The mansion in No 7 St James’s Square is likely to fetch £50m. Jason Alden /Bloomberg News

A sign of the times on St James's Square

The Irish owners of an office building on London's historic St James's Square are converting the building into a nine-bedroom mansion, even though commercial rents on the block are among the highest in the world.

Q&A:Runaway residential prices

Is residential space in London more valuable than office space? It’s a difficult calculation, and it depends on the goals of the owner. Offices create recurring revenue, and commercial rents are high in London right now. But there is no guarantee those rates will remain high.

Are London properties really that valuable? It’s supply and demand, and right now there is a scarcity of property in the prime neighbourhoods. There is no space for new developments. And there is no shortage of demand.

But aren’t developers building new projects? There are several projects in various stages of development in the city. But it’s very difficult to build projects in the older neighbourhoods. Many of the older buildings are historic landmarks. Tearing them down is not an optionn.

Can London prices continue to rise?Maybe. The international interest seems to be growing, even with the financial uncertainty around the world. But property is a commodity known for its cycle, and no city is immune forever.

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The Dublin company Green Property apparently believes it can make more money by tapping into the immense appetite for luxury residential property in the city.

The company will spend a reported £14 million (Dh80.8m) to turn No 7 St James's Square into the type of estate coveted by the international buyers gobbling up residential property in London. New amenities will include a garden, swimming pool and a spa, Bloomberg reports.

When the renovation has been completed, the mansion may fetch close to £50m, agents estimate.

The judgement that the building will have more value as a residential property than an office building speaks volumes about the London market. St James's Square and nearby Mayfair were particularly popular with hedge funds and high-flying investment bankers looking for swanky addresses for their offices.

But times have changed. Hedge funds are relocating, and office space can be found for far more reasonable rates in the suburbs.

Meanwhile, London home prices are at an all-time high, often about £3,000 per square foot. There is little new home construction, and demand is high among Russian, Asian and Middle Eastern buyers.

Suddenly, a building in a prime location has more value as a home than as offices.

"I think you will see [conversions] happen quite a bit," Simon Stevenson, a professor of property and planning at England's Henley School of Business, told Bloomberg.

Top 5: 3D TVs.

1 Park Place, Henley-on-Thames, £140m.

2 One Hyde Park penthouse, Knightsbridge, £136.4m.

3 Upper Phillimore Gardens, Kensington, £80m.

4 Kensington Palace Gardens, Kensington, £57m.

5 Toprak Mansion, Hampstead, £41m.

Source: The Daily Telegraph

Home prices in the UK in general have slipped in the past year, but not in London. The number of homes in the capital selling for more than £5m in the first nine months of the year rose 31 per cent on the same period a year earlier, Savills reported.

The Quote: "I thought of Paris as a beauty spot on the face of the earth, and of London as a big freckle." James Weldon Johnson, author.

kbrass@thenational.ae