A new West End office prelet market is emerging after beauty giant The Estée Lauder Companies signed one of the biggest deals in W1 history.
The company, which owns brands including Estée Lauder and Clinique, this week completed a deal to let the whole of 1 Fitzroy Place, W1, comprising 144,000 sq ft of offices and 8,500 sq ft of shop space.
Due to reach practical completion in August, the building is part of Exemplar’s, Aviva Investors’, and Kaupthing’s £750m mixed-use Fitzroy Place scheme.
Estée Lauder will consolidate several smaller offices around London when it moves next year.
Exemplar said it was the biggest prelet in core West End and was one of just three prelets totalling more than 100,000 sq ft in the wider West End secured over the past 10 years. Only 13 deals of more than 100,000 sq ft have been secured since 2004.
Daniel Van Gelder, Exemplar director, added: “We had not expected to prelet one of the office buildings at Fitzroy Place before practical completion. The West End has not typically been a prelet dominated market.”
Neil McLeod, head of central London at Aviva, said the consortium’s 80,000 sq ft 2 Fitzroy Place, W1, was also attracting significant prelet interest.
The new trend comes after 4m sq ft of offices was converted for residential-led use between 2001 and 2009 in the West End, leaving occupiers with lease expiries and expansion plans fewer options than in previous cycles.
McLeod added: “Occupiers can no longer afford to wait until the last minute for a building.” He said it would be difficult for more new speculative office developments to get off the ground owing to competition for land from house builders, which will push up existing rents further.
Tenants seeking space include Dong Energy and Urban Outfitters for 85,000 sq ft and 100,000 sq ft respectively.
According to Deloitte Real Estate, demand will outstrip supply by almost 50% in the West End over the next three years (17 May, p33).
Speculative schemes under way that will capitalise on the prelet trend include Great Portland Estates’ 217,000 sq ft of offices at Rathbone Place, W1.
The Fitzroy Place deal comes nearly four years after the three-acre former Middlesex Hospital site was sold to the consortium.
It was previously earmarked for a residential-led development by brothers Nick and Christian Candy before the financial crash.
CBRE and JLL advised the landlord on the letting; Knight Frank acted for the tenant.
joanna.bourke@estatesgazette.com
Now, for the first time, the West End is experiencing a similar market and tenants are battling it out to secure HQ space before it is completed.
Traditionally this has not been the case, but with countless buildings being converted for residential use, such as the iconic Centre Point, WC1, the West End skyline is fast losing its office landmarks.
As The Estée Lauder Companies deal demonstrates, a number of firms are looking to secure bigger floorplates and consolidate into a single building as a method of ensuring a base in central London. The idea is to attract top staff and safeguard themselves from further expected rental hikes in the capital.
Recent prelets nearby include Ares Management taking 30,000 sq ft at Exemplar’s and The Crown Estate’s 10 New Burlington Street, W1, paying more than £100 per sq ft.
Based on Strutt & Parker’s calculation that there is 5.2m sq ft of office demand but just a little over 3m sq ft of supply available, it seems sensible to assume that this new West End phenomenon could be more than a passing fad.
Occupier view: Chris Good, president, The Estée Lauder Companies, UK and Ireland
We have been on Grosvenor Street for more than 40 years and, owing to growth, have ended up in a number of other offices across London, including in Holborn and Islington. Given that we planned to consolidate, we followed up the enquiry early – it is not as if there was an abundance of supply.
Geographically and commercially, we felt the space was perfect. I think the area has a great buzz. It’s a great neighbourhood. And it is great that all the brands, plus a training facility for London and the South East, will now be under one roof.
The UK and Ireland market has been a hallmark of strong performance for The Estée Lauder Companies. This prestigious new headquarters will provide the perfect base for the next step in our evolution. The new office will improve productivity and provide an inspiring, collaborative, and agile space.
My advice to occupiers is to start early and do your homework. I have learned an enormous amount about real estate throughout this process.
