Is Anyone Answering?
By Mark Taylor, SIOR, MRICS, and Guy Grantham
The heart of London’s West End, Mayfair, is the second most expensive office location in the
world, behind Hong Kong, thanks to tight supply and its retained status as the preferred location for small finance and investment companies, particularly private equity and hedge funds. It
is a mature and sophisticated office market that appeals to a broad cross section of top quality
occupiers. The environment, the retail offering, the leisure and the cultural amenities, as well as
its excellent transport connections, makes it a supremely desirable location for employers and
employees alike. Bond Street has a global reputation as a retail destination and the associated
office accommodation has to be of a comparable standard.
The story of 2010 however, was in the financial heart of London’s square mile. Headline
rents in the heart of the City of London experienced a remarkable uplift during 2010. The top
rental figure rose from £ 45 psf to £ 57. 50 psf in the space of 12 months. This constituted a rise of
28 percent year-on-year, the highest annual increase since 1987. Although the West End market
saw annual growth of just 10 percent, this was off a much higher base figure of £77.50 psf.
While such percentage growth is only evident in the best quality units available on the market, all grades of office properties have been hit by above inflation increases in local taxes or
business rates. The revaluations on property are comprehensively carried out every five years,
and the latest round completed in 2010, but is based on figures acquired as of March 31, 2008.
Average UK offices rents (including Central London), grew by 25. 9 percent between 2003
and 2008. The nature of the Central London market means that it sees rental growth of a much
more cyclical nature, with distinct periods of growth followed by periods where rents are falling. Accordingly, over the same period, Central London saw rental growth of 52. 6 percent.
The West End saw by far the strongest growth over that period, with prime rents in Mayfair
increasing by 70.4 percent from £ 67. 50 psf in March 2003 to £115 psf in March 2008. This
leap in rents initiated a sharp rise in local government taxation which, although phased in terms
of uplift between 2010-2015, could still see a total business rate rise per square foot of close to
40 percent on the best properties over that period.
Anticipated rental growth through to 2014, coupled with the growing tax burden and the
addition of charges for building services and maintenance, equals further marked uplift in occupational costs across the entire Central London market. A prime mover for the rental uplift in
Central London is the nature of current vacancy levels. Figure 1 shows prime rents versus
vacancy rates since 2003 in Mayfair, with rents increasing as vacancy falls. Vacancy rates over
the past 18 months, have been on a downwards trend once more and prime rents have subsequently increased.