Strong demand coupled with tightly regulated supply is ensuring that rents continue to rise at the top addresses in London. Nick Mathiason reports
These days, nightingales are not the only creatures singing in Berkeley Square. Agents, too, are in good voice, because the past 12 months have seen office lettings on a scale not seen for a decade.
Charles Okin of Edward Charles strikes a typically triumphant note, saying: “I’m not a bullish individual and I’m all for healthy scepticism, but the past 12 months have seen the best run of deals in Mayfair for years.”
Jones Lang Wootton associate Andrew Barnes agrees: “This has been the best year since 1989 for take-up, and demand is still high. We’re optimistic that this will continue, albeit at a slower pace, for at least two years.”
Demand appears to be strong. Earlier this month, US law firm Vincent Elkins showed interest in a floor of 1,115m2 (12,000 sq ft) at General Accident’s Queensberry House, Old Burlington Street, at around £571 per m2 (£53 per sq ft). And last March, Jones Lang Wootton let one floor to recruitment consultancy GKR, which paid close to the quoting price of £581 per m2 (£54 per sq ft).
Royal Sun Alliance is now due tocomplete on its assignment of BT’s lease on 4,645m2 (50,000 sq ft) at 30 Berkeley Square. At Development Securities’ One Curzon Street, SBC Dillon Reed is believed to be interested in 5,574m2 (60,000 sq ft), where it is expected to pay around £560 per m2 (£52 per sq ft).
In Mayfair alone, 1998 witnessedtake-up of more than 27,870m2 (300,000 sq ft). Among this year’s high-profilelettings, Gap took 2,415m2 (25,998 sq ft) at 17 Bruton Street, and law firm Doughty Hanson paid the highest Pall Mall rent for seven years – £571 per m2 (£53 per sq ft) – for 1,858m2 (20,000 sq ft) at City & West End’s Times Place.
Meanwhile, serviced office providers HQ and Regus leased more than 9,290m2 (100,000 sq ft) in the core in the past 12 months. HQ took 4,000m2 (43,057 sq ft) at 33 St James’s Square and 943m2 (10,151 sq ft) at 23 Berkeley Square.
| MAYFAIR & ST JAMES’S (m2) | |||
|---|---|---|---|
| Secondhand | Completed dev | Early marketed | |
| Q1 1997 | 125,389 | 22,233 | 4,722 |
| Q2 1997 | 104,450 | 19,972 | 4,722 |
| Q3 1997 | 107,432 | 23,762 | 7,518 |
| Q4 1997 | 92,120 | 20,540 | 32,264 |
| Q1 1998 | 74,468 | 27,107 | 21,596 |
| Source: Richard Ellis | |||
Regus took 3,405m2 (36,652 sq ft) at Berkeley Square House – paying £484 per m2 (£45 per sq ft) on a 15-year lease, with one year rent free – and 1,463m2 (15,750 sq ft) at 10 Stratton Street.
Serviced office centres in the core now account for more than 9,290m2 (100,000 sq ft), and this is set to grow, according to Regus director James Hale.
“The philosophy for taking Berkeley Square was to get a premier Mayfair address,” he says. “Our experience in Stratton Street, which we let to 25 tenants last year, proved there was a latent demand, predominantly from the telecommunications market, IT, property companies and banks. We are now looking for six more sites in central London.”
Agents agree that accelerated take-up has been driven by increased demand from the financial services industry at the expense of traditional blue-chip names.
Nick Ridley of Healey & Bakerattributes this to multi-nationals balking at core rents now well over the £538 per m2 (£50 per sq ft) mark. Such premium rents in prestigious addresses, he explains, often incur shareholders’ anger.
Ridley adds: “There aren’t as many corporate enquiries as last year. The financial services sector is very strong and their proliferation is because overseas financial houses see the UK as a stable economy.”
Agents are confident that a “virtuous cycle” of strong demand pegged totightly regulated supply has beenestablished in Mayfair and St James’s.
Supply is virtually non-existent in Knightsbridge, Soho and north of Oxford Street. But the development cycle in the core appears to be delivering prestigious buildings with clockwork regularity, and without threatening to flood the market.
Chris Burrows of Hodnett Martin Smith identifies St James’s as the real centre of development activity. “The way the development cycle is working leads me to think that, in 12 months’ time, St James’s will be the star performer,” he says. “This will be the centre of major activity. All the new space is coming on-stream here.”
While core benchmark rents continue to drift towards £646 per m2 (£60 per sq ft), West End agents are enthusiastic for the future. But David Walker of Chesterton says that sterling’s strength is affecting the Mayfair and St James’s market. He says: “The strong pound is having a negative impact on start-up operations in London by foreign currencies.”
This, together with the Asian economic crisis, will cause agents and developers problems in two years’ time. For the time being, however, Mayfair and St James’s is set to take advantage of strong demand and a lack of supply in rival areas.
| MAJOR CORE REQUIREMENTS | |||
|---|---|---|---|
| Company | Size (m2) | Status | Agent |
| JP Morgan | 13,935 | Poised to go active | DTZ DebenhamThorpe |
| SBC Dillon Reed | 5,574-7,432 | Interested in 1 Curzon Street | Knight Frank |
| Citibank | 9,290+ | On hold subject to merger | Knight Frank |
| Ericsson | 6,503-10,219 | Recently gone live | Jones Lang Wootton |
| Monitor | 3,716-4,645 | On-going | Knight Frank |
| Bank of America | 1,858 | On hold subject to merger | Jones Lang Wootton |
| Kerr McGee | 5,574 | In Clarges House but expansive | Saxon Law |
| Orange | 9,290 | Wants to acquire building | King Sturge |
| Vincent Elkins | 1,115 | Interested in Queensberry House | Gooch Webster |
| Source: Estates Gazette interactive | |||
| MAYFAIR AND ST JAMES’S OFFICE DEVELOPMENTS | |||
|---|---|---|---|
|
There have been five new construction starts in the area over the first three months of 1998 totalling 11,500m2 (125,000 sq ft). Almost half of this is accounted for by Grosvenor Estate’s 70-72 Grosvenor Street which totals just under 5,800m2 (62,300 sq ft) |
|||
| Address | Developer | Size (m2) | Comments |
| Completed | |||
| Mayfair, W1 | |||
| 1 55 Grosvenor Street, W1 | Capital &City | 2,323 | New build |
| 2 Queensberry House, Old Burlington Street, W1 |
Capital & City/ General Accident |
6,224 | New build |
| Under construction | |||
| Mayfair, W1 | |||
| 3 1-4 Curzon Street, W1 | Development Securities | 18,913 | New build. Completion summer 1998 |
| 4 Brook House 113 Park Lane, W1 |
Brook House Developments |
1,252 | New build. Completion imminent |
| 5 Washington House, 40-41 Conduit Street, W1 |
Hufvudstaden | 2,044 | New build. Completion summer 1998 |
| St James’s, W1 | |||
| 6 57-59 St James’s Street, SW1 | Friends Provident | 7,254 | Redevelopment. Completion spring 1999 |
| 7 1-2 St James’s Square, SW1 | NatWest Bank | 9,755 | New build. Completion autumn 1998 |
| 8 20-24 Carlton House Terrace, SW1 |
P&O | 7,688 | Refurbishment and extension. Completion autumn 1998 |
| New construction starts | |||
| Mayfair, W1 | |||
| 9 6-10 Bolton Street, W1 | Sir Richard Sutton Settled Estates/Greycoat | 1,858 | New build.Completion summer 1999 |
| 10 13-14 Curzon Street and 23 Queen Street, W1 | Bridehall/ London & Manchester |
1,626 | Refurbishment. Prelet to Banque Francais de l’Orient |
| 11 70-72 Grosvenor Street, W1 | Grosvenor Estate | 5,788 | New build. Completion spring/summer 1999 |
| 12 78 Brook Street, W1 | Elan Properties | 1,174 | New build. Ready early 1999 |
| St James’s, W1 | |||
| 13 30 St James’s Square, SW1 | BAA/Lynton | 1,115 | Refurbishment. Completion imminent |
| SOURCE: DRIVERS JONAS CRANE SURVEY | |||
