LONDON’S office market has foiled the Brexit pessimists and has remained resilient, with offices in exceptionally interesting buildings and areas achieving record rentals.
30 Berkeley Square, a prestigious Mayfair address, fetched remarkable rents, far above other prime London areas
Estate agents Pilcher Hershman and CBRE, for example, negotiated a record rent of £250 ($318) per square foot for a 2,703 square feet space in London’s Mayfair. The annual rent paid by Steadview Capital Management, a hedge fund, is a whopping £676,000 ($.
The office space, which has a roof terrace overlooking London, achieved the record because of the highly unusual building and location, according to David Rosen, a senior partner at Pilcher Hershman.
The building, 30 Berkley Square, is the London home of Phillips Auctioneers and beautiful paintings and other exhibited art work, overflow into the reception room.
Offices on the top floors of the building have their own roof terraces and views over leafy Berkley Square, Hyde Park and Grosvenor Square, the former site of the US Embassy.
Last year, Vedanta, the resources company, agreed on a rental of £175 ($222) per square foot in the converted high-tech designed office space within the top floors of 30 Berkley Square.
The previous record rental in London was £190 ($241) per square foot for offices in St James near Buckingham Palace, a report in The Times said. It beats US hedge fund Citadel’s record price of $300 in New York’s Park Avenue.
Other office rentals are way below the above records
The record rentals are one-off deals and office rentals in the West End and other prime London areas currently range between £95 and £120 ($140) per square foot, estimated Mr Rosen.
The demand comes from technology and other creative services companies as well as large corporations. Innovative architectural and office designs, cultural, gym and other facilities, boost rental values as commercial tenants have become increasingly discerning, Mr Rosen added.
“Leasing activity across the West End continued to remain resilient over the first quarter of this year, amid the continued uncertainty,” said a report by Savills.
Occupiers are remaining undeterred about Brexit and intend completing 98 transactions, the estate agent said. The firm estimates that the average prime rent is currently £119 ($150)per square feet. “Overall, 1.2 million square feet were completed, making it the highest amount of take-up we have seen over the first quarter in over six years, and up 30 per cent on the long-term average,” Savills noted.
Rentals in the City and Canary Wharf are relatively low
According to various estate agents, office costs in the City of London and Canary Wharf are much lower. Grade A rents range from £55 to £70 ($80) in the city, and £40 to £50 ($60) a square foot in Canary Wharf. Knight Frank calculated that average rental yields in prime office space in the West End ranging between 3.5 and 3.75 per cent, and prime space in the City between 4.25 and 4.5 per cent.
“In 2018, London saw greater volumes of commercial real estate investment than any other global city at £16 billion ($20 bn),” Knight Frank said in a report. “Similarly, 14.8 million square feet was let in the London office market in 2018, the highest level since 2014 and 15 per cent above the long-term average.” Relatively few financial jobs have left London because of Brexit, not the tens of thousands originally predicted, the report said.
Despite some exceptional sales market is uncertain
Despite agents’ confident views, Deloitte’s winter 2018 London Office Crane Survey illustrated some uncertainty. The report estimated that space under construction equalled 11.8 million square feet, a 13 per cent drop since its previous survey.
“Although still above the long-term average, construction activity has generally been declining since the 2016 peak, when 14.8 million square feet was under construction,” Deloitte said. “Unless more schemes commence in the next few months the lower volume of construction is set to continue into 2019.”
Knight Frank acknowledged that concerns about the direction and future global standing of the UK after the referendum and the “locked political process” have weighed down business and consumer sentiment. Several aspects, however, should underpin the London office market, the firm said.
These include the UK’s global standing as a centre for new wave technologies such as artificial intelligence, automation, robotics and life sciences.
© Copyright Neil Behrmann. This article was first published in The Business Times, Singapore
Neil Behrmannis London correspondent of The Business Times. Jack of Diamonds his thriller on global diamond mining and smuggling, has recently been published. It is the sequel to the thriller, Trader Jack, The Story of Jack Miner. See reviews of both books on https://www.amazon.co.uk/Neil-Behrmann/e/B005HA9E3M