Observers of central London office rents could be forgiven for thinking little changed in the third quarter, with headline grade-A rents broadly unchanged over the three months to 30 September. But scratch beneath the surface and it is a different story.

Research by Carter Jonas reveals that grade-A office net effective rents – income with incentives priced in – are rising due to a fall in rent-free periods. Central London grade A net effective rents have increased by 2.4% for a 10-year lease, and 3% for a five-year lease.

As a result, net effective rents are now only 3.7% below their pre-pandemic level, assuming a 10-year lease, and 5.3% below on a five-year lease.

This was most pronounced in the West End and Midtown markets, where net effective rents assuming a 10- and five-year lease increased by nearly 4.5% over the quarter to £72.70 per sq ft and £63.50 per sq ft respectively.

Carter Jonas partner Michael Pain said rent-free clauses were reducing in the West End and Midtown markets in particular because of a combination of increased tenant demand and reduced office supply.

“Tenant demand is being driven by the desire to downsize their office footprint, to improve the quality of the work environment to get people back in the office, and to improve the environmental credentials of their real estate,” he said.

The changing supply and demand dynamics had, in turn, led to a “gradual shift in bargaining positions towards landlords”. He added: “Landlords are asking: ‘Why should we be giving as much rent-free as we were six or even 12 months ago?’”

Meanwhile, in the City, net effective rents grew by a more modest 2.25% to £64 per sq ft, while in the Docklands there was a 2% gain to £34.25 per sq ft. This reflected the fact that office supply is higher in those submarkets, Pain added.