West End rents trigger price war

HAMMERSON, one of London's biggest landlords, has pointed to further price increases in what is fast emerging as a runaway West End office market.

With a rush for the smartest addresses in Mayfair and limited supply of smart new offices, rents have been soaring and triggering a price war among investors.

Hammerson chief executive John Richards reckons rents in the area have increased between 5% and 10% since the start of the year.

'It is a story of very limited supply of grade A space. There has been quite a bit of market activity with some of the hedge funds to the fore, signing up for between £70 and £80 a square foot.'

This pushed the value of Hammerson's West End portfolio, accounting for around 2% of its £4bn office and retail portfolio, up 12.8% to £81.7m to the end of June.

'Our exposure to the West End is lower than it should be,' Richards added. A pick in demand for space there is beginning to have a knock-on effect for the beleaguered City office market where Hammerson's portfolio reported a 4.8% rise in the value of its offices to £540.8m at the half year stage.

The results coincide with findings from agents King Sturge showing the West End as the most expensive place to rent office space in the world. The cost of occupying a square metre of office space in the West End is about £1,100 a year, a 19% leap since the start of the year.

The market feedback on the West End follows news that US private equity firm Blackstone has taken another floor at the newly rebuilt 40 Berkeley Square, at an annual rent of at least £80 per square foot on a long lease.

That makes a lease in Mayfair or Regent Street more than four times dearer than Manhattan, where rents have fallen by a half since the second half of 2001, and 60% more than third-ranked Tokyo.

Meanwhile, Richards ruled out Hammerson making a bid for Minerva, the property developer and part-owner of Allders department store which put itself up for sale earlier this summer with a £1bn price tag including debt.

Hammerson is one of Britain's largest shopping centre owners. Richards said: 'We do not need to pay a hot price. The appetite for Minerva is based on trying to get hold of their development opportunities - we have our own pipeline. We do not need to be aggressive on Minerva.'

Hammerson's first half pre-tax profits rose to £64.6m compared with £47.4m a year earlier, after disposing of £245m of properties. Stripping out those exceptional gains and profits fell £1.5m to £42.2m.