17% of Office Occupiers Hunting

A recent report from the real estate division of UK national law firm Irwin Mitchell surveyed tenants attitudes to the properties they occupy, what their plans are for the future and relationships between landlord and tenants relationships.

The firm spoke to senior decision makers at over 250 companies, who together employ a total of 111,680 staff. The companies range from smaller companies employing less than 200 people to the largest who employ over 6,100 staff. 

Irwin Mitchell asked businesses whether they were planning to change their business premises requirements in the next 12 months. Whilst over 80% of businesses said they intend to stay in the same premises in the next 12 months, 16.8% plan to relocate or take on more space and only 2.4% said they planned to reduce space. The availability of finance did not seem to be a factor in influencing this decision with 88% of respondents saying it did not impact on their planning and only 12% saying that it did.

These figures overlap with Metropolis research, which finds that over 1,000 UK companies currently have requirements to relocate in the next two years or are approaching a lease expiry, which as a proportion of all office space transacted and recorded by Metropolis in the last ten years, represents some 20% of the market.

The UK survey asked what the most important factor was in their premises decision-making. In total 69% of the businesses placed  location first. The second most important factor was cost, followed by workforce accessibility and transport links. Of all the factors, energy efficiency was the least important, with no businesses classing it as a top priority.

The responses chime with a snapshot survey of 100 London occupiers, carried out last quarter by Irwin Mitchell, which also showed that location (34%), and then cost (24%) were the most important factors in making property decisions. In London, the quality of the building was ranked third (14%), perhaps illustrating a need to attract employees by taking good quality space.

The survey also asked about increased online working practices, and 43% consider that this will result in businesses
requiring less office space in the future, balanced by 40% thinking requirements will stay the same. Only 16% of businesses thought online working would mean they would need more office space. However, only a very small percentage said they personally plan to reduce their premises requirements in the next 12 months due to online working, indicating that a reduction in office space requirements due to online working may be a longer term trend.

Metropolis research has found that landlords have adapted to the recession, downsizing and companies needing less space by offering shorter leases (averaging not much more than 6 years) and falling rents in real terms. Although there are signs of lease lengths and rents starting to rise in London as office availability shrinks.

It appears that business occupiers attitudes to property are becoming increasingly confident in the context of an economic upturn.  Landlords are more flexible and accommodating than in the past. In recent years landlords have had to improve their offer to attract the best tenants in difficult markets.

With 17% of businesses saying they plan to expand or relocate, but the majority wishing to stay in-situ this situation will be particularly critical in London, as the balance of power swings back towards landlords due to declining office supply.

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October 2014 Central London Deals

Central London office lettings in October 2014 reached 950,000 sq ft in a slightly disappointing 37 medium or large deals, representing a slowdown after the 1.3m sq ft transacted in September

October was characterised by large lettings to M&G Investments, Omnicom and Zurich Insurance amongst others.

The financial, professional and media sectors topped the table of lettings by sector. By area, the City accounted for 73pc of the deals, helped by the large M&G pre-let. Southbank was boosted by the large Omnicom letting.

The volume of grade A (newly built or refurbished office space) let during the month fell to 460,000 sq ft as transactions in previously occupied space enjoyed a good month.

Property consultant CBRE estimates that there is a total of 6.5m sq ft of active demand in the central London market. The largest proportion of active demand comes from the media sector (29%), with the finance sector representing 23%. To underline this there are now over 770 active London requirements on the Metropolis database and a further 2-3m sq ft of potential requirements in the pipeline.

London Skyline Report Autumn 2014

Recent research by Cityoffices and Metropolis found that the central London office development market has stepped up another gear over summer 2014, with a further 32 office schemes starting (or poised ready to start in Q4 2014) since March 2014. Contrary to reports of a moribund construction sector, a healthy total of nearly 3.5m sq ft office space went under construction over the last 6 months. Notable recent scheme starts included: London Wall Place, EC2 (500,000 sq ft); Angel Tower, EC2 (360,000 sq ft) , River Plate House, EC2 (160,000 sq ft); 25 Chancery Lane (100,000 sq ft); St James’s Market, SW1 (212,000 sq ft) and 48 Leicester Square, WC2 (92,000 sq ft).

We expect nearly 15 further schemes to go under construction in the last quarter of the year. There is ‘only’ 8.7m sq ft of offices currently under construction (or about to start) following completion of  over 4m sq ft in the previous two quarters, including nearly 2m sq ft in three buildings 20 Fenchurch Street, Leadenhall Building and 25 Churchill Place. This is below the 10m sq ft long term average of London space under construction, but does not take account of a further 5m sq ft currently at demolition stage. Some 25 schemes such as 100 Bishopsgate, 52 Lime Street and Principal Place are on the verge of starting and even The Pinnacle may join them. Looking ahead to 2015, there are currently only 31 schemes due for completion, delivering 2.8m sq ft, although this figure will rise slightly as a number of refurbishments will join the list. However in relative terms, there is a shortage of large speculative office schemes scheduled to open next year, to add to the 7m sq ft of completions in 2014. In 2016 a further 7-8 million is forecast for completion, with half of that already underway.londond

Around 36% of office space under construction is already pre-let including recently-signed agreements with companies such as Amazon, KPMG and Estee Lauder. There is also a further raft of deals likely to be agreed in the near future which may include Societe Generale, Telefonica and Howden. Many schemes tend to find pre-lets closer to completion with over 50% of space completed during summer 2014 now pre-let. In contrast to some previous surveys, new-builds now make up the majority of new starts with 55% of the total compared to 45% refurbishments.

However, with nearly 3m sq ft of deals under offer and many of the larger central London occupiers beginning to appoint agents to advise on pre-let opportunities the expectation is that a new wave of refurbishments is just around the corner. In conclusion, although a large amount of central London office space was completed over summer 2014 and although some recent press reports have chosen to spotlight the drop in space actually under construction, writers have failed to note that it is about to be  replaced by almost as many schemes, if not the same volume of sq ft. In addition a large number of schemes are primed to start in 2015. The letting market continues to power on apace, exemplified by the recent pre-letting of the 400,000 sq ft Principal Place by Amazon and the rapid pre-letting of London Wall Place, EC2. Although 2015 looks likely to be a quiet year for completions, it will be balanced by up to 8m sq ft of completions in 2016.

Cardiff take-up doubles

Savills latest Cardiff office market report, reveals that office lettings in 2014 are up 102% on the same period in 2013 reaching 250,000 sq ft by mid year and surpassing the 300,000 sq ft let in 2013 by the end of Q3 2014.

There are several requirements over 20,000 sq ft including Geldards, PWC and Blake Morgan which, could further boost the take-up figure over the next year. The recently announced 150,000 sq ft BBC deal could mean that 2014 transactions could reach 500,000 sq ft, which is 69% up on last year’s figures.

Recent large office transactions over 2,323 sq m (25,000 sq ft) include International Baccalaureate Organisation taking 4,506 sq m (48,500 sq ft) at Cardiff Gate and Welsh Health Estate Shared Services taking 3,670 sq m (39,500 sq ft) at Companies House. This trend is set to continue with a number of larger recent deals in Q3 reported on Metropolis including Velindre NHS Trust for 3,362 sq m (36,200 sq ft), Finance Wales for 2,044 sq m (22,000 sq ft) and Cunningham Lindsey for 20,000 sq ft (1,858 sq m).

On the supply side, the City of Cardiff Council and Rightacres Property have revealed details of their proposed Foster + Partners-designed masterplan for the regeneration of Central Square in Cardiff. The plan includes more than 1m sq ft of office, retail and residential buildings around a new civic square. The new BBC Wales HQ will anchor the scheme which has also been designed by Foster + Partners and is scheduled for completion in 2017. There will be also be a further 46,500 sq m (500,000 sq ft) of speculative office space.

Metropolis is about to publish its Q3 2014 regional office market report for current and forthcoming subscribers.