Belt Tightening in the West End:

Back in February we reported the increasing trend for the luxurious Georgian building of Mayfair and St James’s to be converted back into private residences (http://propertyforum.blogspot.co.uk/2012/02/home-office.html)

A recent report from our friends at Cushman & Wakefield now confirms this, and also raise an interesting question with regard to perceptions in these straightened times.  It would appear that now only 50% of hedge fund managers are based in the area, compared to over 70% 5 years ago.  The exodus away from the area to the more affordable and less extravagant Marylebone, Soho and Knightsbridge (really?) is continuing, they say.  With hedge funds losing 3% of their value last month alone, investors are, apparently, less impressed with the lavish offices and wish those managing their funds to have a more frugal presence.

One of the effects of this is to place upward pressure on the market in the area.  Rental levels on refurbished space in Mayfair are already breaking the £100 per sq ft level and, with a narrowing range of choice as new developments hit an all time low, there will be continual upward pressure on the limited vacant space available.

An Alternative to the commercial lease?:

A new entry into the serviced office category will open this month.  Dryland Business Club on Kensington High Street will provide high end service options for those not wishing to take on the rigours of a commercial property lease, with flexible arrangements to suit a variety of usage profiles.

Offering very high standards of accommodation, service and facilities, including usage of a chauffer driven Maserati Quattroporte, the new complex is the first of a string of centre being developed by former Foxtons boss, Jon Hunt.  Mr Hunt is bringing a new approach to the serviced office sector by making the facility more attractive to those who require the convenience of a London a base, without maintaining the commensurate overhead.  Packages start from £139 per month.

The services office sector has been progressing well for many years, with many seeing Regus as the flagbearer, and many smaller players coming into the market to address the requirements of the SME and sole trader.  From the look and style of the Kensington High Street Dryland is aiming at the entrepreneur for whom a prestige address in the West End without the hassle of running the offices themselves.  When fully occupied the facility will return approx. double the rent that could be expected under a normal rental arrangement, so not all bad!!

A second facility is expected to come on stream in Holborn at a later date.

Home Office?

Planning consents for the conversion of offices to residential buildings in the West End is on the increase.  Last year schemes totalling more that 2 million sq ft of conversion were granted, significantly up on the 202,000 sq ft in 2010.  Values of West End conversions are being quoted at the £3,000 per sq ft mark as against £2,000 per sq ft for office space and a number of office building are currently on the market to attract residential developers to drain even more for the pool of available commercial space.  It is thought the demand is, yet again in the London residential market, being driven by demand from “overseas buyers” with the kudos of Mayfair and St. James’s being too great an attraction to resist.

Westminster Council would appear to be keen on this latest trend, showing limited resistance to the movement to convert.  Indeed, new planning regulations may make it even easier to carry these out without the need for a change of use consent.  The trend will continue to put the squeeze on the West End commercial occupier, those creating and bringing wealth into the capital on a continuing basis.  Rental levels on refurbished space in Mayfair are already breaking the £100 per sq ft level and, with a narrowing range of choice as new developments hit an all time low, there will be continual upward pressure on the limited vacant space available.

This is all very well for the present as the Capital’s residential market continues to resist the national trend of stagnation and even regression in housing prices.  Where there’s a fast buck to be made, why not?  When the economy turns, (and it has to doesn’t it?) the time lag to address the requirement for more commercial accommodation will be significant. Apart from the obvious lack of acreage in the West End, and they’re not making any more of that, the timescales to prepare and develop either new build, conversions or refurbishment will mean that the shortage of available space will be with us for some time to come.

Not all is doom and gloom on this front, however.  There are those who welcome the return to original usage of some fine buildings, with period features once again being brought back to a life they were originally intended for.

$10 BIllion in the City & West End

City investment advisors Gesham Down Capital Partners (www.greshamdown.com) calculate that there is more than £6.5 billion of commercial property for sale across Central London: around £5 billion in the City and £1.56 billion in the West End.

Gresham Down predict markets polarising between equity and debt investors, with overseas investors - predominantly equity investors, who currently represent almost half of buyers in London, dominating the market.  They estimate banks are trending towards selling or encouraging their borrower clients to sell and this will accelerate "with further stock being added from owners looking to take profit on purchases made within the past 2 years and from maturing loans within CMBS portfolios".  The number of active lending banks has fallen from 25 to no more than 10-15.

Gresham estimates that there are currently £1.43 billion of investments under offer in the City and £1.08 billion in the West End. Turnover for the year stands at £4.17 billion for the City and £3.33 billion for the West End, an increase of approximately one third compared to 2010.

Equity buyers are recommended to focus on sales from buyers who have to sell, whilst vendors are being told to focus on equity, rather than debt-based buyers.

Maidenhead site in British Land grab

Grenfell Island, a road locked office and leisure complex in the centre of Maidenhead, Berks. has been acquired by British Land in what can be seen as a pre-emptive strike in the great Crossrail dash.  Grenfell Island is ideally situated opposite the rail station in Maidenhead and comprises some 113,000ft² of high quality office space together with a cinema and health club.  British Land purchased the 9.5 year unexpired lease term from the private vendor for £75 million.  The building is let to Hutchison 3G UK Ltd, and is the UK headquarters of Hutchison Whampoa Ltd, a telecommunications and data services provider.

Maidenhead is at the western end of the new Crossrail line, which, when completed, will link the town with Heathrow, the West End, the City and Canary Wharf with high frequency fast rail services.  Having endured a period of slow decline on recent years it is hoped and anticipated that this will be the first of many such acquisitions and developments that look to cash in on the capital growth that the advent of the new line is hoped to bring.

The Crossrail project carries a £15.9 billion budget and the current programme sees services starting to run in the central section in London following the completion of the main infrastructure works at the end of 2018, with the outlying services following in the months after.  The project will see the implementation of many innovative engineering and technical solutions and programmes.  There are also many other Health & Safety initiatives, including specialised training for over 4,000 lorry drivers to highlight the skills required to navigate the capital’s roads.