Soaring rents should put off many businesses wanting a London base, but location is still everything to them
I’m flattered to be asked by LondonlovesBusiness.com to do my first of what I hope will be many editorial articles in this wonderful online publication.
Mike Bokaie, whom I’ve known for many years, came to ask me to write a few words and thus I hope you like the content.
Yes, London loves business.
But does business love London? Is our property system geared to attract business?
Let’s start on our lease structure. Does our property lease structures suit foreign companies? The answer is no. For years they have complained about 15- and 20-year leases.
We’re now down to 10-year leases with five-year break clauses in most situations, which is a real step in the right direction.
Are our commercial rents affordable?
The prices certainly tell a story. Take Mount Street in Mayfair as an example, where rents have risen to £350 per square foot – Zone A from £90 per square foot only seven years ago. Zone A is the most desirable property, it’s high value driven by high-class retailers wanting those units.
But where can people go for a cheaper deal? The whole of Mayfair rents have doubled so retailers start having to go north of Oxford Street. But has that area got the footfall?
There are major newer retail areas: the City, Notting Hill and, recently, Shoreditch.
Are our residential prices too high?
Again, driven by demand for flats in Mayfair, rents in St James’s and Knightsbridge are up to £3,000 per square foot and, in some cases, even higher.
Are international players really going to want to spend that much money on their residential accommodation?
Yes, in the high-worth markets it’s happening. But what about the middle management?
Can middle management really afford to be attracted to London and pay these prices?
Office rents range across a spectrum – you can go to Shoreditch and get good offices at £25 per square foot and now Shoreditch is a boom area. In Clerkenwell the figure is £25-£35 per square foot; Holborn £40-£50 per square foot – but if you want to touch Mayfair or St James’s you’re looking at £60-£80 per square foot and even over £100 per square foot, once again for the best.
So how come vacancy has gone down? Well, since Lehman’s collapsed in September 2008 business has restored confidence once again. The office market started improving in September 2009 and has risen ever since.
It’s amazing how short memories are of the banks’ decline and, at the time of writing, we face the uncertainty on the world economy with regard to whether banking situations in various countries are stable and whether banks are able to survive what could be a double-dip recession.
But the bottom line is that London does love business and people love being in London to do business.
And that’s what drives it all.
Anthony Lorenz is the founder and chief executive of The Lorenz Consultancy, which specialises in all aspects of commercial property from agency to rent reviews, lease renewals and break clauses, dilapidations, valuation and litigation.