price rises, meanwhile investors will become less biased towards security as occupational markets pick up and this will broaden their acquisition criteria."