5 Things We Learnt About the UK Office Market This Week

Metropolis looks back over the last seven days in the office market and picks out five stories which could produce significant future business for market players.

1. A big 108,000 sq ft office building in the West End of London is about to be redeveloped and dozens of companies will need to relocate. The location of this building is only available to Metropolis subscribers, however the proposed redevelopment, which has been planned for many years, is at last going to happen. Tenants of all sizes have been told that they need to relocate by summer 2017.

2. Glasgow office take-up reached nearly ‘stellar’ 300,000 sq ft in the first quarter of 2016, boosted by Morgan Stanley’s pre-let of 155,000 sq ft at Bothwell Exchange, as well as sizeable deals to ACCA and Registers of Scotland. Looking ahead Metropolis is tracking 40 future requirements in the city.

3. A report this week from Savills highlighted strong demand in Bristol for space, particularly from the TMT sector, which has driven office rents for both new and refurbished space to new heights and made some office space more valuable than residential space in the city centre. Metropolis has reported on 30 Bristol office searches since January 2016.

4. Although tenants have leases with up to three years to run, consent for the conversion of Millbank Tower, London, SW1 into 207 flats and 150 bed hotel, mean that Metropolis has spoken to nearly 40 tenants that will now need to relocate.

5. Royal Dutch Shell is planning to close three offices in the UK in Reading, Manchester and Aberdeen. It plans to relocate some staff to other Shell offices, while also reducing headcount. The process will take up to 18 months as leases expire.

High Tech Cambridge

A recent report by property consultant Carter Jonas spotlights the quietly booming Cambridge office market.

Cambridge is the UK’s pre-eminent location for research and development in high value industries such as pharmaceuticals, biotechnology and advanced engineering in software and electronics.

The Cambridge office and lab market enjoyed another strong year in 2015, with take-up exceeding 1.1 million sq ft – surpassing the 956,000 sq ft let in 2014.

Granta Park saw work start on Illumina’s new 155,000 sq ft HQ which will open in summer 2017; while Gilead announced a new 93,000 sq ft building and ARM took 195,000 sq ft at Peterhouse Technology Park in the city’s largest letting. However, the majority of deals recorded were in the sub-10,000 sq ft category.

Deloitte, Thales and Carter Jonas agreed pre-lets at the under construction ‘One The Square’ in central Cambridge, totalling almost half of the 142,000 sq ft building, ahead of its completion in November 2016. In the last year AstraZeneca, Apple and Spotify have all taken space in the city.

Metropolis is monitoring the plans of over a dozen companies with requirements or potential requirements in Cambridge. In addition, Metropolis is planning to speak to a further 100 Cambridge office occupiers with leases due to expire in the next two years.

Office and lab developments with outline planning consent totalled almost 3.8 million sq ft in early 2016. Granta Park is set to expand its 120-acre site with the granting of planning permission to provide 365,000 sq ft of new R&D space.

Forecasts for 2016 include greater competition for available space pushing rents to well over £30psf. Some decentralisation from the the more expensive core to the cheaper fringe areas. The pace of office refurbishment to increase as demand grows.

Central London Office Lettings March 2016

Central London office lettings recorded an exceptional March 2016 with 1.35m sq ft of office space transacted in 53 deals in during the month. The figure represents a near 40% increase on the February total and well above the recent average of 1m sq ft per month.

Q1 2016 saw a healthy 3.1m sq ft of lettings in central London, which is one of the strongest quarters for office take-up in the last three years. If current trends continue the total office take-up for the year will again top 12m sq ft.

March was characterised by 11 office deals over 20,000 sq ft, including Reuters at 5 Canada Square, E14; New Look at Kings Cross Central, N1 and Jefferies Investment Bank pre-let at 100 Bishopsgate, EC2.

Media topped the table of lettings by sector, helped by Thomson Reuters 315,000 sq ft Canary Wharf deal. This was followed by financial services boosted by Jefferies and Oaktree’s pre-let at Verde scheme. Professional and business services are also performing well. Office deals under offer is holding at around 2.5m sq ft, with new negotiations from the likes of Randall & Quilter and Palantir Technologies.

By area, the City accounted for only just over a 47pc of the floorspace let in March. The West End had a quiet month, aside from the Oaktree deal, but the Docklands saw above average activity. Current London office demand is calculated to be around 4.2m sq ft in the City and 2.1m sq ft in the West End.

The volume of grade A (newly built or refurbished office space) let during the month reached 599,000 sq ft (44% of the total), as transactions for newly developed or refurbished space rose to take a higher proportion of lettings than has been the case in recent months.

Some 7m sq ft of new office space is expected to complete in London in 2016. Further details of schemes and pre-lets on Cityoffices.net.

Metropolis Q1 Research Update – Over 500 Office Requirements

 

Active Office Requirements

In Q1 2016, Metropolis researched over 500 companies actively searching for office space in the UK. Total office demand identified in Q1 hit 9.4m sq ft.

 

The top 5 sectors by UK office demand were:

Banking & Finance – 1.4m sq ft

Media – 1.1m sq ft

Technology & Telecoms – 0.8m sq ft

Government – 0.7m sq ft

Insurance – 0.5m sq ft

 

The top 5 UK Cities by office demand were:

London – 4.3m sq ft

Manchester – 0.6m sq ft

Leeds – 0.5m sq ft

Bristol – 0.4m sq ft

Glasgow – 0.3m sq ft

 

Potential Office Demand

Just over 5m sq ft of potential office demand, classified on the Metropolis database system as “Potential Mover” leads, was researched in Q1 2016. About 2.5m sq ft of this potential demand is attributed to office occupier lease expiry, which breaks down by year as follows:

2016 – 0.6m sq ft of office leases to expire

2017 – 1.2m sq ft of office leases to expire

2018 – 0.7m sq ft of office leases to expire

 

We could see about 200,000 sq ft of the potential demand from lease ends researched in Q1 2016 convert to active searches for office space this year, with several 20,000 sq ft + office requirements expected to surface from Media and Insurance companies in the next few months. One or two major requirements also look likely to trigger in the next few months from the 1.2m sq ft of 2017 leases due to expire, including a possible 80,000 sq ft West of London/Thames Valley requirement from a major Technology company.

 

The Metropolis database system holds all of the above data and thousands of other leads – for details on accessing the leads and joining Metropolis please email simon@metroinfo.co.uk or call us on 01296 631 186.

The Forgotten Market?

With London and the main regional cities grabbing most of the headlines, it is often forgotten that the UK’s business parks also account for a large slice of office relocation activity.

GVA Bilfinger’s 2015 Business Park Review highlights that a total of 2.3 million sq ft of take-up was recorded on UK business parks during the first half of 2015. This infers that in a full year, as much as 5m sq ft of office deals are concluded, which would make business parks as important an office market as the City of London.

Research by Metropolis indicates nearly 200 business park office moves or requirements planned for 2016, with a further 60 lined up for 2017.

In the Midlands 460,000 sq ft of 2015 transactions included significant lettings at Birmingham Business Park to VM Housing for 27,100 sq ft and Changan Automotive for 24,800 sq ft. Worldwide Clinical Trials, the pharmaceutical research company, signed for 26,000 sq ft at Beeston Business Park.

In the North East, over 470,000 sq ft of deals included: Andrew James International taking 72,000 sq ft at Lighthouse View Business Park . At nearby Spectrum Business Park, Great Annual Savings Company Limited took 13,279 sq ft and Durham Housing group took 13,953 sq ft.

In the North West, AMEC took 27,247 sq ft at Washington House at Birchwood Park and Swiss agricultural business Syngenta is taking 33,000 sq ft at The Towers, Didsbury.

In Scotland, Amey Utility and Black & Veatch took space at Buchanan Gate Business Park at Strathclyde Business Park, while Advance Construction purchased Radstock House, taking 18,000 sq ft.

In the South West, NGA Human Resources and Aqualogy both took 10,000 sq ft at Aztec West Business Park in Bristol; Sword Apak, took 20,000 sq ft at Nibley Court on Westerleigh Business Park in Yate and EE and Northgate took further space at Aztec West.

In the South East a key deal was the 100,000 sq ft letting of the Leonardo building at Manor Royal Business Park to Virgin Atlantic Holdings. Sita UK took 29,100 sq ft at CSC’s Royal Pavilion, Aldershot; BTG took 15,993 sq ft at Lakeview on SEGRO’s Watchmoor Park, Camberley. Meanwhile, Gilead took 97,000 sq ft at 2 Roundwood Avenue, Stockley Park, and 10,700 sq ft went to Alexion Pharma at 3 Furzeground Way, Stockley Park.

Business park construction activity is around 1.7m sq ft. However completions during early 2015 amounted to 730,000 sq ft, which is the highest level since December 2009. Current projects include the 140,000 sq ft refurbishment of The Bower, 4 Roundwood Avenue, Stockley Park; 36,400 sq ft at Walnut Tree Park in Guildford and at Farnborough Business Park, 108,200 sq ft of speculative office space is nearing completion.

Metropolis is currently monitoring 208 companies with requirements to relocate to or from office space on UK business parks, from mid 2016 onwards.