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.

West End Tops the League

News that London’s West End is again the most expensive office location in the world (CBRE Global Research) will not come as a great surprise to many of the companies that Metropolis speak to every day.

The overall occupancy cost of $277 per square foot per year in the West End in Q2 2014 outstrips both Central Hong Kong, ( $241 psf), as well as Beijing’s Finance Street in 3rd. The net effect has been to drive many of the more budget conscious sectors to locations such as Hammersmith, London Midtown and Southbank, as high paying hedge funds and consultants move in

CBRE are also predicting that occupancy costs will rise again in the latter half of 2014, as a recovering economy and a lack of available space in the West End push another wave of tenants to think seriously about the economics of renewing their leases or moving elsewhere. Recent and planned moves out of the West End by companies such as Ramboll, Saatchi & Saatchi and SEI Investments underlines the trend and a large portion of the 200 companies (with 2 m sq ft of requirements) currently looking at West End space are likely to move to an adjoining area..

Southbank stokes demand

A recent office market report by Union Street Partners (Farebrother and Tuckerman) featured the rising popularity of London’s Southbank (SE1 postcode), as an office location for companies looking for good quality offices in central London. On a number of schemes, rents have reached £50 psf as a number of major office tenants compete for newly completed space.

Analysts point to demand rising in parallel with recent infrastucture improvements on the Southbank, including the newly SE1 expanded Blackfriars Station including the imminent Thameslink upgrade, as well as improvements at London Bridge in the wake of the completion of the Shard.

The local agents recorded take-up in 2013 of 1.7m sq ft including the 430,000 sq ft letting of The Gem to News International. Figures from Metropolis reveal that there has been deals totaling in excess of 800,000 sq ft for the first 6 months of 2014, including Omnicom’s 340,000 sq ft potential deal at Bankside 2 & 3 in SE1. Other large recent deals in the area have included lettings to General Healthcare (HCA), Charles Tyrwhitt and Ramboll.

A raft of companies have also recently completed deals on the just-completed 240 Blackfriars Road scheme. Cushman & Wakefield have analysed recent office locations between London districts and concluded that Southbank is now the second most popular area to relocate to, after City core. Media and tech companies are the most likely to move office districts.

Metropolis is currently monitoring 50 companies which include Southbank in their search area, including: Intelligent Environments, Eurostaff Group and NSC Global Solutions among many others. If all searches are seen through to successful conclusion this will lead to over 500,000 sq ft of future lettings.

Looking ahead, there are a number of new office developments either underway or planned, such as the 37,160 sq m (400,000 sq ft) King’s Reach Tower, Stamford Street, 100 Union Street and 3 Albert Embankment, which will see a new influx of tenants moving to London Southbank.