Developers simply can't build luxury residential homes in central London fast enough as rents continue to soar amid a flourishing sector - so much so that they have started converting old office buildings into swanky new pads.
The office sector is not the golden goose it once was; as the financial crisis continues to drag on demand is falling in the sector. According to JPMorgan and Chase office rents in London will fall by between 4 and 7.3% this year. What's more, according to DTZ Holdings PLC up to 50 of London office space is over 15 years old, and so can no longer be marketed with the golden prime sticker on.
Thus, the likes of Axa Real Estate Investment Managers, Berkeley Group Holdings and Heron International are focussing heavily on residential development, and although conversions of old office buildings are the top investment choice, there is also some new development going on in the sector.
Axa is seeking older offices or partly developed "brownfield" sites on the fringes of the financial district (Clerkenwell, Shoreditch and Farringdon) to turn into luxury apartments, which it hopes to sell for the £100 million bracket according to sources. The firm, which has 40 billion Euros in managed properties, has just raised $588 billion for its Venture III fund to purchase properties in London and across Europe. Berkeley is developing 90 luxury residences in a derelict office building near Moorgate
Berkeley plans to renovate a derelict office property near Moorgate into 90 residences. Heron is building a 36-story residential tower near the Barbican, and Hammerson plans to develop 253 apartments near Liverpool Street station.
Of course, it is hardly surprising; while the office and other sectors wilt and wither, the residential sector continues to flourish and fly. Residential prices are already back at pre-crisis levels and along with rents are rising year on year every month.
According to several recent reports London's high end residential sector is literally awash with foreign cash, as wealthy Chinese, Russian and even Greek buyers pay up to £7000 per sq ft for the top apartments. The average sale price is £4,560 per sq ft, and According to Real Capital Analytics, London saw £11.3bn of commercial cross-border real estate transactions in 2011, compared with only £5.1bn in Paris.
- Monday 20 February 2012