The West End Market
Other considerations that need to be borne in mind are the higher service charges of the older and less efficient buildings and the potential cost of dilapidations if the lease is within a relatively short period of expiry.
There is a huge appetite for freeholds, particularly in core areas. In many cases a change of use to residential will drive the price considerably higher than the figure that could be anticipated for an office building. Even some of the fringier W1 areas are talking about figures approaching £2,000 psf on gross floor areas which, if one allows 20% for the gross-to-net reduction might reflect a rental of £70 psf. This is more than these buildings are likely to achieve as offices for many years! Counter-balancing this, many Pension Funds and Property Companies prefer to have commercial tenants in their portfolio than residential tenants and in other circumstances the conversion to residential and then the sale thereafter creates tax problems, which slant the decision away from residential conversion.
One of the biggest threats to rental stability over the next 12 months is the stealth tax of Rates. Although with transitional phasing this is limited to a maximum of 20% for 2012/13, with an adjustment for inflation, this is still a substantial increase that Tenants are factoring into their acquisition. Rates payable on a new building in Mayfair can currently be in excess of £40 psf — even relatively basic Mayfair buildings are now looking at a Rates bill in excess of £20 psf but because Rates are non-negotiable (although occasionally they can be appealed in certain circumstances), tenants tend to ignore these.
Rent free periods have remained constant and are likely to do so for the next 12 months. A 5,000 sqft unit would anticipate a rent free period in the order of one and quarter months rent free period for every year certain (i.e. until the lease expiry or break). For large amounts of space this may well be extended and for smaller amounts of space (particularly in Mayfair and Soho) this figure may be reduced.
This will be a tough year for many reasons: economic uncertainty predominantly, but also the lack of supply and choice may make many Tenants sit and wait for the right prospect to appear. Without more churn in the market-place, a Tenant dipping his toe in the market for opportunities every couple of months might be forgiven for perceiving that there is little happening(!)
2012: A year of uncertainty for the West End offices market?
The West End Offices market has proved to be remarkably robust over the last couple of years, unlike almost every other sector of the property market in this Country. Although demand has obviously been much reduced from the years of a stronger Economy, the supply of new and newly refurbished buildings has also been only at a trickle and this balance of thin supply and thin demand has kept prime office rentals in the best areas slowly increasing at the rate of 5-10% per annum.
Despite the economic uncertainties, many top end occupiers will still only move for the best space in the best location. Landlords are banking that it is not necessarily a question of £5-£10 on the deal as being the deciding question (although that Tenant will still want the ‘best’ deal that can possibly be negotiated) these Companies probably do not want to be seen to be extravagant. Wealth is good, but the appeal is subtlety rather than open extravagance. ‘Headline’ rentals (i.e. before incentives) for prime space are over £100 per sq ft, from mostly c.£90 psf 12 months ago.
The next rental band in the prime areas was previously in the £50–£60 psf range. Will it will move up to £70–£80 psf where good but not necessarily top quality refurbishments are being offered. It is possible in some situations but look at the likely tenant profile — if it is the Professional Services sector then I think that this is unlikely. These tenants will still wish to pay up to a ceiling of £50–£60 psf and we are seeing them prepared to move elsewhere in the W1 and SW1 postal district in order to maintain their financial profile.
Typically, the media and communications industries tend to lead the property market out of its recession but this is not the case in this cycle. Traditional Advertising is still very cautious and the new wave Digital agencies have a rental ceiling that is usually in the £30’s/early £40’s. Although Soho and Noho are typically favoured by the media, they have asking rentals in the £50’s and even early £60’s for best space, although there is still space around at lower rentals. However, those seeking larger amounts of space of in excess of 50,000 sq ft will have to look further afield and, typically, digital agencies might consider Kings Cross or Clerkenwell/Shoreditch etc in their decision making.
Tenants seeking better value space will certainly be considering the secondhand space which is proving difficult to let. Secondhand space frequently has a more imminent rent review (almost it might be possible to have this capped or removed) and a more personalised fit out.
The London Office Guide is useful to help tenants find London office space to rent, London offices to let, central London offices to rent and both serviced offices and commercial property space. In addition to helping find London offices to rent and central London office space to let, it is useful for finding London serviced office space and business centres, London agent surveyors and information on the London office markets. Finding office space to let in London can be daunting. The right office space to rent in London is critical for many companies and if they don't find the right London office space to let their business and staff may be affected. Office space in London and London office property to rent can be expensive so companies need to shop around as much as possible. Overall, the London Office Guide is the most useful website and publication to help tenants find London office properties to let and central London commercial space. Especially office space in central London which includes City office space, Midtown offices and West End office space.
Included in the City of London are the postcodes EC1, EC2, EC3, and EC4. On the City fringe are London E1, London N1, London SE1, the southeastern part of London E2 and the southern part of London N7. London E14 includes office space to let in Canary Wharf and offices to rent in London Docklands. It is a separate office market but it competes for many of the same type of tenants the City does. Office space to let in London EC1 includes the areas of Clerkenwell, Smithfield and Farringdon which are east of Farringdon Road. Many media and hi-tech companies find these areas appealing. Offices to let in London EC2 include the areas around the Bank of England and Stock Exchange. Banks and financial companies of course prefer London office space in this postcode. Offices to rent in London EC3 include the area around Fenchurch Street and Eastcheap. Traditional home of insurance companies. Office space to let in London EC4 east of New Bridge Street include the areas around St. Paul's, Cannon Street and Blackfriars stations. London office space to rent is less expensive in the fringe postcodes. However, there is high quality London office space to let in London E1 around Spitalfields, Shoreditch and St. Katharine's. There is also new high quality offices to rent in London SE1 along the southbank and new office space to let in London N1 around King's Cross. There is also a range of inexpensive offices to rent around Angel and Old Street in London N1. Offices to let in London Docklands are mostly modern and the Canary Wharf office space to let is some of the best in all of Europe.
London Midtown is the area between the City and the West End. It is all of London WC1 and London WC2. It also contains London EC1 west of Farringdon Road and London EC4 west of New Bridge Street. Office space to let in London WC1 include offices to rent around Holborn and office space to let in Bloomsbury and also king's Cross. Offices to rent in London WC2 include Covent Garden office space to let and offices to rent around Leicester Square and the Strand. The Midtown office market is divided by Kingsway. Midtown office space to let east of Kingsway competes more with the City. Midtown offices to rent west of Kingsway tend to compete with the West End. Covent Garden offices to rent compete mostly with Soho office space while Bloomsbury offices for rent compete with office space in the West End north of Oxford Street.
The central or core West End of London office market comprises mainly London W1 office space to let. It also contains St James's offices to rent which is London SW1. London W1 offices to rent are in three geographical parts of the postcode. Mayfair, Soho and north of Oxford Street. Mayfair is the south west part of the London W1. Mayfair office space to let is some of the most expensive in the world. Soho is the south east part of London W1. Soho offices to rent have traditionally appealed to advertising and media companies. London W1 north of Oxford Street is divided into several office markets. There is office space to let in Noho which is immediately north of Soho. Soho office space to let is more expensive though. North of Noho are offices to rent in Fitzrovia which is the north east part of London W1. London W1 west of Portland Place is the remaining office market north of Oxford Street. It comprises mostly period office properties converted from residential.
The Greater West End of London includes offices to let in all of London NW1 and part of London NW8 to the north. To the south it includes almost all of London SW1, part of London SW8 and part of London SE11. To the south west all of London SW5, London SW6, London SW7, London SW10 and parts of London SW11, London SW15 and London SW18. To the west all of London W2, London W6, London W8, London W9, London W10, London W11, London W12 and London W14. Office space to let in London NW1 and London NW8 are offices to rent in Camden, Euston and Marylebone. Office space to let in London SW1 includes offices to rent in London Victoria, Belgravia, Millbank, Westminster, and Whitehall. In London SW8 and London SE11 are offices to let in Battersea and office space to rent in Vauxhall. In the south west there is office space to let in Chelsea, Fulham, Earls Court, Knightsbridge, South Kensington, Putney and Wandsworth. The office space to let in London SW11 also includes parts of Battersea. The Knightsbridge office space to let is expensive. Knightsbridge offices to rent compete with Mayfair. To the west there is office space to let in Paddington, Hammersmith, Bayswater, Kensington and West Kensington. There is Hammersmith office space to let in London W6 and Hammersmith offices to rent in London W12. London W14 office space to rent comprises mostly West Kensington.
In some cases serviced offices in central London or business centres in London might be more appropriate for some companies. London serviced office space is ideal for smaller companies. Serviced offices in London are usually available month to month and include furniture and services as well as the space. There is a range of London serviced office space available. From expensive prestige buildings to basic economical space. Before trying to find office space in London and especially central London office property to rent, tenants should refer to the London Office Guide.
