by Terry Cunnew
In a market that is tighter than it has been in years, West End office space is letting at ever higher rents. Both new and newly refurbished space of quality is in such short supply that owners are for the most part not even quoting asking rents.
Instead, they stand back and let would-be occupiers bid against each other in what virtually amounts to a rental tender.
Rents have now been established at the £40 mark in St James’s, while in Mayfair it is rumoured that a deal has been agreed recently which reflects as high as £45 per sq ft. If that proves to be the case it will mean that, unusually, Mayfair peak rents are ahead of St James’s, although it can be expected that the next block of prime space to reach the market in St James’s will set yet a new peak.
The fierce competition for prime central West End space has had two knock-on effects — even the more mediocre space which a year ago was hard to let is now letting readily, while rents in the more fringe locations north of Oxford Street and in Soho have enjoyed unprecedented rental growth.
As things stand at present, there is a serious imbalance between supply and demand and there is no immediate prospect of that imbalance being redressed.
Bailey Posner make the point that prime space in all locations is seeing rental growth, while even on fringe pitches such as Marylebone Road rents of £25 per sq ft have been achieved.
In Soho, they say, top rents are currently around £20 per sq ft, although they feel that anything of the right quality which came on the market in Soho Today would make £25 without trouble.
Looking at the market overall, Bailey Posner argue that the volume of deals is small not only because the stock is low but also because the level of tenant demand has in some respects been overstated. The supply is tighter but demand is relatively constant, in BP’s view, so that the main problem is to keep supply on track while the demand continues.
City tenants are a new factor in the West End market and there is some pressure from that source, but Bailey Posner say that demand from this source should not be overstated.
The development situation is, naturally, very competitive, with high rents projected in the developers’ calculations and deals being done which reflect keen yields. At present things look good and can support such projections but what one must ask, say BP, is what would happen if the market flattened.
In such circumstances, argue Bailey Posner, the prime locations would no doubt scrape through, but the more risky locations would probably feel the pinch.
Meanwhile, one effect of the continuing rise in rents is that rent reviews are becoming harder to agree, with an increasing resort to arbitration. On a five-year-old building the landlord is likely to be arguing for a review to £30-plus, while the tenant is understandably going to be talking about something in the low to mid-£20s.
As a result, the gap between valid arguments is now such that it is increasingly difficult to agree the middle ground. Hence the trend to go to arbitration.
Herring Son & Daw echo the view that under current market conditions it is more difficult to carry out reviews. Rents are rising so fast, they say, that agents have to look snappy in putting forward their comparables before they are out of date.
At present, say HS&D, the market is experiencing not only prelets but also rental tenders and even gazumping. It is very tight market, and HS&D do not see it easing.
Another factor that will affect the market is the pending reversion to residential use in 1990 of buildings currently occupied as offices. This, Richard Ellis point out, potentially affects about 1m sq ft of space which could be lost to the office market.
Richard Ellis calculate that some 144,000 sq ft of new and refurbished space will be reaching the market this year, followed by 350,000 sq ft next year and 137,000 sq ft in 1989. Equally, the total take-up last year is calculated at around 1m sq ft.
Clearly, if the whole of the space earmarked to return to residential use in 1990 were to do so, the impact would be considerable. Indeed, the impact is already being felt as tenants in those buildings anticipate the event and start looking for a new home.
Winter & Co, who specialise in small offices between 500 sq ft and 3,000 sq ft, say that the plan is likely to increase pressure on the remaining supply and to push rents ahead even further. They express a hope that Westminster City Council will reach some form of compromise over the policy, which in Winter’s view could harm the role of Mayfair as a centre of business in London were it to be fully implemented.
There are plenty of agents who share these fears, arguing that not only will there be pressure on rents but also on rates, to compensate for the difference between domestic and commercial poundages on the space lost to offices.
However, there are differences of opinion as to just how serious the effects of the 1990 reversions will be. Some believe that the impact will be severe and that rival locations both within and outside the West End will be the beneficiaries of the reversion policy.
Soho and the areas north of Oxford Street are seen as likely candidates to attract firms displaced by the policy, while locations such as Bloomsbury, Victoria and Knightsbridge are also tipped to win what Mayfair loses.
But there are also those who take a more relaxed view of the problem, arguing that at the end of the day the problem will not be as serious as some fear.
Jones Lang Wootton, for example, argue that the problem looks worse than it is. In their view, not all of the buildings on the 1990 list will revert in any case, and they feel that the city council is being reasonable (a view which Westminster will no doubt endorse).
St Quintin stress the point that the city council has stated that practicality is the guideline when it comes to deciding finally whether a building will revert or not.
It appears, they say, that each building is being taken on its merits and that there are clearly going to be a number which, after more than 40 years of commercial use, will simply no longer justify conversion back to residential use.
What is more, St Quintin have a case to prove the point. They recently advised Manufacturers Hanover over their lease of 88 Brook Street, a Grade I listed building of just over 10,000 sq ft. This was earmarked to be returned to residential use, but Westminster took the practical view that a major commercial occupier was better placed financially to undertake the upkeep of such a building than would most residential users.
Edward Erdman’s concern centres not so much on the number of buildings that will be affected as on the uncertainty which currently affects those that may be affected. Until the final decisions are made — and appeals could well result in the process dragging on well after 1990 — there are all sorts of problems over questions of valuation, rent review and assignment.
Tenants of the affected buildings are in something of a dilemma as to what they should now do. If they decide to stay put in the hope of retaining office use and then fail to do so they are left with a lease which will have its value even further undermined than it is at present — and they will still have to move out.
On the other hand, if they sell their lease now, at a price which reflects the uncertainty over future use, they may find themselves faced with the frustration of the buyer winning the user battle and so enjoying a valuable asset which they have sold at a discount.
Unfortunately, some element of uncertainty is inevitable, since the city council has to consider the merits of some 200 different buildings.
Clearly, decisions on the practicability of returning a building to residential use have to be made after examining each case individually — instant answers are impossible.
Westminster City Council is on record as saying that where buildings are not considered suitable for return to the residential sector it will be recommended that a decision to allow permanent office use will be given with the minimum of delay.
As to what is to be considered suitable, there is a test case going through the pipeline at the moment in the form of the public inquiry over MEPC’s office use of Brook House in Park Lane.
This is to some extent untypical of the 1990 buildings in that it is one of the largest properties affected and was purpose-built as a block of flats back in the pre-war years.
Here again, the views of agents differ regarding the outcome of the matter, for while some say the decision will be an important indicator others argue that Brook House is so much a one-off case that whatever the inquiry decides will be of relatively small relevance to the bulk of the 1990 buildings.
Of one thing one can be sure, however — the decision will be of rather more than passing interest to MEPC.
Another factor causing some concern at present is the proposed change in use classes, which would replace the existing office, light-industrial and storage categories with a single business use class. This plan recently raised a frisson of horror in such elevated sectors of the “light-industrial” users market as Savile Row, where fears were expressed that it would not longer be possible to produce suits costing a small fortune if rents were to increase to the levels paid by office users.
However, the general feeling among West End agents appears to be that the main result of the proposed change would, in effect, amount to not much more than a facing up to reality, at least so far as the West End market is concerned.
It is accepted that some existing light-industrial users, such as those in the “rag trade” district to the north of Oxford Street and east of Regent Street, might be affected adversely. But at the same time, there are plenty of other users who are at present restricted by the existing controls and who will benefit from the change.
However, in many cases buildings which at first sight would seem vulnerable in fact turn out to be impractical as candidates for a transformation to office use. Buildings with a single entrance via a ground-floor shop will not prove attractive propositions for office users on the upper floors.
What is more, as Dron & Wright point out in their accompanying article, in many cases the existing use of much “light-industrial” space is little more than a polite fiction.
St James’s
Looking at specific market sectors, St James’s is generally regarded as the leader as far as office rents are concerned.
Only a few weeks ago it was disclosed that CIN Properties had achieved a prelet of their St James’s House project in King Street to Inchcape at a rent of over £40 per sq ft. Space in St James’s had been let in small suites at £40-plus before, but letting agents Healey & Baker rank this deal, involving as it does a development of 35,000 sq ft, as the first major project to break the £40 per sq ft barrier.
This deal, in H&B’s view, sets the market, and their experience is that there are a number of similar covenants to Inchcape looking for space at present.
H&B are also agents, alongside Conway Relf Stanton, on the proposed redevelopment by London & Paris at 46-47 Pall Mall, where planning applications are going through the mill now. This is a scheme for some 33,000 sq ft of office development, and until the planning position is decided the existing space is being let out on short-term leases.
Conway Relf were also involved in the disposal of Dunlop House at 19-22 St James’s Street to Hint, a Swedish trade organisation.
This building was bought just over a year ago by Guardian Royal Exchange and Victory Land for around £6m. They then negotiated a new 125-year lease from the Crown Estate and embarked on a redevelopment programme costing some £7m.
The building, which is scheduled to be ready for occupation this coming Christmas, totals some 56,000 sq ft.
Conway Relf and Barrington Laurence were joint agents for this project, where Hint are said to have acquired the long lease for anything from £23m to £28m. Richard Ellis acted for the buyers of the property.
In another deal disclosed in February, CRS acted for Sun Alliance when they bought in the lease of 26-27 St James’s Square from advertising agents D’Arcy Masius Benton & Bowles.
Sun Alliance plan a high-specification office development of some 16,000 sq ft on basement, ground and seven upper floors at a cost of over £2.25m.
Long-established St James’s agents Daniel Smith, who are shortly to publish what they boast will be the first detailed report on the area, say that a significant current trend is that the government sector of occupiers is moving out — it is becoming too expensive to justify the cost of accommodating civil service departments.
At the same time, say Daniel Smith, there is a trend for tenants from the financial sector to move into the area — St James’s not only enjoys a certain prestige above most other locations but has the benefit of having relatively little through traffic.
Daniel Smith calculate that the prices being paid for development projects such as Distillers House in St James’s Square clearly reflect that forward planning is based on rents of over £40 per sq ft, while even the less prime pitches will fetch around £32 per sq ft.
Drivers Jonas note that even on the less-favoured pitches such as Haymarket — a busy traffic route on the edge of the St James’s area — they and D E & J Levy have been able to let suites of around 800 sq ft at £22 per sq ft. And that was in deals agreed last year in City & Country’s building at 24 Haymarket — DJ feel that if they had that space available now they would probably have little trouble in letting it at £26 per sq ft.
Distillers House, mentioned earlier, is a joint effort by London & Metropolitan and Kumagai Gumi which could finally total as much as 70,000 sq ft if the planning approvals come right. The building is a mix of old and relatively new, ranging from the Adam-designed property at 20 St James’s Square — which dates from 1774 and is to be retained — to the more recent 1930s slice which occupies the bulk of the site.
L&M say that they hope to start on their redevelopment — which will recreate an original inner courtyard as well as introducing basement parking — in the summer this year with a completion target in 1989. De Morgan & Co are the agents for the scheme.
L&M are also developers, with London & Edinburgh Trust, of Almack House, opposite Christie’s in King Street. This is an early 1950s building of some 71,000 sq ft currently occupied by the Inland Revenue, whose lease falls in in 1992.
Talks are in hand with a view to persuading the current occupiers to move out — no doubt at a price — so as to release the unlisted and indistinguished building for complete redevelopment.
If all goes well L&M say they plan to redevelop the site with a new building of around 70,000 sq ft for which De Morgan & Co and Bailey Posner will be agents.
Certainly current trends in the market would suggest that it would be very much in the developers’ interest to secure possession of Almack House, given the levels of rents and premiums now being obtained.
Savills, for one, say that they would not be at all surprised to see St James’s rents established in the mid-£40s for the best space by the end of the year.
And they have reason to be aware of the demand for space in the area, having recently acted for R J Reynolds, the US tobacco company, in their acquisition of Stornoway House in Cleveland Row, overlooking Green Park.
Reynolds, who are moving to London from Winston Salem, South Carolina, paid a premium of £210,000 for BritOil’s lease of the 12,000-sq ft building, which had a passing rent of £241,500 pa.
Jones Lang Wootton acted for BritOil in the deal.
Distinctive in a different way is Taylor Clark’s redevelopment at 30-34 Haymarket, which includes the original tobacconist’s shop, Fribourg & Treyer, from whom Horatio, Lord Nelson, bought his tobacco. PMI, who are project managers on the scheme, say that the shop itself, which is understandably listed, is being painstakingly restored to its original condition inside and out, while the rest of the site is redeveloped to provide new shops, six floors of offices and five flats.
D E & J Levy and Strutt & Parker are joint agents for the development.
Also active now as developers in St James’s are Central & City, who decided some 18 months ago to concentrate their activities on the broader West End area after nearly 20 years of activity in and around the City.
Until the arrival of Central & City it is unlikely that anyone, apart from immediate neighbours and cab drivers, had ever heard of Babmaes Street, which when C&C chiefs David King and Sir John Mactaggart first got their hands on it was an obscure backwater off Jermyn Street.
C & C have now completed the refurbishment and extension of the building at the corner of Jermyn Street and Babmaes Street and have rebuilt behind the existing facade the adjoining building at 1 Babmaes Street. Next on line will be the redevelopment of Cunard House, which has frontages to both Babmaes Street and Lower Regent Street.
The corner building, which ranks as 112 Jermyn Street, totals 9,200 sq ft of air-conditioned space on seven floors. It is a Florentine-style former wool warehouse originally built at the turn of the century. De Morgan & Co are joint agents with Jones Lang Wootton and they have the whole building under offer at around the asking rent of £35 per sq ft.
Next door at 1 Babmaes Street is James House, a 5,830-sq ft rebuild behind a listed facade for which De Morgan and Cluttons are joint agents. Again, rents are pitched in the mid to high £30s and there is strong interest in all the space.
The Cunard House redevelopment is rather longer term and very much larger. The aim here is that the 66,000-sq ft listed building fronting Lower Regent Street will be refurbished, while planning consent has also been secured to develop at the rear, at 4 Babmaes Street, with a further 7,500 sq ft of offices.
This project, for which De Morgan are development consultants and letting agents, is designed so as to enhance the formerly rather dowdy rear area in order to create more of a mews effect on Babmaes Street.
Arguably the biggest project currently planned for St James’s is MEPC’s 91,000-sq ft scheme at 11-12 and 13 St James’s Square and 6-7 Duke of York Street, a site which now totals some 40,000 sq ft and has been assembled over a number of years.
Weatheralls are agents for this project, for which planning consent is being sought for a development that will include refurbishment of two front buildings along with completed rebuilding at the rear. Apparently, assembling the site alone cost around £16m, although it must be borne in mind that Ames House at 6-7 Duke of York Street was bought as an investment.
On a more modest scale, Weatheralls are also agents for 126 Jermyn Street, where they are acting on behalf of Legal & General Assurance. This is a 16,500-sq ft new development which is being let off floor-by-floor at rents around £27 per sq ft. Two floors have so far found takers, leaving three to go.
Down on Pall Mall, Trafalgar House Developments have bought the lease of the building at no 123 from the Hongkong & Shanghai Banking Corporation and negotiated a new Crown lease of 125 years.
Trafalgar House are seeking planning consent for a new development of some 22,000 sq ft in a scheme which will involve partial restoration along with some redevelopment.
In this deal D E & J Levy acted for Trafalgar, Cluttons for the Crown and Vigers for the bank. The development is expected to be ready for occupation next year.
A continuing trend, not only in St James’s but elsewhere, has been in the provision of serviced office suites which, depending on the level of services provided, can let at inclusive rents as high as around £60 per sq ft.
An example is 10 Charles II Street, where St Quintin have recently sold the long lease to a subsidiary of LET who plan to use the building to provide serviced suites.
The 7,300-sq ft building is held from the Crown at a rent of £9,000 pa plus 15% of market value, and it was sold for £3m.
Mayfair
Winter & Co, as already noted, tend to specialise in smaller office suites and so, by the nature of things, they also tend to be active in the market for serviced suites.
One such building is Grantham Court Properties’ Park Lane Suite scheme at 14 Old Park Lane in Mayfair, behind the Inn on the Park Hotel. This consists of a range of serviced suites from as small as 150 sq ft up to 850 sq ft which are being let on leases of up to four years on terms outside the Landlord and Tenant Act.
Winter & Co say that the space is now about 80% let or under offer at close to £60 per sq ft.
Turning to the mainstream Mayfair market, the general view is that peak rents are close on the heels of those achieved in St James’s and that the £40 per sq ft barrier will certainly be broken soon.
But it can be argued that this has already happened, in the case of the building at 4 Hill Street which BP have let at £40 per sq ft overall. It is being argued that when this is analysed back to reflect the office element alone, the rest actually comes through at £45.
That, one suspects, rather depends on for whom you were acting in the original deal — number-crunchers acting for tenants tend to take a different approach from those acting for landlords.
However, the two buildings which everyone in Mayfair is watching — and at present learning very little — are London & Edinburgh Trust’s Nightingale House in Curzon Street and Legal & General’s Lansdowne House in Berkeley Square.
Nightingale House, which is being funded by British Rail Pension Fund, is LET’s first venture into the West End and is scheduled for completion by the end of the year, to provide nearly 40,000 sq ft of full-specification offices.
As well as its main frontage on to Curzon Street, the project, for which Bailey Posner and Clive Lewis & Partners are letting agents, also has a frontage on to Stratton Street, where it incorporates Clive Lewis’ former building which is now being returned to residential use.
Aside from this, the scheme also includes a smaller office building of about 8,000 sq ft at 63 Curzon Street which, say Bailey Posner, is earmarked for letting in small suites.
Market opinion is that the funding of Nightingale House reflected a projected rent of £35 per sq ft, and it is felt that in the event LET and BR will end up doing rather better than they expected.
However, far and away the biggest scheme under way in Mayfair at present is Landsdowne House in Berkeley Square. Market rumour is that L&G have actually turned away offers of prelets for this development, which totals 186,000 sq ft and is scheduled for completion in the spring of 1988.
There was some surprise a few weeks ago when it was announced that existing letting agents Weatherall Green & Smith were to be joined by Richard Ellis. In the current state of the market, with building owners having to fend off potential tenants with a chair and a whip, it hardly seemed necessary to add another member to the letting team.
Indeed, Weatherall say that L & G are not actively marketing the building, nor are they seeking any offers. It has not even been decided whether to aim to let the building to one major tenant or to take the same road as the nearby and highly successful Berkeley Square House and aim for multiple letting.
There are many agents in the West End who argue that Lansdowne House would be an ideal candidate for such a letting policy, given firm hands-on management to ensure continuous maximisation of income.
But none of that explains the entry of Richard Ellis on to the scene.
However, rumour around the market is that the explanation lies in the word “unitisation” — RE, it is being suggested, have been brought in not so much to let the building as to market it to investors. Richard Ellis’ reaction to that suggestion was that units action is the flavour of the month as far as virtually all large buildings are concerned. Of more significance, they suggest, are their widespread international connections when seen in relation to a building which must appeal to a cosmopolitan audience.
Meanwhile, Debenham Tewson & Chinnocks, who were the letting agents for 4 Hill Street mentioned earlier, say that in fact that building fetched a rent of £40 per sq ft in a letting to Sibec Developments, a deal which puts the property on a par with, rather than above, St James’s rental levels.
This was one of a row of buildings in Hill Street which BP have been refurbishing, and earlier deals give some indication of the way in which Mayfair rents have been growing.
Last year nos 8 and 10 Hill Street were prelet to Scanbank at rents of £35 and £33 per sq ft respectively. Now no 4 has gone at £40 and no 6 is understood to be firmly under offer, although the likely rent has yet to be disclosed.
DTC are also agents for two other BP pension fund schemes carried out under the Ropemaker Properties banner.
One of these is 42 Berkeley Square, a refurbishment scheme of some 7,950 sq ft which has been let to Polly Peck at a rent of around £38 to £39 per sq ft.
The other is Ropemaker’s Bruton House at 12-13 Bruton Street, which DTC say is attracting strong interest. They are quoting about £37.50 per sq ft on the 20,000-sq ft building and are apparently on the verge of agreeing a deal.
Back on Berkeley Square, which is widely regarded as one of the more attractive addresses in the West End, Berkeley Square House is seen by many as an established trendsetter for rental levels.
What is more, the building seems to a large extent to create its own market — it is rare to find space vacant for any length of time and much of what does become available tends to be absorbed by existing occupiers in the building.
For example, back in March it was disclosed that Texas Eastern North Sea Inc, advised by Conway Relf Stanton, had taken a 14,000-sq ft suite which had just been refurbished at a cost of £850,000.
Wright & Partners and Jones Lang Wootton were the joint letting agents in the deal, which was for a 10-year lease at £28 per sq ft.
Last year Texas Eastern first moved into the building when they took a lease on 7,000 sq ft of space.
According to JLW, the best space in Berkeley Square House is now fetching around £35 per sq ft on relets.
JLW also acted recently on the entry of the major Japanese contractors Kajima into the West End, when they acquired 101-104 Piccadilly, buying the head lease from Legal & General and the freehold from the Sir Richard Sutton Estate. JLW are retained on this 45,000-sq ft refurbishment project, which is scheduled to be ready in about 18 months’ time.
But, say the agents, the scheme may never in fact reach the open market, since there are serious talks in hand with a Japanese potential occupier for the whole building.
Another scheme in which JLW are involved as agents is Trafalgar Brookmount’s scheme in Chesterfield Gardens, off Curzon Street. This is a new-build project behind a retained facade which provides a total of 48,000 sq ft and which is being marketed at around £35 per sq ft.
Meanwhile, over at 23 Grosvenor Street, Wheatsheaf — the development arm of the Grosvenor Estate — will soon have a 6,000-sq ft development ready for occupation. Savills, who are sole agents for this refurbishment, say no rent is being quoted — potential tenants will be left to make their bids.
Another scheme for which no rent has yet been set is Chase Property’s development in Tilney Street, off Park Lane. Allsop & Co are agents for this project, which is a mix of 17,000-sq ft of new offices behind a listed facade along with 12 flats. Work has started on the scheme and it is scheduled for completion in about 18 months’ time.
Chase are also the developers at 16 Old Bond Street, where Allsop are again letting agents. There, some 10,000 sq ft of office space is being redeveloped above a shop unit which is already let.
Here, too, no rent is being quoted for the space, which the agents expect will be let on a floor-by-floor basis.
Over in Half Moon Street, Herring Son & Daw have let the building at no 15 to Lane Fox & Partners at around £30 per sq ft. This was a rebuild behind existing facade to provide a total of 3,700 sq ft of offices carried out by Crusader Insurance.
Meanwhile, Richard Ellis say that they have Esso’s 110,000 sq ft at 45 Berkeley Street under offer for assignment. The building, which was refurbished in 1978, is owned by Norwich Union.
Richard Ellis are also agents for Victory Land’s refurbishment of the upper floors of 18-19 Savile Row, above the Tommy Nutter shop. The joint agents on this 15,000-sq ft project are Conway Relf Stanton and Bernard Thorpe & Partners.
Meanwhile, some space still remains at what is now called Swan Gardens — originally Centre at the Circus, the redevelopment of the former Swan & Edgar department store in Piccadilly Circus. Richard Ellis, who are sole agents for the space, say that some 25,000-sq ft remains available out of a total of about 60,000 sq ft. Rents of £26 to £27 per sq ft have been achieved.
Turning to Soho, it is notable that transformation of this once seedy and rundown district is accelerating. Both developers and investors are eager to snap up properties and rental growth in the area has been significant.
The biggest recent deal in Soho — the letting of 51-53 Great Marlborough Street (below) to Logica — set a new peak at a rent of around £20 per sq ft for the offices. This 40,000-sq ft building was developed by Glengate Holdings and Slough Estates.
It was let through Healey & Baker and Lawrence Essex, with Jones Lang Wootton acting for the tenants.
No more than 18 months ago, building owners in Soho were happy to agree lettings at £16 per sq ft, but the feeling now is that the next crop of new developments to reach the market will fetch comfortably over £20 per sq ft and some hold the view that rents could go as high as £25.
Among projects planned or under way at present is Crusader Insurance’s redevelopment of the former Post Office at 11-13 Soho Street, which they recently bought for £800,000.
Work is just starting on a scheme to provide two shops along with 4,000 sq ft of offices, and sole agents Herring Son & Daw calculate that the final investment value of the completed scheme will be around £2.5m.
In Golden Square, Debenham Tewson & Chinnocks and Knight Frank & Rutley have sold the freehold period building at no 11 to Clark Nickolls & Coombs at a price of £1.2m.
The price paid for the 5,650-sq building reflects a rent of around £25 per sq ft, according to DTC.
CNC plan to carry out a complete refurbishment of the building and to demolish and rebuild the property at the rear fronting on to Bridle Lane to create a further 1,500 sq ft.
Brian Cooper & Co acted for CNC in the acquisition and are retained as letting agents.
Another scheme in Golden Square is Greycoat Estates’ planned redevelopment of the recently acquired former Ear Nose and Throat Hospital. According to St Quintin, the intention is to carry out a completely new development providing some 17,000 sq ft to come on stream next year.
This development is expected to fetch well over £20 per sq ft.
Over in Soho Square, Allsop have the former ACTT headquarters at no 2 under offer at a figure of £22 per sq ft, which is not bad for a Grade II listed building without a lift.
The building, which contains 3,820 sq ft of refurbished offices, has set a new record for Soho Square, say Allsop, who calculate that the rent actually reflects a figure of around £26 per sq ft on the ground-and first-floor offices of the four-storey building.
Allsop are also agents for Chase Property’s redevelopment of 21 Soho Square, which will be ready in about 15 months’ time. This scheme will provide some 17,000 sq ft of offices plus two retail units on the Sutton Row frontage.
Allsop, who formerly occupied the premises on the site, say that a prelet would be considered, if the offer was attractive enough.
Down in Shaftesbury Avenue, work is under way on Speyhawk’s £8.8m Avenue Plaza development, designed by architects GMW Partnership. This seven-storey development is being built around an atrium and will contain some 50,000 sq ft of offices above 10,000 sq ft of retail space.
Hillier Parker are the letting agents for the scheme, which is funded by Kleinwort Grieveson Investment Management and is scheduled for completion in September.
Turning to the area north of Oxford Street, Jones Lang Wootton say that for some time the discount on rents in the area was too great, although the gap has narrowed.
Rents in the area have now topped £30 per sq ft, and JLW feel that a good air- conditioned building could fetch as much as £35 per sq ft.
The area has attracted a number of financial sector tenants, since it was able to offer a number of suitable large buildings at a time last year when practically nothing was available in the City. But although it was necessity rather than choice which probably brought these City users into the West End, there is a feeling that, having come, they are now finding they like the locality and will probably stay.
Indeed, JLW say that the 120,000 sq ft of offices in the Glengate-KG Properties redevelopment of the former Bournes store, in Oxford Street could well attract a City-related tenant.
JLW are joint agents with Healey & Baker on the offices, which have completely separate access from the retail element of the scheme, which is now called the Plaza on Oxford Street.
One of the attractions of the districts north of Oxford Street, in the view of Edward Charles & Partners, is the low level of rates. These, they say, rarely exceed £4 per sq ft and they probably reflect the size of the rent differential in the area at the time of the last revaluation.
Another factor is the Howard de Walden Estate, which they say is well and firmly managed. As a result, professional firms are attracted, safe in the knowledge that they will not suddenly find themselves with unwelcome and tatty neighbours.
Edward Charles recently acted for advertising agents Madell Wilmott Pringle when they took a lease of 5,000 sq ft of offices at 140 Great Portland Street at a rent of £70,000 pa.
The space has been refurbished by Great Portland Estates, for whom Robert Irving & Burns acted.
Over at 2 Marylebone Road, Debenham Tewson & Chinnocks and Teacher Marks have prelet Greycoat’s 42,000-sq ft development to the Consumers Association. This scheme is scheduled for completion in the early summer, and, according to current market rumours, it achieved a rent of around £25 per sq ft.
Nearby, at 79 New Cavendish Street, Priest Marians Holdings have bought the 958-year leasehold interest from Prudential Assurance for around £4.5m. They are to refurbish the 30,000-sq ft building in a £1m programme which will be carried out with the existing tenants, solicitors Forsyte Kerman, still in occupation.
Knight Frank & Rutley, who acted for Priest Marians, say that the deal is subject to a restructuring of the occupational lease and shows an initial yield of between 7% and 8%. Conrad Ritblat acted for the tenants.
One of the more interesting recent deals in the area is the sale by the BBC of their site bounded by Portland Place and Chandos Street, which has been bought by the Ladbroke Group in a deal worth £26m.
The site incorporates the former Langham hotel, and Ladbroke’s intention is to bring back hotel use to the property, along with over 50,000 sq ft of offices.
Ladbroke are due to pay the BBC the first £20m of the purchase price today, May 16, with the balance coming once Westminster City Council has given planning consent for the proposed 400-bed hotel.
Richard Ellis acted for the BBC in the deal.
Retail sector
The overall West End retail market is every bit as tight as the office sector. There is fierce competition for prime shops and premiums can often rise to phenomenal levels.
Healey & Baker say that 1986 saw the market swing from potential boom to potential bust and back again. At the start all was looking rosy, but then came the US raid on Libya. Tourism dropped as Americans took the courageous decision to stay at home, and things started to look really bad.
But then came the Royal Wedding, and the market turned upwards again, so much so that prime Oxford street rents at long last went past the peak reached back in 1979.
In the new development alongside Marks & Spencer’s store at Marble Arch — which includes some 105,000 sq ft of expansion space for M&S — the three shop units were let to Peter Lord, H Samuel and Bally at rents which, say Healey & Baker, were well over £225 per sq ft zone A.
Indeed, it is rumoured that one of them in fact made over £250 per sq ft.
Following their move to that scheme, Bally put 490-492 Oxford Street on the market through Churston Heard. The 2,692-sq ft shop was held on a lease to 1992, at a current rent of £225,000 pa and a review in 1989.
Boots, represented by H&B and Phillips Wilks, took the unit, paying a premium of over £500,000.
The biggest change in Oxford Street shopping at present is Glengate-KG Property’s Plaza development at the former Bourne & Hollingsworth store at the eastern end of the street.
Healey & Baker are sole agents on the retail element of this scheme, which is the largest new retail development in Oxford Street since the West One centre at Bond Street Station. In all, it provides a total of 125,000 sq ft of retail space on four floors.
There is a 10,000-sq ft food court on the lower-ground floor, 22 unit shops on the ground floor, another 17 shops on the first floor and 36,000 sq ft of divisible space on the second floor.
H&B say that the food court is under offer and a number of other substantial deals have been agreed or are going through the system. H&B expect the scheme to be fully let well before completion.
Regent Street has seen a continuing process of change in its character, with a reduction in the number of travel and airline offices and an increase in proper retail outlets.
In H&B’s view the new Laura Ashley store played a part in improving the location, and it is probably true that Centre at the Circus, over Piccadilly tube station, has also provided a boost.
The retail element of that scheme is now fully let and H&B, who acted for a number of the tenants, say completion of the improvements to the station will prove the viability of the scheme, which is linked directly to the concourse.
Other attractions at the Piccadilly Circus end of Regent Street are the Trocadero and the London Pavilion development. Neither of these is actually in Regent Street, it is true, but they are nevertheless proving instrumental in drawing traders towards Piccadilly Circus and at least getting some way to overcoming the junkies, hippies and drunks reputation of what is, after all, one of the principal tourist magnets of London.
Healey & Baker and Debenham Tewson & Chinnocks are joint agents on ESN’s Trocadero development which, after a less than happy start, is now substantially let. H&B feel that the development, which is very much tourist orientated, will be fully let before very long, since there are offers in on all of the remaining available units.
Another West End shopping location which has seen considerable improvement is the Carnaby Street area, which not so long ago had degenerated into something not much better than a bad joke. From being the focus of the fashion trade in the swinging 60s, it had become little better than a downmarket bazaar for the tattier end of the rag trade.
But now, under firm management by Peachey Property Corporation, the whole area is well along the road to creating a completely new and distinctly more attractive identity as a shopping location. Healey & Baker, who are agents for Peachey, say that there is virtually nothing in the area which is not distinctly oversubscribed, with potential tenants falling over each other to gain representation in what was not so very long ago regarded as a dated and decayed shopping location.
Moving to a different but no less specialised shopping location, H&B note that South Molton Street has seen a surge in rents, with levels of over £175 per sq ft being achieved on recent deals, working on a 20ft zone A, since the units are shallow.
Strong premiums are also being paid, as in the case of 18 South Molton Street, which H&B sold on behalf of Lashmar ticket agency at around £200,000. The 1,230-sq ft property was sold on a passing rent of £32,000 pa.
Another deal in South Molton Street was the disposal of no 42. This had been held on a very elderly lease at, believe it or not, the magnificent sum of £900 pa. Property Holding & Investment Trust, represented by Allsop & Co, bought in the lease at a price rumoured at over £250,000.
But they were then able to let the property to a women’s fashion retailer at £95,000 pa, reflecting a 20ft zone A rent of £237 per sq ft.
There were, say Allsop, 33 offers for this one shop.
Another buy-in has been carried out at 55 South Molton Street, where Allsop acted for UNIPUT in acquiring the lease and are now acting in the letting of the unit, which includes a flat. The property is now under offer to a leading fashion house at an asking rent which analyses back to £208 per sq ft zone A.
Staying in the area of speciality shops, recent years have seen the perhaps unlikely location around St Christopher’s Place emerge as an attractive pitch for traders and shoppers alike.
Off Oxford Street, the project has proved highly successful, now spreading over St Christopher’s Place itself plus James Street, Barrett Street, Gee’s Court and part of the frontage on to Wigmore Street.
Richard Ellis manage the scheme on behalf of Imperial Group Pension Fund, who were smart enough to spot its potential in the first place.
The philosophy is to attract what the managers regard as real speciality traders rather than the more up-market multiples, and the concentration is, perhaps inevitably, on fashion and food.
Rents of £60 to £70 per sq ft zone A — and higher in some cases — have been achieved. Policy is to offer flexibility of leases and to maintain a strong hands-on management in a locality which demands, by its nature, close attention to the day-to-day promotion of its image.
Overall, then, the West End is facing unprecedented demand pressure on its office and retail stocks, coupled with the prospect of major changes both in the return of office buildings to residential use and the possibility of changes in use which could have an impact on a number of long-established trades.
But whatever the West End faces, there is no feeling that it faces decline.
