Take-up
West End take-up improved for the second consecutive quarter and by a further 25% to reach 885,000 sq ft in Q4, which took the total for the year to 2.81m sq ft. Nevertheless, it remains below the annual average for this market, which, over the past five years has been 3.2m sq ft.
Of the space taken in Q4, 510,000 sq ft (58%) was secondhand, which is similar to the level recorded in Q3. But there was a substantial increase in take-up of new-build or refurbished space, which was 285,500 sq ft in Q4 – five times the Q3 square footage.
There was 89,000 sq ft let while it was still under construction, including Savills’ prelet of 65,700 sq ft in Marcol House, Regent Street, W1, as its new headquarters, which turned out to be the largest transaction of the quarter. The work should be completed during 2012. Savills has taken a 20-year lease from Great Portland Estates over five floors.
There were three transactions of newly-built space over 50,000 sq ft in Q4, in Paddington Central, Baker Street and AirW1. Nokia took 58,400 sq ft on the ground, fourth and fifth floors of 2 Kingdom Street in Paddington Central, W2; Pimco completed its acquisition of 11 Baker Street, W1, where it took 54,800 sq ft at a reported rent of £62.50 per sq ft; and Telefonica took 51,000 sq ft in AirW1, The Quadrant, close to Piccadilly Circus. In two separate transactions in the same building, Halfords Media took 31,200 sq ft in AirW1 and Generation Investment Management took 21,300 sq ft.
The only secondhand building in the West End to secure a letting of more than 30,000 sq ft was Trafalgar Place in Cockspur Street, SW1, where the Serious Fraud Office took 31,100 sq ft.
In the final quarter of 2011 there were 100 lettings in the West End, up from 88 in Q3. Of these, 83% were less than 10,000 sq ft and they made up 45% of the square footage let. The majority was secondhand space, and secondhand units of less than 10,000 sq ft accounted for 38% of all the space let in Q4 in the West End.
230,000 sq ft was put under offer in Q4, substantially lower than the preceding quarter (380,000 sq ft) and below the annual average of 310,000 sq ft, suggesting that there might be a slowing down in the market, although these figures are heavily skewed by the impact of large units. The largest unit currently under offer in the West End is 10,800 sq ft.
Supply
There is 5.3m sq ft available to let in the West End, of which 885,000 sq ft is still under construction but being actively marketed and 660,000 sq ft is being premarketed before construction begins. That leaves 3.75m sq ft of built stock on the market, most of which (3.2m sq ft) is secondhand, while only 554,000 sq ft has been newly built or refurbished.
Overall, the level of supply has fallen in the past quarter by 13.5%, with most of that reduction in space under construction or being premarketed. The declines in existing space were relatively modest.
Of the new-build or refurbished space that is still available, the largest unit is 97,250 sq ft in 5 Merchant Square in Paddington Basin, W2, which was completed in 2010. There is also 79,900 sq ft available in The Crown Estate’s redevelopment of the former Regent’s Palace Hotel, known as Air W1, and 76,000 sq ft remaining in 2 Kingdom Street in Paddington Central, W2.
Buildings 2 and 3 in Merchant Square are also being premarketed and account for 193,700 sq ft and 165,950 sq ft respectively, and there is 99,250 sq ft being premarketed as Clifton House 101 Euston Road, NW1.
There are four buildings on the market with more than 100,000 sq ft under construction in the West End and these add up to 633,000 sq ft. The largest is Ashdown House in Victoria Street, SW1, which will bring 198,200 sq ft to the market and Park House, W1, which will be 190,200 sq ft.
Availability rate
The availability rate dropped further in Q4, from 6.2% to 5.9%, compared with 8.3% at the end of 2010 and 10.1% in the middle of that year. With a steady decline in availability of built stock and only a modest development pipeline, the West End market looks set to remain supply-constrained, which underwrites its rental values and promotes growth in the core locations.
Asking rents
The average asking rent for newly-built space currently on the market in the West End, was £69 per sq ft in Q4, down from £73 per sq ft in Q3 and 7% lower than at the end of 2010. The highest asking rent remains £97.50 per sq ft, being sought at 23 Savile Row, W1, for 33,700 sq ft and at 1-11 Hay Hill, W1, for 20,800 sq ft in the heart of Mayfair.
Most agents agree, however, that top rents are over £100 per sq ft for the very best prime space. The asking rent at 44-48 Dover Street, W1, is £90 per sq ft. The space in Merchant Square, Paddington, W2, is available at a substantial discount to core West End rents, at £52.50 per sq ft.
For grade-A secondhand space, the average asking rent was £49.50 per sq ft, which has continued to rise gradually, probably reflecting the improving quality of stock in the sample rather than upward pressure on secondhand rents, albeit grade-A secondhand.
This figure is based on a much wider range of values than the newly-built stock because it is often offered as a sublet from an occupier. Secondhand grade-A space can command rents comparable with brand new buildings. For instance, One Vine Street, W1, has an asking rent of £89.50 per sq ft for 31,300 sq ft.
Construction starts
Virtually no new construction was started in Q3 or Q4 in the West End. The only exceptions were small units of less than 5,000 sq ft. There is however, 1.63m sq ft still under construction, of which 1.46m sq ft is speculative and, of that, around half is scheduled to complete in 2012 and half in 2013. Most of the space due for completion in 2013 is not yet being actively marketed and does not therefore appear in the supply figures in the table above.
The largest building under construction is Selborne House, 54-60 Victoria Street, SW1, where Land Securities is developing 326,800 sq ft due for completion in 2013. It is not yet being actively marketed. Also due in 2013 is British Land’s North East Quadrant on Euston Road, NW1, which is 195,000 sq ft; at 2-16 Baker Street, W1, there is a 125,000 sq ft redevelopment under construction, also due in 2013 and nearby in 79 Wigmore Street, W1, Great Portland Estates and Scottish Widows are developing 85,000 sq ft, which is on the market.
The largest developments scheduled to be completed in 2012 are SLF3’s Park House W1; 1 Howick Street, SW1, which is being developed by Doughty Hanson & Co Real Estate and Terrace Hill Group; and the refurbishment of Ashdown House in Victoria Street, SW1.
Investment
Just eight investment transactions were recorded in the West End in Q4, amounting to 80,000 sq ft, contributing very little to the annual total of £2.14m and 73 sales in 2011. It has been widely reported that there is a shortage of stock for sale in the West End as investors are reluctant to sell properties at a time when demand is high from overseas buyers to put money into this market.
