EG LONDON WEST END OFFICESLONDON


per sq ft, asking rents on schemes such as Land Securities’ Selborne House are some £15 to £20 more than occupiers are paying for new space in other peripheral areas. Liell Francklin of Savills says the large


floorplates of the new schemes are also a problem. “Demand for the West End is mostly for 5,000 to 10,000 sq ft. Historically, the majority of tenants for these large spaces were from the


WEST END ACTIVE IDENTIFIED DEMAND (SQ FT) Q1 2013


TMT


Banking & Finance Consumer & Leisure


Manufacturing, Industrial & Energy


Professional


Business services Insurance


Public sector TOTAL


Source: Strutt & Parker LLP THE WEST END OCCUPIER ON THE MOVE


The former Mayfair set is becoming increasingly relaxed about the address on its letterheads, but the locale and quality of space must be impeccable. “There’s a new flexibility in office


geography,” says Cluttons’ Sue Foxley. “Occupiers are not being held to ransom and are willing to look outside the core areas. It is about location, rather than the right address now.” One result is that hedge funds, for which a Mayfair address was once de rigueur, are moving out. Mayfair’s share of London’s hedge fund offices has fallen to less than 50% from 70% five years ago, according to Cushman & Wakefield. The latest departures include Jupiter Asset Management, which is rumoured to be quitting its Grosvenor Crescent office for space at 1 Howick Place in Victoria. West End occupiers are prepared to


look as far afield as the South Bank and City fringes, but Soho and Noho are the most favoured locations, says Foxley. Wainbridge’s Rob Rackind says his


own firm had been seeking 2,500 sq ft of space in Mayfair but, having been asked for “stupid rents”, is now on the verge of moving to Soho. “We thought, ‘let’s drop our expectations and get more space for less money’,” he says. Soho and Noho offer “something a bit


more fun, a bit more youthful, less stodgy”, than Mayfair, along with more modern office space, according to Tony Parrack of Edward Charles & Partners. He says Mayfair landlords are partly


to blame for the loss of their traditional occupiers: “They think all they have to do is put in a metal plank ceiling, a certain level of air conditioning and get someone to do a new entrance. The hedge fund guy has balls of brass. He gets into his 1960s classic Ferrari to drive to his home full of modern art. He doesn’t want these featureless places, and landlords don’t understand that.”


1,029,000 490,000 441,000


245,000 220,500


9,800


12,250 9,065


2,456,615


financial sector and that’s a sector that hasn’t come back yet,” he says. (See small deals feature, page 16) Areas such as Euston and Victoria just


don’t attract the media sector, which is the biggest taker of West End space at present, adds Francklin. “I wouldn’t say that Victoria won’t come good, but it doesn’t have the villagey feel that other sub-markets have. And it doesn’t help that the area around Victoria [station] is a bit off-putting at the moment with construction work going on.” Meanwhile, activity in the core West


End is stifled by the lack of supply (see box), which makes tenants more likely to renew leases than move, says Francklin.


THE £100-PLUS CLUB AND A THREAT TO SPACE FROM RESIDENTIAL


The world may be struggling out of deep recession, but there remains a core of businesses that are happy to pay more than £100 per sq ft for a Mayfair address (see Deals table below). Traditionally, demand comes from the


hedge fund and investment community, for which rental levels are not a major cost consideration, but increasingly, companies dealing in oil and other natural resources are moving in. A lack of suitable stock seems to have pushed rent levels skywards and there is restricted scope for new development. Availability in the West End as a whole is down to 5.5% from 7.4% two years ago. The problem is a combination of listed buildings in the core and Westminster council’s mixed-use development policy whereby any office scheme development must deliver the equivalent amount of residential space. Council policy also supports the


conversion of any office building to housing in the Central Activities Zone centred on Mayfair and St James. Jonathan Manns of Colliers


International says: “Westminster city council doesn’t consider it necessary to provide a specific policy to protect offices.” Residential values exceed office values by such a degree that there is


THE DEALS Who?


Sapinda UK Angelo, Gordon & Co


little incentive to develop commercial space. Jones Lang LaSalle puts residential land capital values at up to £3,500 per sq ft in the core West End, compared with £2,000 per sq ft for office sites. “Developers will put up residential


space rather than offices all day long if they can. But it is much more controlled than you think. It isn’t straightforward to get consent for residential development,” says Rob Rackind of Wainbridge, the private investment, development and asset management firm. Sue Foxley of Cluttons agrees. She says 58% of planning applications for office to residential conversions in London over the past five years have been refused, withdrawn or remain stuck in the planning process. This may change if the government’s


proposal to relax development rights to permit conversion of commercial space to residential without planning permission is imposed on London. London mayor Boris Johnson is


seeking an opt-out from the new development rights for the London boroughs, and the Department for Communities and Local Government is considering the request; however, it will not say when a decision is due.


Where?


23 Savile Row, W1 23 Savile Row, W1


Viking Global Investors 23 Savile Row, W1 Angola LNG


Lone Pine Capital Highbridge


Source: Estates Gazette 8 June 2013 www.estatesgazette.com 11 5 Hanover Square, W1


How Much?


c£110 per sq ft – 8,869 sq ft £105 per sq ft – 5,784 sq ft £107 per sq ft – 4,323 sq ft £105 per sq ft – 7,614 sq ft


3 Burlington Gardens, W1 £100 per sq ft – 3,100 sq ft Devonshire House, W1


£105 per sq ft (tbc)


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