The London Art Market 2012 / 2013

At the end of 2012 four major New York galleries inaugurated new spaces in London, all in Mayfair. Their arrival says a lot about the British capital and its ability to attract the ultra-rich, thanks to a favourable tax regime and its geographical position. It also says a lot about the changing landscape of London's art world, because at the same time as Werner, Skarstedt, Zwirner, Pace and the British dealer Blain Southern were flaunting smart new premises, the future of the once traditional hub of the art trade, Cork Street, was under threat of losing a good number of its smaller art galleries.

At the same time, other art businesses are on the move: White Cube is abandoning its Hoxton Square gallery to focus on its Mason's Yard and Bermondsey outlets; Gagosian looks sure to move into a third London space off Mayfair's Berkeley Square; and Mercury Group, which owns Phillips de Pury, has closed a £100m-plus deal to buy a whole block at 30 Berkeley Square.

The planners of a major redevelopment of Victoria are also aiming to create a new hub for art galleries, close to the West End.

Virtually all of London's top galleries can thank one person for finding their new homes: David Rosen of Pilcher Hershman, who has been tracking down suitable spaces for more than 20 years. "Finding the right space is all about scale and volume," he says. "And about keeping the artists—not the public—happy." But most of all, it's about location.

"The art world is about Sotheby's, Christie's and the spine that is Bond Street," Rosen says. "It's all about being within walking distance of the smart hotels and restaurants."

The problem is that this area is also the most expensive and where the bitterest battles are being fought with fashion and luxury goods firms to get the best sites. Rents for art galleries are £85–£100 per square foot per year for new spaces, dropping to around £65 for 'second-hand', meaning a space in an existing building. This could translate to a rent of more than £1.5m a year for a gallery with 15,000 sq. ft, such as Hauser & Wirth in Savile Row.

As well as being able to pay higher rents than art galleries, luxury brands may pay million-pound-plus 'premiums' to get the prize locations. But having an art gallery apparently adds 'prestige' to a building, rather than having another frock shop or high-end restaurant on the ground floor, and so they might get preferential treatment from landlords. "Art dealers are seen as bringing class and sophistication," Rosen says.

Over the past few years, Fitzrovia, north of Oxford Street, has increasingly attracted galleries, with more than 40 now established there. "This is still the West End, with the prestigious W1 postcode," Rosen says. "It offers large spaces, previously fashion showrooms, and for half the price of Mayfair."

This is where dealers often 'move up to' after leaving the East End; for example, Stuart Shave (who started the trend).

As for the East End, where rents can be half again, Rosen says that it will retain its character as the place for emerging galleries—but as they grow, they will continue to move west, "where the money is".

For some smaller galleries, the chances of remaining in Mayfair look bleak. Despite a desperate campaign to 'save Cork Street', a number of dealers will be turfed out when the Malaysian developer Native Land rebuilds a whole block, and the façades are revamped on the opposite site of the street.

One area that is hoping to attract some of the Cork Street dealers is Victoria. Some 2.2 million sq. ft in the currently unlovely and unloved area around the mainline station is being redeveloped in a £2bn scheme by the behemoth property developer Land Securities. As well as premises suitable for fashion houses, the company is planning large spaces suitable for showing art, and at rents that are apparently 40% lower than in Mayfair.

"This is the only unexploited area left in central London, and it's really close to Mayfair as well," says Catherine Thomas, the head of marketing at Land Securities.

Asked whether galleries will want to move to an area which until now has been disappointing—Phillips de Pury is moving to Berkeley Square and a number of galleries, such as Faggionato and Simon Lee, never carried out their projected moves into its Howick Place building—Thomas says: "We are aiming at the style, fashion and art sector… People who buy fabulous homes buy fabulous art, and vice versa."