Commercial Property Values in the West End
Overseas investors have propped up the commercial property market of London in recent years. Middle Eastern and Russian investors, in particular, have favoured the city as a place to invest. In 2013, about 70 per cent of commercial property investment came from foreign, rather than domestic investment. As suitable commercial investment opportunities have begun to dry up in London's central locations, especially in the West End, so investors have looked to regional towns in the south east of England instead. This has led some to think that commercial property values may falter in inner London - but that may well be far from the truth, as we shall see.
Types of Commercial Property in the West End
Commercial property in the West End of London falls into two main categories. These are office spaces and retail ones. Of course, in many of the shopping streets of the West End where shopping malls have yet to make any significant headway landowners often have their retail and office rental incomes mixed together, with the shop being located on the ground floor and office space being occupied above that.
A typical area where you will find this sort of set up is on Oxford Street, where you are just as likely to find an architectural practice above a clothes shop as you would a firm of solicitors. Above the shops of London's other best-known shopping thoroughfare, Regent Street, there are all sorts of offices - small ones, occupied by theatrical agents, and large ones, often taken up by trendy design companies that like to be in the heart of the bustling part of the city.
However, when it comes to retail space, yields have remained relatively low over the last ten years or so, certainly since the global economic crisis. This is in marked contrast to the growth in demand for office space in the city, especially in the West End, which really did not seem to suffer that much at all in the last decade. Given the mixed nature of the commercial property valuations, you might expect all investors to be interested in would be office space, in terms of commercial property. Nonetheless, there are some retail hot spots and it is these which garner the most interest from savvy portfolio managers and one-off property investors alike.
Retail Property on the Rise
Well known shopping streets like Oxford Street and Bond Street will always have a certain caché that high-class retailers will want to buy into. Indeed, it was only in 2013 that a record breaking new lease for the West End was signed for two retail units situated on Bond Street. However, for investors wanting to get in on the action competition is unbelievably fierce in these well established locations. Instead, many savvy investors are looking for the up-and-coming areas of retail in West End where the trendy shoppers are heading. A good example of the sort of thing is Lamb's Conduit Street where ultra-cool menswear brands ply their trades in shop fronts next door to one another. Average rents in the area could be anywhere from £30,000 to £50,000 each year, depending on the exact location and the square footage. Despite this, many of the younger clothing brands see this sort of rental as affordable in today's market. Overall, in the third quarter of the financial year 2013-14, prime A retail space in the West End rose about three per cent and few would bet against similar increases in the going forwards, especially in the best locations.
Office Properties in the West End
Over the last decade, it is the City of London which has continued to dominate when it comes to the construction of new office blocks. Few new office developments have taken place in the West End. Coupled with the trend for converting old office spaces into residential dwellings - something that has been happening all over West London for the last few years, the principle driver for growth in office rental yields in the West End has simply been its relative scarcity. With a great deal of competition among businesses for the right sort of office with the right sort of W1 post code, office managers have had to face the fact that they are renting in a landlord's market. Vacancy rates in the West End were as little as 5 per cent in 2013. This has, as you might expect, made the West End a prime area for commercial property investors, driving up the value of land steadily in recent years.
As many who watch the commercial property market in London will know, West End offices tend to be smaller than those in the City, with only a few being in excess of 100,000 square feet. As such, it is noteworthy that the greatest competition for offices is not just centred on the prime locations in W1 but also on those spaces which are larger and can therefore accommodate more staff under one roof - and one lease agreement.