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The social and financial aspects of real estate are inextricably linked. The surge of overseas money into London’s residential market has had a dramatic impact. House prices have risen significantly, making the residential market an increasingly appealing investment and as a result many property developments have been driven further out of Central London. This has in turn attracted a large amount of global interest, pushing prices up further. But while prices rise, the number of actual, permanent or long-term resident appears to have decreased.
A vast number of properties have been purchased by overseas investors and many are rarely used by their owners except for the few weeks they are in London. It is not uncommon now to see large squares completely vacant at night with not a single light on.
It is thought that approximately 90% of London’s top-end residential properties are now owned by overseas buyers and as the residents are so rarely in the UK, let alone London, they are hardly occupied, turning Central London into a lonely and empty ghost town at night.
As residential property has become so profitable, it has become common for investors to buy offices in Westminster, Chelsea, Kensington and the City and to convert them into residential use. The value of residential property has reached such a high level that many investors will consider converting an office block into a series of flats even if they remain unoccupied for long periods.
Sally Brough, Associate Director of Morgan Pryce, says, “It is particularly hard to find offices in Knightsbridge and Chelsea as so much of it has become residential. There is still high demand for people to find offices in these areas but supply is so low. This has resulted in some of the highest rents within London – from £70 – £80 per square foot.”
There has been a reaction to this boom in residential conversion within Central London, which has manifested itself in restrictions in change of use. The London Borough of Camden has always made it difficult for change of use applications to succeed. Consequently, to purchase an office in Covent Garden in the hope of achieving planning permission to convert it into a series of flats would be unwise.
The Conservative government, however, has taken a different attitude and is now making it easier to convert offices into residential properties by relaxing the control on the building categories. This is a clear reaction to the shortage of housing within London for which there is still huge demand. Many believe that the government’s plans will fail to solve any problems and other areas will simply follow the pattern set by Chelsea and Knightsbridge.
“There is a huge risk that the number of offices could be seriously affected”, says Eugene O’Sullivan, director at Morgan Pryce. “If planning restrictions were to relax the possibility always remains that other areas such as Covent Garden could see a serious drop in supply. Naturally this would result in rents rising significantly.”
We must now wait and see whether the government’s approach will solve any problems or merely create more residential housing opportunities to serve overseas investment.
Morgan Pryce is a specialist tenant acquisition agent with offices in Oxford Circus and the City. Morgan Pryce specialises in search, negotiation and project management and works exclusively for tenants.