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Lettings forging ahead

Central London office lettings in July 2014 reached 1,200,000 sq ft in 55 medium or large deals, as the market saw another period of activity above the long term average month for office transactions.

The monthly total was comfortably above the recent monthly average of 1m sq ft per month. July was characterised by large lettings to Mishcon de Reya, Dong Energy and Doctors Laboratory amongst others.

The professional sector topped the table of lettings by sector. By area, the City accounted for more than half the deals, but less than 500,000 sq ft of the July deals total. Midtown and Docklands were strong contributors.

The volume of grade A (newly built or refurbished office space) being let shows no sign of abating. Some 650,000 sq ft of the July total transacted was newly completed or refurbished. Fit-out company workloads are rising sharply.

There are currently 7-8m sq ft of active London requirements on the Metropolis database and a further 2-3m sq ft of potential requirements in the pipeline. The media sector is rising strongly up the list of new requirements being added in the second half of 2014.

Office Rents Return to Pre-Recession Levels

Recent research by Jones Lang LaSalle indicates that as a result of the new office relocation demand and lack of new grade A office space, office rents in most major UK cities are close to their pre-recession levels.

Office rents in Cardiff, Edinburgh, Glasgow, Manchester Central and the Thames Valley from June 2014 have all passed those of late 2007, considered to be the previous peak of the market, prior to the UK recession. Office rents in Bristol and Leeds have previously matched those of the fourth quarter of 2007. Birmingham is the only city where office rents are still lagging behind the 2007 peak.

In central London, the City and the West End office rents for Q2 2014 were just below their 2007 peak. Rents for the City are £6 psf below and rents for West End are £10 psf. below their previous high point.

The two London markets were hit the worst by the financial crash, with rents in the West End falling 34.7% to £75, and rents in the City dropping 31.8% drop from late 2007.

Monthly letting analyses by Cityoffices.net and Metropolis suggest that in some cases individual deals are already surpassing previous peaks with KPMG rumoured to be paying £125 psf for a move to 18 Grosvenor Street, W1 and Golden Tree Asset Management paying £115 psf for a move to 33 Davies Street, W1.  In addition, rents at 20 Fenchurch Street (Walkie Talkie Building) in the City are rumoured to be topping £70 psf.

Regional UK Office Markets First Half 2014

This week Metropolis looks at office activity in all the major UK cities in Q1 & Q2 and compares with the 6.5m sq ft of first half of 2014 take-up in London.

Birmingham – Take-up in the first half of 2014 was a modest 220,000 sq ft, however big recent lettings to Birmingham City University and High Speed 2 HQ promise a better second half of the year. There are a number of outstanding requirements in the city including a number of law firms.

Bristol – Take-up in the first half of 2014 was a respectable 300,000 sq ft including deals to HSBC, Broadcom and the NHS. Some 40 deals were completed in Q2 with future transactions likely to involve energy companies and professional occupiers in the area. Metropolis is tracking some 20 searches in the area, plus lease expiries.

Manchester – Take-up in the first half of 2014 was a remarkable 802,000 sq ft with large lettings to the likes of Barclays at 4 Piccadilly Place; Slater Gordon took 104,000 sq ft at 58 Moseley Street; 35,000 sq ft to Towergate Insurance at 3 Hardman Square; 25,000 sq ft to Ford Capital at 1 First Street, with an option on more; and 60,000 sq ft to Autotrader also at 1 First Street. There were also Emirates and Costain lettings at Manchester Business Park. Future requirements include a number of professional services companies and TMT firms.

Leeds – Take up in the first half of 2014 saw 260,000 sq ft transacted with lettings to Ashcroft Rowan; Sanef taking 24,242 sq ft of space at St John’s Centre and University of Law’s relocation from York to Park Row taking 26,337 sq ft. Metropolis is currently tracking 40 office requirements in Leeds.

Edinburgh – Take up in the first half of 2014 saw 380,000 sq ft let, with deals to Rockstar with its 75,000 sq ft acquisition of The Scotsman newspaper’s headquarters on Holyrood Road. Other city centre deals include Techcube’s 26,600 sq ft in Argyle House and the Faculty of Actuaries acquisition of 10,000 sq ft at Exchange Crescent. Metropolis is monitoring over 20 further requirements but deals are stalling ahead of the referendum vote.

Glasgow – Take up in the first half of 2014 saw a disappointing 194,000 sq ft let, although there were substantial deals just after the mid-year to Cigna and Network Rail. There are future pre-lets to Deloitte and Grant Thornton on city centre schemes to come.

In total, nearly 2.2m sq ft of office lettings took place in regional cities in the first six months of 2014. Overall this suggests that take-up is around one third of London activity at present. However, with very few office scheme completions in major centres outside London in recent years, the opportunities to relocate have been restricted. Most of the regional cities now have schemes underway, so a slow growth in the number of office transactions is expected over the next two years.

UK Office Requirements H1 2014

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Banking and Finance leads the way

The UK office market continues to show promising signs of recovery.  Office deals in London could exceed 13m sq ft by the end of this year and Metropolis H1 2014 research has identified over 300 companies actively searching for central London office space.

Over half of the 10m sq ft required in central London is fueled by the City, where 169 companies search for a total of 5.7m sq ft.  Notable City of London requirements include a 300,000 sq ft search by a UK investment and asset management firm and a 250,000 sq ft law firm search prompted by consolidation of two offices.

Demand for space in the West End, once again the most expensive office location in the world (CBRE Global Research), was 1.3m sq ft in the first six months of 2014, with 1.2m sq ft required in Mid Town. Two of the top three West End requirements by size originate from major advertising companies.

Law and media sector requirements dominate Mid Town demand, with over 200,000 sq ft required by law firms and 250,000 sq ft required by media agencies.

1.4m sq ft of demand was researched in Docklands and 0.4m sq ft of demand was researched in South Bank, where rents on new schemes have recently reached £50 psf.

Our UK research as a whole identified over 700 companies searching for a total of 20m sq ft, 16m sq ft in the South of the UK and 4m sq ft in Wales, Midlands, North and Scotland.

The Banking & Finance sector is leading the demand for new UK offices, with just over 3.6m sq ft of requirements in the UK, 2.6m sq ft of which is sought in the City of London. The Technology and Telecoms sector accounts for 2.1m sq ft of UK demand, Law 2m sq ft and Media 1.8m sq ft.

 

OD sq ft by sector

 

 

 

 

 

 

OD sq ft by London postcode

 

 

 

 

 

 

1m sq ft of office demand was identified in the North West, 0.6m sq ft of which was attributed to Manchester.  The Manchester office market is looking lively, with take-up reaching 800,000 sq ft in H1, making it the strongest regional performer.

Just under 1m sq ft of demand was identified in the Yorkshire and Humberside region, with 70% of searches focused on Leeds. Notable requirements in Leeds include a 70,000 sq ft law firm search and a 60,000 sq ft search by a major accountancy firm.

Just under 500,000 sq ft of demand was identified in both Birmingham and Edinburgh. Two of the largest requirements in Birmingham were law firm searches for about 30,000 sq ft and a major accountancy firm was also linked with a requirement for 50,000 sq ft.

In Edinburgh, the majority of office requirements were for less than 10,000 sq ft, although a 75,000 sq ft requirement from a computer games studio and a 40,000 sq ft law firm search were notable exceptions.

After an encouraging start to 2014 UK office demand looks set to comfortably outstrip its 2013 levels. In central London, notable office searches include requirements from Societe Generale, Wells Fargo and National Grid.

In Manchester, H1 office deals include lettings to Slater Gordon, Trader Media and Barclays Bank. Bristol and Edinburgh also saw a better than average six months, with a number of requirements, including Ovo Energy in Bristol due to come to fruition in the second half of 2014.

Birmingham also has a number of requirements from law firms and accountants including BDO. In Glasgow, searches by Cigna and National Rail are expected to complete soon. Cardiff has seen some activity at its new schemes, while Liverpool has seen a number of midsize deals.

 

OD sq ft by region

 

 

 

 

 

 

Simon Sluszny 2014, (C) Metropolis Property Research Ltd

 

 

 

European Office Markets Update

A recent report by CBRE on Europe’s office markets highlighted Madrid’s first quarter take-up was just under 100,000 sq m (1.1m sq ft) which was a major improvement on other recent first quarters. Analyst believe that demand is being driven by occupiers taking advantage of low rents in prime central locations with many small and mid-size deals recorded.

In Paris there were two office deals of 40,000 sq m (430,000 sq ft) each, together with a surge of HQ consolidation projects, taking the French capital’s take-up to 506,000 sq m (5.4m sq ft), a substantial improvement on recent quarters.

In London, rents increased, including the West End recording a 5% prime rent increase to £105 per sq ft per annum in the first quarter of the year.

Amsterdam and Munich also saw rents increases of 1.5% each over the same period, with both cities experiencing demand for grade A quality buildings. As a result, Munich has just 35,000 sq m of space available in the city centre with prime rents to stand 5% higher than 12 months ago at €33 per sq m per month.

In Barcelona, two large transactions of 9,000 sq m and 13,000 sq m boosted the market and the number of office deals per quarter is reaching 300.

In Dublin, there have recently been large office deals involving Facebook (11,000 sq m ), Deutsche Bank (10,200 sq m), Susquehannah (9,600 sq m) and William Fry (9,000 sq m).

This trend is not confined to the West of Europe with the Scandinavian cities of Oslo and Stockholm both recording prime rental growth of 5.2% and 2.3% respectively over the same period.

Metropolis has a large archive of European office deals

London Lettings On The Rise

Central London office lettings in June 2014 reached 1,150,000 sq ft in 70 medium or large deals, as the market saw another above the long term average month for office transactions.

The quarterly total was 3.4m sq ft and the first half of the year totalled 6.5m sq ft. June was characterised by large lettings to China Construction Bank and Clarksons amongst others. Financial and media sectors were strong performers. By area, the City accounted for less than 500,000 sq ft of the June deals total, however Midtown and Southbank were strong contributors. However across the quarter the EC2 area was the strongest postcode.

The strength of the Central London office market in the first half of the year is likely to translate into a full year lettings total of around 13m sq ft. There were eleven transactions over 50,000 sq ft in the quarter including  Mizuho Corporate Bank and Estee Lauder. The City accounted for 1.4m sq ft of lettings in Q2 2014 and during the last three months as a whole there were 1.9m sq ft of grade A lettings. There are a number of large lettings in the pipeline with upto 3m sq ft of space under offer. The largest space under offer is 370,000 sq ft at Bankside, SE1 to media group Omnicom.

There are currently 7-8m sq ft of active London requirements on the Metropolis database and a further 2-3m sq ft of potential requirements in the pipeline. The insurance sector is tipped as one of the most active likely to sign deals in the second half of 2014.

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