I was just saying....

MAYFAIR & ST JAMES'S SUPPLY AT DECADAL LOW

Initial indications from our latest research document on the West End Office Sub-Markets have shown an interesting continuing divergence between the Core (Mayfair and St James's) and other West End sub-markets (Marylebone, Fitzrovia, Soho and Covent Garden).

The research shows that in the 3 year period post-Covid the availability rates in the respective areas have gone from a nearly identical 6.2% vs 6.4% to 4.4% vs 7.5%. 

This leaves the availability rate in Mayfair and St James's at it's lowest point in a decade (4.4%) against the long term average of 6.27%.

Below we give our thoughts on why this has happened, and whether it's likely to change in the short term future.

• 'Return to the office' drivers 

Since the end of Covid many businesses have sought to increase their employees office attendance and reduce their desire for working from home. In order to do achieve this a large proportion of them have tried to create a better working environment within the office and to relocate to central locations with the very best amenities and transport links. Many have reduced their office footprint in favour of taking space in traditionally more expensive areas of London, increasing demand in Mayfair and St James's at the expense of other locations.

• Tenant sector activity
  
  In addition to this take up in the West End has been dominated by the Financial Services sector who accounted for over 50% of lettings in 2023, occupiers within this sector tend to favour taking space in or close to Mayfair & St James's. Tenant demand from this sector remains focussed on high quality, well located buildings, with strong ESG credentials and in many cases this appears to outweigh any sensitivity to rent and other costs, if all the boxes are ticked.
  
  
• Pre-completion lettings
  
  Another emerging trend has been the number of pre-completion lettings of new developments within Mayfair and St James's and to a lesser extent the other core sub-markets. These larger lettings remove many new developments from the market in one transaction, where as historically many similar buildings would end up being multi-let and providing supply to the smaller end of market over a longer period of time. Recent major pre-completion lettings, still under construction, include 175,000 sq ft to Millennium Capital at 50 Berkeley Street, 88,000 sq ft to Chanel at 36 Berkeley Square, 80,000 sq ft to BP at 20 Carlton House Terrace and 226,000 sq ft to Blackstone at Lansdowne House.
  
  
• Construction costs

With construction costs having hit record levels, and remaining high, it has proven difficult for landlords and developers to capitalise on this 'bubble' of increased demand and reduced supply and start new schemes in the area. There was also a notable development lag created by Covid, where either the commencement or progress of schemes was halted.  Whilst there is currently 1.2m sq ft either under construction or planned to commence imminently the average annual take up across Mayfair and St James's is 950k sq ft, which indicates that there is unlikely to be a surplus of prime space any time soon.