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LONDON-The world’s most expensive office market is getting some new office space. The international real estate firm Hines has been awarded planning permission for a mixed-use, eight-story development at 1 Grafton St. in London’s Mayfair district.

The building, designed by the London architectural firm Hamilton Associates, will consist of 54,000 sf of prime retail, residential and flexible office space. It will include 26,000 sf of office space on six floors. The renovation will cost $546 per sf, or about $30 million.

Hines acquired the building in 2007 on behalf of its European Value Added Fund. Known as 1-11 Hay Hill, it is located on the corner of Grafton Street and Hay Hill, in the heart of the exclusive Mayfair district in London.

The neighborhood boasts the most expensive office space in the world. According to a recent report by CB Richard Ellis, London’s West End–of which Mayfair is a part–has average office rents of $328.91 per sf. Occupation costs in that market are 82% higher than the City of London, where occupation costs rose to $180.80, the world’s third most expensive, according to the report.

Renovation plans include moving the main entrance on Hay Hill Street to the other side of the building on Grafton Street and rebranding the project as No. 1 Grafton Street. Substantial improvements to the streetscape will also be made to improve the environment in the vicinity. Hines plans to start work immediately, with completion scheduled for the first quarter of 2010.

The building’s Victorian façade will be retained and renovated as a part of the development. The building has six column-free floor plates of up to 5,000 sf that have been designated for office. The office space will be above a single residential unit of 2,896 sf, and four new retail units on the lower level.

Peter Holden, project director at Hines UK says in a statement that “we are very pleased to secure planning consent for this building in Westminster where the planning environment frequently seeks to preserve small offices. Our research shows that top-quality, large open-plan office space, rather than smaller units is most in demand in Mayfair, where less than 1.1% of grade A space is currently available.”

GVA Saxon Law and Knight Frank have been appointed as joint office leasing agents for the building. CBRE is the appointed retail agent.

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