The Victoria office market has traditionally been dominated by government occupiers and oil companies. Recent activity – the GLA occupying Romney House, Marsham Street as its temporary home; MAFF leasing 5,570 sq m (60,000 sq ft) in Page Street – demonstrates that the former still holds true. But economic uncertainty and falling oil prices have forced a number of oil companies to rethink their property occupations.

Two cases stand out: Repsol pulled out of a proposed 2,420 sq m (26,000 sq ft) letting at Southside, 105 Victoria Street, and at Allington House, 150 Victoria Street, Saga Petroleum has been marketing two floors of Grade A offices totalling 1,210 sq m (13,000 sq ft).

Offers as high as £484.38/sq m (£45/sq ft) have been received, but no decisions have been made on whether the accommodation is surplus.

An obvious exception to the decline in oil industry occupiers is Enron and its 22,300 sq m (240,000 sq ft) lease of 40 Grosvenor Place.

Aside from the good transport links, which will be improved by the extended Jubilee Line, the main attraction of Victoria has been new developments with large floor-plates.

This has proved attractive to financial services occupiers such as Salomon Brothers, which is thought to have considered bp’s 13,940 sq m (150,000 sq ft) Belgrave House, among other developments. Merrill Lynch also recently leased 2,110 sq m (22,700 sq ft) at 123 Buckingham Palace Road at £409.03/sq m (£38/sq ft) – some way ahead of market expectations.

American Express has finalised its accommodation review in Land Securities’ Portland House, Stag Place, and now occupies approximately 6,500 sq m (70,000 sq ft). The deal on the bulk of the space gives Amex comfort-cooled, refurbished offices at £349.83/sq m (£32.50/sq ft). However, when another 465 sq m (5,000 sq ft) was taken, the rent was agreed at £392.89/sq m (£36.50/sq ft).

As the attractions of the area become more apparent, so the range of occupiers is increasing. An obvious example of this is Channel 4, which sited its headquarters in Horseferry Road, and subsequently leased additional accommodation in Francis House, Francis Street. The TV company has taken a lease on 1,490 sq m (16,000 sq ft), at a rent of up to £349.83/sq m (£32.50/sq ft).

Others media occupiers include Maiden Outdoor, BSkyB Advertising and D’arcy Masius Benton & Bowles, which is reviewing its 8,360 sq m (90,000 sq ft) occupation in 123 Buckingham Palace Road and seems to be focusing on Midtown.

Recent letting activity has mirrored falls in take-up across the West End as a whole, showing a drop in take-up in the fourth quarter of 1998 of 33%, to stand at 8,660 sq m (93,200 sq ft).

However, this is not necessarily the result of a general decrease in demand; it is due to a lack of good-quality supply. Most agents still perceive the demand to be there. This is reflected in the competitive bidding situation that resulted in the British Property Federation paying more than £322/sq m (£30/sq ft) for 370 sq m (4,000 sq ft) in Land Securities’ 1 Warwick Way, and the current plethora of offers at 150 Victoria Street. The difficulty is in identifying good-quality accommodation.

Looking at supply, there are now no Grade A buildings immediately available in excess of 2,790 sq m (30,000 sq ft).

The development pipeline figures show that the coming year will see an increase in availability of Grade A space. City & General/Frogmore’s 4 Abbey Orchard Street (2,790 sq m/30,000 sq ft), the Grosvenor Estate/Redrow scheme at 10 Lower Grosvenor Place (1,860 sq m/ 20,000 sq ft) and 2,790 sq m (30,000 sq ft) in Hill Samuel’s 17 Dacre Street are all due to come to the market in the middle of this year.

The level of enquiries and activity over the past 12 months suggests that, unless quoting terms are unrealistic, these buildings should readily find tenants.

Demand is such that large-space occupiers are now having to look further ahead at pre-let situations, for example in Teesland’s 50 Broadway, where there is rumoured interest from two parties.

The lack of Grade A space is having a knock-on effect on the rest of the market. King Sturge has now agreed terms for letting 2,790 sq m (30,000 sq ft) of secondhand space at 26 Chapter Street, and there is strong interest in Bridge Place, 89 Eccleston Square (6,320 sq m/68,000 sq ft).

A number of other occupiers with requirements of this size will now consider secondhand offices as a result of the lack of Grade A space.