London offices most expensive in world

London’s West End is the world’s most expensive office market once again after regaining its crown from Hong Kong’s Central Business District (CBD), according to research published in Cushman & Wakefield’s Office Space Across the World 2013.

The report from the international property consultants highlights the scarcity of quality space in London which has increased competition and consequently inflated office rents by 2% in the West End to make them the most expensive in the world.

“As a truly global city, London’s appeal continues unabated. In conjunction with a scarcity of good quality stock, prime rents have increased over the year,” said Digby Flower, Cushman & Wakefield’s Head of London Markets. He added: “Equally importantly we expect rents to grow further as we get into recovery mode.”

Hong Kong’s CBD drops down into second place, while the Zona Sul area of Rio de Janeiro climbs from 8th last year and powers into the top three most expensive office locations in the world as a result of a 43% rental increase compared to 2011.

A related London phenomenon is the high-end shopping boom.

Luxury stores in London are bracing themselves for a huge increase of wealthy Chinese consumers fuelled by the boom in tourism which is expected to peak over the Chinese New Year holiday starting this weekend. According to another Cushman & Wakefield report, this seemingly insatiable appetite for luxury goods, coupled with London’s attractiveness as a global luxury goods shopping destination, has resulted in international brands competing for the best retail space on London’s prime streets Bond Street and Sloane Street with rents anticipated to hit record levels this year.

For each store that becomes available on Bond Street or Sloane Street in London’s West End, there are around 10 international brands competing for it – an increase of around 20 per cent in the last year. Zone A rents, the industry measure for rent calculated by the most valuable part of the store, in central Bond Street have increased from £600 to £800 per sq ft. However, rent can be up to £1,000 per sq ft in the southern section of Bond Street – this could be even higher if a landlord could secure vacant possession and offer a shop on an open market rent.

Spending by Chinese tourists rose by 64 per cent last year and totalled £165 million in 2012 (according to recent data from retail analysts Global Blue), while estimates from The New West End Company, the trade association for Oxford Street, Regent Street and Bond Street, put the average spend of a Chinese tourist in London’s West End at £1,300 per day – nearly 10 times more than a typical British customer.

Peter Mace, head of central London retail at global property consultants Cushman & Wakefield, represents many high-end luxury retailers in London’s West End. He commented: “We expect many wealthy Chinese tourists to hit the Capital this weekend for Chinese New Year. The appetite for British, and international, luxury brands from Chinese, Russians and other overseas consumers in London has never been higher as prices can be considerably cheaper than back home.

“International retailers are acutely aware of the relentless demand from consumers for luxury goods in the West End and are constantly vying for prime positions on London’s top shopping destinations – I haven’t seen this level of demand for many years.”

The phenomenon of London as a world centre is one of the factors which has sustained the value of sterling and makes it difficult for British manufacturers to compete on international markets. We would argue that one of the ways to help would be for the government to collect this rental value as public revenue, and lift the tax burden on all business, so that manufacturers were in a better position to offer their products at attractive prices.