Recovery hopes Research suggests better times lie ahead for the West End in 2012-13 – with Victoria and Hammersmith leading the way. By Stacey Meadwell
“The bigger they are, the harder they fall” is the saying, but it is how quickly they get back up again that is the key question. Record prices in theWest End’s property market hitthe headlines during the boom times. Now,it isthe dramatic falls in rents and capital values that are doing the same thing.
Non-Londoners could be forgiven for seeing the West Endas onehomogenous market.In fact,it is a series ofvillageswherefalls in annualised total returns since 2007-08 havevaried from as little as 1.3% to as much as 11.7%.
Research by Jones Lang LaSalle, exclusive to EG, has identifiedthe best- and worst-performing of the West End’s villages over the past eight years (see map), and predictsfuture changes.
It will come as no surprise that Mayfair and St James’swere the best performersin terms oftotal returns during the boom times, fractionallyahead ofFitzrovia and Noho. But the villages that are the strongest performers during the downturn are Hammersmith and Victoria.
Bill Page, head of UK offices research at JLL,says: “Victoria is an example of a West End market that outperforms in both scenarios, but its outperformance in ‘bust’ markets is far more significant than in a boom.”
That is not to say that Victoria is bulletproof. “There is no ‘recession-proof’ market”, says Page,”just markets that are less affected. Some have fallen by 1.3%, some by 11.7%, which is a tremendous spread for a market that some see as a whole.”
It is probably safe to say that Victoria is never going to see the eye-wateringly high rents and returns seen in neighbouring Mayfair. But does its consistently good performance put it in a relatively strong position for recovery?
Page believes so – at least toa certain extent. He says that forecasts for performance over this year and next show that the more stable markets, such as Victoria, Marylebone and Euston, are “likely to be the outperformers”.
Lack of supply
The reason for his confidence is a lack of supply. In Victoria, The Peak on Wilton Road is the only building that is scheduled for completion this year, and there isnothing else in the pipeline. And British Land’s Regent’s Place development on Euston Road is the first schemeof its kind in the area for some years,andcould therefore set benchmarks forrentals inthe area.
Page says that, on paper, some areas may look as if they are at risk of an oversupply of space, but in reality their position could change depending on their expected performance in the future.
Victoria is Cushman & Wakefield partner Andy Tyler’s first choice for starting a development. He explains: “Looking at the dynamics and supply in Victoria, and given it’s going to take two years from today to get a scheme out the ground, there wouldn’t be any competition.”
His second choice is the area north of Oxford Street,which has boomed in recent years, arguably on the back of tight markets in Mayfair and St James’s. Again, the reasonis the area’s limited supply, and the fact that it appeals to both professional and media companies.
But not all agree. Stephen Peers, head of West End agency at Drivers Jonas, questions whether Victoria’s prospects might be in danger from the fall-out from a change in government, since it has a large number of public sector occupiers that are going to come under increasing pressure to reduce costs. However, he agrees that north of Oxford Street could pull out of recession more easily than other locations, and attributes this, in part, to less volatile rents.
He cites as an examplea recent a deal completed at Lynton House in Tavistock Square at £42 per sq ft.It compares with previous deals in the building during the boom that achieved £47.50 per sq ft. Peers argues that, as the market recovers, occupiers will find an increase in rents from £42 per sq ft to £47.50 per sq ft far more palatable than some of the hikes that are likely to occur in the Mayfair market.
So where does that leave Mayfair? Its boom-time performance was driven by niche financial services firms- a market that is unlikely to recover in the short term. Peers says it has lost the diversity of occupiers it once had, but will always have an appeal.
“Mayfair and St James’s will be popular again, assuming we have a financial recovery,” he says. “Once occupiers are there, they don’t want to leave because of the location and the lifestyle that comeswith it.”
Page points out that, historically, Mayfair has recovered quickly.”Mayfair has good investor demand. Yes, there is a question mark over who the next takers of space will be. There have been some niche financial companies taking up space, but they are unlikely to ramp up rents over £100 per sq ft just yet.”
There is also a question mark over supply in the area. Cushman & Wakefield’s figures show that 550,990 sq ft of space is under construction, which Tyler says could act as a “drag on the market recovering”.
JLL’s longer term predictions for market performance recovery, in 2012-13, centreon the core West End villages, presumably by which time the overhang of space in Mayfair will have been let, and the lag in development caused by today’s funding difficulties will, no doubt, be starting to cause supply shortages.
So it looks like Victoria and Noho will be the first onto their knees. But keep an eye on Mayfair which, after lying dormant, may just come up from behind.
