While the eurozone crisis continues to wreak havoc, the Central London office market seems as buoyant as ever, says property specialist Anthony Lorenz
Over the last four decades the office market has always peaked in the nines – ’79, ’89, ’99 – but reached an early climax in 2007 before Lehman’s crashed in September 2008. Top Mayfair rents peaked at £120 per sq ft, but the norm for the majority of quality offices in Mayfair was still £90-£105 per square foot.
In early to late 2009, those same offices were letting at £60-£70 per sq ft. But since late 2010 and throughout 2011 a lack of supply, linked with demand for quality space, has pushed rents once again to an all time high.
In fact a company which in late 2008 took, arguably, the best suite in central London; 8,800 sq ft in Savile Row at £93 per sq ft, has just put the space on the market and enjoyed 15 inspections in the first week.
This sort of demand is fuelled not only from companies expanding, but also from those downsizing and still looking for quality offices in Mayfair.
Another suite in Grafton Street, comprising 8,000 sq ft approximately, has attracted unprecedented interest and is likely to go under offer during the course of the next couple of weeks.
And then there’s the 8,500 sq ft Baker Street suite. It had been on the market for almost two years until just recently when it found a tenant in the cosmetics market. The deal was concluded in a matter of a weeks, with a lease expiring March 2014.
The fringe areas around Mayfair are also fairing well, with rents ranging between £40-£70 per sq ft.
On the back of this, a meteoric rise in ‘Grade A’ space comes as a substantial improvement in the secondary market also, where rents have risen from £30 per sq ft to circa £45 per sq ft per annum exclusive.
On top of this, tenants obviously have to pay rates and services charges, the rates being approximately 45 per cent of the rent and the service charge for quality air conditioned space running between £9-£12 per sq ft.
Companies who want to be located in Mayfair and St James’s soon get used to the occupancy costs. Since the majority of corporate occupiers’ total expenditure on rent, rates and service charges only amounts to between 10-12 per cent of their total outgoings, they are not that worried if there is a 10-20 per cent rise in rental values – they will pay what they have to.
The market is of course tenant led. If tenants did not want the space and were not prepared to compete for it, then the market, at these levels, would not exist.
That is why rents rise so quickly.
A corporate occupier looking for offices gets very frustrated when he has made three or four bids and has got to outbid on each of the properties he has gone for.
Next time round he will raise his levels by an extra £10 per sq ft, from say £60-£70 per sq ft, in order to secure the acquisition.
Considering that two years ago there was virtually no market, it’s safe to say that now it’s back – and booming.
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.