The ‘Financial Times’ reports;
“Media, technology and fashion businesses are being priced out of their traditional West End heartland as a shortage of office space and demand from financial services companies push rents in the area to the highest in the world.
The cost of the best quality office space in the West End has risen by nearly 15 per cent over the past year to an average £100 per square foot, according to real estate services group CBRE. Driven by the UK economic recovery and demand from resurgent financial services companies, this makes it the world’s most expensive office market after Hong Kong and Moscow.
Westminster council will next month propose new measures to encourage more office development in an attempt to hang on to the area’s creative industries, the Financial Times has learnt.
More than 600,000 people work in the borough of Westminster, nearly double that of the City and more than any other local authority in Britain. Its economy, worth £40bn a year, produces 3.1 per cent of the UK’s gross domestic product and 19 per cent of London’s economic value, according to council figures. More than two-thirds of Westminster jobs are office-based.
Yet businesses are being squeezed by a lack of space: more than a quarter of prospective tenants say they cannot find adequate offices in the area, according to new data from estate agent DeVono Property.
As a result, London is shifting eastward, with fashion and technology companies moving to cheaper spaces around the edges of the City, while large amounts of new office development are being planned for the capital’s eastern docklands.
Louis Vuitton, the luxury fashion brand, last week announced it was moving its UK headquarters from New Bond Street in the heart of the West End to gritty Kings Cross to the north. Earlier this year, Skype moved out of the West End to new offices in Holborn, becoming the latest in a series of tech companies to pick a fringe location. Other examples include Amazon in Farringdon and Google, also in Kings Cross.
The government’s relaxation of planning rules earlier this year has had a significant impact, according to Robert Davis, Westminster council’s deputy leader. The rule change has made it much easier to convert office properties to residential homes, significantly worsening the loss of business space.
In 2011-12 alone, council figures show 2 per cent of the West End’s overall office space was lost to residential conversion, equivalent to 146,000 square feet.
Mr Davis said: “Westminster is the business engine-driver of the [British] economy, and we need to protect offices. When you convert to residential, that space is lost forever. It has been the council’s policy to encourage residential property for the past 20 years, and we are now starting the debate about changing that.”
Tony Travers, a professor at the London School of Economics and a member of the West End Partnership, said the trend risked the viability of the area as home to an important sector – especially when companies looked east to locations that retain the “edginess” that Soho once boasted.
“There’s a big threat to the West End now from inner east London – places like Hoxton and Shoreditch – which have managed to retain a sense of grit and authenticity where Soho risks becoming so gentrified and sanitised that its function changes,” he said.
Adam Landau, a director of DeVono, said client Swiftkey, a technology company, wanted to be in the West End but moved to Southwark instead; another client, a production company, had been based in Soho but is now moving to Clerkenwell.
“Landlords have all the power right now,” he said. “Many small and medium-sized enterprises are settling for fringe locations such as Holborn, Clerkenwell and Shoreditch as a result.”
Sandra Jones, a consultant at property research group Ramidus Consulting, said rents for advertising and film companies in the West End were becoming unsustainable. “The small post-production and film businesses around Soho love the grit and scruff but . . . it’s becoming a bit too slick and a bit too smooth,” she said.
Westminster’s office shortage has been exacerbated by developers’ desire to capitalise on strong house price growth; many schemes being built now include swaths of residential property at the expense of new office space. In addition, very little new office construction has taken place since the credit crunch.”