Occupiers in London’s flashiest business location will not necessarily be voting with their feet as rents increase – well, not unless the boss decides to move house.
Despite rental hikes and economic uncertainty, Mayfair’s and St James’s business residents remain committed to the area, a new survey shows. For the time being, at least.
Research done on the area’s occupiers by Drivers Jonas last month, found that, despite 85% of respondents having been subject to rent reviews, high rents were not a concern.
One hundred occupiers were independently questioned and the results were compared with those of a similar study conducted by the agent 10 years ago.
Anthony Duggan, partner at Drivers Jonas, says: “A vast majority of the local occupiers were aware that they were paying a premium for the benefits of being located in Mayfair/St James’s, but it appears that they are happy and willing to pay for the privilege of this central location.”
Indeed, 58% said high rents were not a concern or a deterrent.
However, Duggan does add a caveat. Were the survey to be conducted in the next couple of months, he says, the answers may not be quite as bullish due to turmoil in the financial markets. Cost has crept up the list of considerations, with 13% believing it to be important in the first survey, compared with 49% this year.
For now, only 11% said they were looking to move out of the area, with just 10% of those citing costs as the reason – something that might change if the economic situation worsens.
More space was the most common reason for relocating away from the village – a point that highlights the chronic lack of suitable stock.
Not surprisingly, transport has become a more serious issue for occupiers during the years, with it dominating the list of negative aspects of the area. Commuters being prone to grumble, it is also not surprising that the area’s connectivity was also high up the list of things businesses like about the area.
But, as Duggan points out, transport issues are a London-wide problem. “Where else would you go?” he says.
And developers should take note: one of the biggest changes in attitude comes from what Mayfair occupiers expect from their offices. Almost half of respondents felt it was important to have excellent facilities, compared with 17% 10 years ago.
This would tally with the increasing importance placed on convenience for staff. In the first survey, almost 70% felt it played little or no part in choosing new offices, while the reverse is now the case.
“Convenience for staff is probably the single most important factor, as finding and retaining the right calibre of employees is difficult for a lot of companies,” says Duggan. “The occupiers were really conscious that if they move location quite dramatically, they’ll lose people.”
Perhaps one thing agents should pay close attention to, when advising Mayfair clients, is where the head honcho lives. Despite pressures on finding staff, it seems any easy commute for the boss may override any decision. Almost two-thirds of those surveyed cited convenience for the boss as either “very important” or “somewhat important”.
Finance wobbles brings a quiet period
It has been a quiet Q3 in terms of both take-up and investment deals. Only 2.3m sq ft had been let by early September, compared with 4.8m sq ft in Q2 and 4.5m sq ft in Q3 2006.
The figures can, in part, be explained by the fact that there have been only two deals over 100,000 sq ft. One of these was to RBS at Bankside 2 and 3, SE1, where it took 358,000 sq ft sq ft.
The third was to Sony BMG Music Entertainment, which signed for 137,750 sq ft at 99 Kensington High Street, home of the famous Kensington Roof Gardens. This is the largest letting seen in the west central market for some time and it means that this market is the only one to outperform Q2 so far this quarter.
Midtown is coming close to matching last quarter’s figures, with a total of 309,000 sq ft let over 45 deals – the largest being 60,000 sq ft to Speechly Bircham at 6 New Street Square, EC4.
Core City take-up is well below its Q2 achievement, with only 610,700 sq ft let so far.
This could be due to caution from the finance sector, the key occupier in this part of London, following the fallout of the sub-prime mortgage market and stock-market wobbles.
The largest deal seen here was to Charles Russell at Ludgate West, where it took 84,000 sq ft.
West End take-up has also been lacklustre, with 100 deals less than in Q2. The largest letting was 42,400 sq ft to an undisclosed occupier at 66 Porchester Road, W2.
Hardest hit seems to be Docklands, which has seen the number of letting transactions halved on Q2’s figures, and totalling just 125,600 sq ft. The largest deal here was 61,400 sq ft to Lehman Brothers International at South Quay 3.
Looking at the remainder of September, 2.4m sq ft has been placed under offer – most of which will need to be signed if Q3 figures are to finish ahead of Q2’s.
Economic uncertainty goes some way to explaining the slowing of take-up, with financial occupiers in particular pulling out of a few deals recently.
The one occupier group seeing a positive spin on this is serviced office operators. Companies that are unwilling to sign for space themselves are taking up short-term lets within these offices.
The investment market, too, has been hit. Banks are cautious about lending on projects that they believe are risky and there are fears that occupiers are growing unwilling to pay headline rents.
As the quarter has progressed, several investment deals have fallen through, most recently at 7-8 St James’s Square, where IVG Asticus pulled out of a £140m purchase.
Hannah Gardiner manages EGi’s London research teams
