Cityoffices and Metropolis Skyline Survey Summer 2016

Metropolis and Cityoffices have completed their bi-annual ‘Skyline’ survey of the central London office development market for the period October 2015 to April 2016. The survey takes a snapshot of central London office construction in Q2 2016 and includes recent completions, recent pre-let activity and looks ahead to future pipeline projects that will shape the next three years.

After an unprecedented 48 office scheme starts in the six months from October 2015, there are now 104 office schemes under construction in central London (compared to 78 six months ago) totaling an increased 13.5m sq ft (11.1m sq ft in September 2015). This 22% increase in London office space under construction was forecast in our autumn 2015 report.

Scheme start surge

The 48 new office scheme starts in Q4 2015 and Q1 2016 saw 4.7m sq ft of new office space go under construction, including major new-builds such as the 800,000 sq ft Banking Factory in Shoe Lane, EC4; the 320,000 sq ft ‘Can of Ham’ at 60-70 St Mary Axe in the City of London and the 275,000 sq ft Fruit & Wool Exchange in E1, which is all pre-let to a major law firm.

The proportion of refurbishments in the office construction market in central London has stabilised. There is currently a 17:83 split by floorspace ratio of refurbishments: new-build. High profile refurbishments started since autumn 2015 include: Helical Bar’s 165,000 sq ft The Tower, EC1 and GPE’s 150,000 sq ft 148 Old Street in EC1. A significant number of refurbishments are continuing to enter the market, but in terms of total sq ft are overshadowed by large new-builds.

The City dominates current office construction with 9m sq ft of new office space in schemes now underway (up from 6m sq ft in autumn 2015). There is now 670,000 sq ft of office space under construction in Kings Cross, with more at site clearance stage. The West End, including Paddington, has 2.3m sq ft under construction and a further 1.5m sq ft of office builds are on-site in Midtown and Southbank.

More demolitions poised

Despite the high number of starts in the last six months there remains a lot of schemes at demolition stage. Currently there is 6m sq ft lined up to start in late 2016 and 2017. In reality, with over 100 further schemes currently at planning consent stage, more schemes will add to these numbers, particularly in 2017 and 2018. Therefore we predict annual London office development completions in 2017 and 2018 could reach 7-8m sq ft.

Looking ahead, some 33 future office schemes are currently at site preparation stage with upto 7.2m sq ft of additional office space due to go under construction in the next 6 months. Many of these schemes will not be completed until 2017, 2018 or 2019, for example schemes such as 8-10 Grafton Street, W1 or Marble Arch Place, however it is clear there is a continuing strong development pipeline.

There are 200 office schemes that are in the current planning pipeline which could start construction by 2018 (listed on our Cityoffices website), assuming no major economic downturn. In total, over 35m sq ft of offices could be constructed by 2020.

Two of the largest schemes which are closest to a construction start and likely to see construction late in 2016 are the Commonwealth Building in New Oxford Street, WC1 and the 400,000 sq ft No.1 Thames scheme in WC2. Current trends suggest a London office ‘completions bulge’ in 2017, including nearly 5m sq ft in the City alone. There are a further 200 office planning consents pending, including schemes such as 8-10 Grafton Street, W1; 55 Gresham Street, W1 and 8-10 New Bridge Street, EC4.

Ready for tenants and fit-out?

In terms of demand for new space in central London, some 5m sq ft (4.4m sq ft in September) of the 13.5m sq ft under construction, has already been pre-let. Recent pre-lettings of under construction space include: DLA Piper at 160 Aldersgate Street, EC1; Colt Telecom at 20 Great Eastern Street in EC2; Farm Group at 58-62 Newman Street in W1; Fred Perry at 29 Mount Pleasant in EC1; New Look and XTC Markets at Building R7 in Kings Cross.

Just over 1.7m sq ft of offices were completed in central London over the last six months, however the increased pace of letting activity has led to over half of the space being let either prior to completion or just after. The largest schemes completed included: the 215,000 sq ft Lacon House, WC1 part pre-let to Arriva; the 188,000 sq ft Zig Zag Building, SW1 where space was pre-let to Jupiter Asset Management and TT Moneycorp and the 170,000 sq ft 8 Finsbury Circus, EC2, part let to Rathbone Brothers and Charles River. Some 40% of office space already pre-let will be occupied by financial services and tech sector companies (see last week’s blog on the rise of this sector). Metropolis is currently tracking nearly 10m of named office requirements in central London.

In total, less than 880,000 sq ft of offices are still available in the 22 London schemes and 1.7m sq ft of offices recently completed in Q4 2015 and Q1 2016. Some 20 different tenants have already signed up for space in the newly-completed developments such as St James Market, 77 Shaftesbury Ave and 1 New Burlington Place. There are currently 3.7m sq ft of offices due for completion in Q2 2016 and Q3 2016, of which 1m sq ft has so far been pre-let. Based on recent trends we would expect a further 1m sq ft or more to be let in these schemes by September 2016.

Conclusion

In conclusion, total office development underway in central London should break through the 15m sq ft ceiling in summer 2016, which would set a recent post recession construction record. The projected 12m sq ft of London office take-up for 2016 looks likely to include over 4m sq ft of grade A new lettings within newly constructed and or refurbished buildings. The number of larger companies now looking further ahead, considering pre-let of space not due for completion until late 2016 or 2017, will sustain a similar take-up pattern in 2016.

In effect, the forthcoming pipeline of schemes for 2017-2019, including the next wave of schemes currently at demolition stage, means that opportunities for pre-letting new space under construction and due for completion in the next three years, has never been greater than at present.

 

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