The rating revaluation that will be introduced in 2010 could reduce the commercial viability of West End offices.
Morgan Stanley property analyst Martin Allen said today that the rating revaluation, which will be based on rents at April 2008, would see a large increase in rates paid by West End occupiers, and lead occupiers to prefer City offices.
The rating revaluation will take into account movement in rents since 2003, and will be phased in over five years from 2010.
Jones Lang LaSalle estimates that rates in Mayfair, W1, the heart of the West End, could increase by 127% from £22/sq ft to £50/sq ft by 2015. By contrast, it estimates that the City of London is likely to experience a +56% increase from £16 per sq ft to £25 per sq ft over the same period.
‘While these figures are only estimates, they should be fairly accurate because we already know what market rents were in April 2008,’ Allen said.
He added that the difference in rates between the two areas, which equates to half of the £51/ sq ft that JLL estimates to be the current average City rent, could see occupiers abandon the West End.
‘Occupiers are much more interested in total occupation costs, comprising the combination of net effective rents after incentives, rates and service charges, than they are in 'headline' rents,’ he said.
‘We also think that this prospective substantial increase in rateable values for West End offices must, at the margin, reduce the financial viability of future West End office development schemes,’ he added.
‘Among the largest property companies, Land Securities has the biggest exposure to West End offices, mainly through its holdings in Victoria, SW1.’