Hotfoots it to Mayfair - Mayfair Times

60
commercial property
“I want to know
when my
customers aren’t
happy. You can’t
create value for
occupiers unless
you’re prepared
to receive the
brickbats as well
as the bouquets”
Gillie Bexson,
Portfolio Manager,
The Crown Estate
David Hanrahan of H2SO summed up the journey: “We had a rocketing market
through to 2008, with financial services occupiers flooding into Mayfair while some
of the more traditional occupiers in the area – for example, surveying firms – moved
out. Then the financial service sector was hard hit, rents went down quickly but
now have recovered well. The saving grace for landlords is that there is so little new
supply coming through: there are only two substantial schemes due for completion
in Mayfair in the next 18 months.”
As a consequence, rents have bounced back substantially. However, this is not
to say that market conditions wholly favour landlords. A recurring theme of the
lunch was the importance of occupiers and the need to provide high-quality
customer service. The Crown Estate’s Portfolio Manager, Gillie Bexson was
emphatic: “I want to know when my customers aren’t happy. You can’t create
value for occupiers unless you’re prepared to receive the brickbats as well as the
bouquets.”
It was a point picked up by Patrick O’Keefe of GVA Saxon Law, who observed
how fundamentally the structure of the market had changed in the past three
decades: “In the 1980s we let offices on 25-year leases. Today, most West End
office leases are under ten years and the average office lease in London is just eight
years.”
This, O’Keefe believes, demands a different relationship between landlord and
tenant: “The landlord-tenant relationship has been traditionally adversarial. Now, it’s
a case of trying to change the relationship to one of working together.”
For the occupier, the benefit is better customer service and for the landlord, it is
a better tenant retention profile and holding on to vital income.
David Foord – a director at developer, Bellhouse Joseph – has first-hand
experience of how the landlord and tenant relationship works in the face of shorter
leases. “After being at a UK firm of surveyors, I worked for a Canadian development
company and was astonished to see them treat their tenants as customers,” he
recalled. “It was because they were on short leases and there was also no barrier to
the supply of space. But the landlord knew if they looked after their tenants they’d
stay. Occupiers are the lifeblood of any building and if you don’t look after them,
you lose them.”
The serviced office offer – where an occupier pays an all-encompassing fee to
cover all workplace costs – is based on flexibility and customer service. As Emily
Smith of Executive Offices Group observes: “We’re somewhere between a hotel
and an office building.” Given that serviced offices are where many new businesses
start out, the sector is a good bellwether of where the market and the wider
economy are headed. “We’ve already done more deals this year than the whole of
last year,” Smith reports.
In many respects, the customer relationship that applies in serviced offices is a
model for conventional landlords – especially the level of communication. Smith
explains: “Because we’re around, we learn things – those ‘watercooler moments’ –
about what’s happening in our occupiers’ businesses. We can pick up on when
they maybe thinking of moving we can learn when they’re thinking of moving, what
they need from their workplace, how their clients are doing.”
When the economy was at its toughest, the serviced office sector came under
pressure not just because of the prevailing economic conditions but also because
the providers of conventional office space rapidly became more accommodating in
terms of lower rents and shorter leases. This was a theme picked up by Simon
Tann of DE&J Levy: “It’s very different to the early 1990s when landlords were so
“The landlordtenant
relationship has
been traditionally
adversarial. Now,
it’s a case of
trying to change
the relationship to
one of working
together”
Patrick O’Keefe,
GVA Saxon Law
“Because we’re
around, we learn
things … about
what’s happening
in our occupiers’
businesses.
We can pick up
on when they may
be thinking
of moving, what
they need from
their workplace,
how their clients
are doing”
Emily Smith,
Executive Offices
Group
slow to react to the new market conditions. This time they’ve been more flexible
and lowered rents. They’ve reacted quickly to increase occupancy rates. That’s
good. There was a time when only certain organisations could afford to be in
Mayfair and that has changed.”
As a consequence, a market with shorter leases is much more liquid and
businesses have more opportunity to exit leases and adapt office space to meet
their operational needs. There certainly seems to be an increased level of activity
around the corner.
Greg Porter of Sparkes Porter said: “If you take the top of the office market as
having been 2007-08, the five-year leases granted then will come to expiry in 2013.
So even though the prospects for leasing activity in 2011 may look slightly weak at
present, we expect a lot of churn in 2012 and beyond.”
However, at least one person at the table remained unimpressed at the options
that property providers offer. Although he started out as a commercial property
expert, Paul Winter now runs Corpra – a management consultancy that helps
businesses restructure, grow and perform. “When we’re analysing companies as
part of an acquisition process, most of the contracts that have been entered into
run for a year or less,” he said.
“But when we set a date to capitalise the liability of these contracts, the property
contract stands out – even if it is just for eight years – as all other contracts are
usually a year or less”. For Winter, the jury is still out on whether property is doing all
that it can to offer the flexible support that business needs.
At this point in the conversation, the guests were digesting a fabulous meal from
Flemings head chef Simon Henbery, and had delved into the restaurant’s impressive
wine list. It felt like the right time to look to the future.
As a built environment research expert, Rob Harris’s job is to look at what’s
happened and tell you what’s going to happen. Earlier this year his consultancy,
Ramidus Consulting, picked up on the growing trend of Mayfair offices being
converted into residential properties. With residential values outstripping commercial
in many locations, the trend is set to continue but Harris is not alarmed at the
implications.
“Mayfair has always been changing,” he says. “Many corporate occupiers have
moved out because of a lack of large-scale product that suits their needs. They’ll
move to the necklace of developments around central London – Paddington, King’s
Cross, Regents Place, London Bridge City.
“Mayfair is changing into, dare I say it, a playground of leisure areas, luxury retail
and also a boutique office location. That’s a tremendous change. I don’t say it’s a
bad thing – they’ll always be businesses that need and want to be in Mayfair – but
it is happening and it’s a reflection of the latest evolution of the area.”
The message is that Mayfair is changing – but the good news is that it’s
changing for the better: a better balance of commerce, leisure, retail and residential.
Encouraged by that thought, those present prepared to go back to the realities of
the current Mayfair property market.
“Performance today is all about maximising revenue,” said Gillie Bexson before
she left. “It’s the single most important focus. The market will say what values are,
but you’ve got to keep that income coming in. If you’ve got income for the next 12
months and you’ve got a bit more coming after that you are going to be OK as a
performer – even in a downturn.”
61
“Mayfair has
always been
changing.
Many corporate
occupiers have
moved out
because of a lack
of large-scale
product that suits
their needs”
Rob Harris,
Ramidus Consulting