West End Office Market: ΓÇ£You canΓÇÖt do budget space any longer in W1ΓÇ¥
2014 signals the end of affordability for West End office space, according to officebroker CEO Chris Meredith.
According to the latest officebroker Serviced Office Reviews, the West End is home to both the most expensive office space and the fastest rising prices in Central London. For Q1 2014, the average rental price per desk in W1 was ┬ú802 per month; an increase of 19% on Q1 2013. This compared with an average of ┬ú688 per desk per month and a 16% price increase across Central London as a whole.
The office-to-resi effect
Office-to-resi conversions are a key factor reducing the availability of business space across Mayfair, Marylebone, Fitzrovia and Soho, resulting in increasing prices.
Given the lucrative nature of Central LondonΓÇÖs residential property market (Zoopla estimates the current average price of a flat in Mayfair at ┬ú2.2m), landlords need a sizable incentive not to convert their office buildings into homes.
As officebroker CEO Chris Meredith says; ΓÇ£If a landlord is going to keep the building as office space theyΓÇÖve got to get the return on investment; therefore itΓÇÖs got to be Grade A space. Naturally, that comes at a premium when weΓÇÖre looking at rental rates. You canΓÇÖt do budget space any longer in W1.ΓÇ¥
Strong business case for West End offices
Despite the rise in prices, serviced office providers continue to have confidence in the West End as a location which will prove its worth for businesses.
Last year saw Landmark Plc make its first foray into the West End with the launch of a business centre in Mayfair. Earlier this year, Avanta Serviced Office Group announced plans to expand its own Mayfair offering on Hanover Square.
More recently still, The Office Group has taken a twenty-year lease on nine floors of space in a building in Fitzrovia. At 70,000 sq ft, it is the biggest office deal of the year so far in the West End. ItΓÇÖs worth noting that all these companies specialise in premium serviced office space.
The future of the West End
So with prices on the rise, who will stay in the West End? Chris outlines his expectations for the changing shape of the area:
ΓÇ£Mayfair will continue to attract hedge funds, wealth investment and wealth management companies, particularly those representing foreign investors. Energy companies will also stay in the area, as will luxury goods companies for whom the Mayfair address is an integral part of their brand and therefore adds demonstrable value to their business.ΓÇ¥
ΓÇ£On the other hand, IΓÇÖd expect to see companies which chose W1 based on convenience move out to Holborn or Victoria because saving ten minutes on the commute isnΓÇÖt justified anymore compared with the additional cost to stay in the area.ΓÇ¥
Chris expects to see this pattern filter out across the rest of the West End, as businesses look for alternatives to Mayfair within W1. ΓÇ£WeΓÇÖre already seeing an expanding definition of Mayfair as a geographical area, which doesnΓÇÖt necessarily go down well with traditionalists, but itΓÇÖs certainly one way of keeping the cachet of a Mayfair address while moving to a more affordable location. As a result, prices in areas like Marylebone and Fitzrovia are also rising.ΓÇ¥
In other words, LondonΓÇÖs West End is becoming more exclusive than ever. But that wonΓÇÖt deter businesses set on a Mayfair or Marylebone address: provided they can make the business case, a West End base will remain as sought after as ever.
Discover more data on the serviced office industry with officebrokerΓÇÖs Serviced Office Reviews ΓÇô available to download in full in the Knowledge Centre.