Last week EG reported that PRUPIM is in line to achieve the highest rent in West End history as its refurbished 30 Berkley Square. Simon Tann, partner, DE & J Levy looks at what this actually says about London's prime office market. "As the market returns from its summer break there is speculation that record office rents are being achieved and that the market is somehow exploding into a brave new world where £100 per sq ft rents are commonplace.
There is no doubt that 30 Berkeley Square (EGi news £) will offer a truly exceptional product, looking down, as it does, across Berkeley Square, the most prime address in Mayfair. There is no doubt records could be broken, particularly if it was let floor by floor or on shortish leases.
It has seemed hard, at times, to explain why, with relatively fragile demand through the recent recession, top rents have continued to rise, particularly at the very top end. It is partly because landlords have not felt the need to cut rents in order to facilitate lettings. They look at the lack of future supply and are prepared to sit out the difficult times and wait for the high rent paying tenants, rather than off load space at rents below their expectations.
This has meant a lack of evidence of any rental decline and a continuing picture of rental growth that has masked the paucity of demand. Behind the deals done there is the time that it has taken to achieve these lettings and traditional letting voids of 6 to 12 months being exceeded, with over two years being witnessed in some instances.
However, following two rather benign years we appear now to be on an upward curve again as confidence and demand has begun to return.
At the upper end of the market we are seeing a return of the demanding financial and corporate occupiers who are prepared to pay well for accommodation that offers them something special.
There is no reason why rents will not push onwards beyond £100 per sq ft again. One of the key reasons is affordability. If one looks at where rents are in real terms rents are more affordable today than they were in the late 1980's and there is a greater opportunity for further real rental growth."
For more on the London office market see EG London in this week's Estates Gazette. EG London is also available, free, as an iPad edition with additional content, download the app to access this and recent editions.
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