Knight Frank highlights strength of Mayfair and St James’s office market
A recent office leasing deal in Mayfair and St James’s has reminded James Roberts at Knight Frank of the ongoing popularity of this area and its exclusive status. Writing in the Knight Frank Global Briefing blog, he says the letting of the top floor at 23 Savile Row to financial tenant Sapinda for £110 per sq ft is the most expensive office leasing deal signed in Europe so far this year.
The transaction has taken place against the background of the eurozone crisis, but the low vacancy rate in Mayfair and St James’s (5.7%) suggests that market fundamentals and the ongoing demand from the financial sector have outweighed the difficult economic climate, he says, generating rental growth for prestige offices. It’s not the only high-priced transaction in the area – the second floor at 1 Grafton Street is currently under offer on a rent of more than £100 per sq ft, he adds.
Knight Frank data shows that deals on rents above £100 per sq ft for office space in Mayfair and offices in St James’s first emerged in the years before Lehman Brothers collapsed in 2008, with 56 such deals signed between spring 2006 and autumn 2008 – the vast majority to the financial sector. Such transactions subsequently disappeared in 2009 as rents in Mayfair softened amid the global recession, but in the past 12 months the firm has seen seven deals over the £100 per sq ft level.
These more recent deals have been for relatively small amounts of office space – 1,400 sq ft to 8,900 sq ft – Roberts notes, but this kind of smaller-scale transaction is where the £100-plus rents first emerged in 2006 before they moved on to larger deals. He points out that the current 5.7% vacancy rate in Mayfair and St James’s compares with the 7.1% reading in Q2 2006 when £100-plus deals first appeared. The current development pipeline is 25% below the long-term average, which suggests that supply will be constrained in the future.
But what about the effect of a possible eurozone break-up? Roberts notes that prices for Mayfair and St James’s offices have jumped 42% from 2009 while the vacancy rate has halved since peaking at 11.3% three years ago. If the worst happened, he says, Mayfair would not defy gravity, but he argues that this office market would be among the most resilient in this case, given its tight supply conditions and the “raft of fund managers and private equity firms who seem firmly wedded to its exclusive addresses”.
