Sector Analysis – Serviced Offices

Metropolis has carried out an exclusive research survey into the rise of the serviced office sector since early 2013 in central London. Occupiers tell Metropolis that their need for short leases and flexible space is driving their demand for increasing volumes of serviced office space, especially in London’s increasingly digital economy, where space needs are hard to predict five years ahead. London is already the home to over 800 of the 2,300 serviced office centres nationally and the sector is growing fast. The results below illustrate the rising importance of the sector to office demand in the capital.

Since January 2013 a total of 4m sq ft of offices has been let to serviced office operators in 170 deals over 5,000 sq ft. At an average one workstation for every 100 sq ft in central London, this amounts to space for up to 40,000 new workstations in the last three and a half years.

Serviced office and co-working lettings peaked at 1.7m sq ft in 2015, when they accounted for 15% of London take-up, but if trends for the first 7 months of 2016 are maintained then this year will almost reach the heights of 2015.

sq ft
2013 537,000
2014 875,000
2015 1,700,000
2016 (7 months) 900,000

The most acquisitive groups during this time have been:

sq ft
WeWork 917,000
Office Group 574,000
Regus 436,000
i2 Offices 314,000
Instant Offices 224,000
London Executive 175,000
Ventia 50,000

Much of the interiors work has been carried out ‘in-house’, however there is some evidence of a number of smaller contractors working on the refurbishments of recently acquired space. On the design side a variety of architects have been appointed to advise on revamps including Buckley Gray Yeoman and Morrow + Lorraine.

Looking ahead, Metropolis is tracking around a dozen established serviced office operators such as BE Offices and Orega looking for further centres in London, as well as a number of new entrants to the market, such as Office Space in Town and Pennine Way  looking to expand from a current 1-2 centres. Analysts believe the sector could grow in value to over £62bn by 2025.

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July 2016 Central London Lettings

Central London office lettings in July 2016 recorded just over 830,000 ft of deals from 35 mid-large size transactions (5,000 sq ft+) during the month. The July figure represents a major increase on the 640,000 sq ft in June and brings some signs of activity returning after the poor Q2.

July was characterised by 12 office deals over 20,000 sq ft, including Wells Fargo Bank at the under construction 33 Central, EC4; PA Consulting at the under construction Verde scheme, SW1; Guys & St Thomas NHS at Becket House, SE1 and Exterion Media at the recently-completed Lacon House, WC1

Financial services topped the table of lettings by sector, helped by the Wells Fargo deal. This was followed by professional sector, boosted by PA Consulting’s pre-letting. Media and business services are also performing well. Office deals under offer in central London remain around 2.9m sq ft and include two large pending deals in Midtown.

By area, the City accounted for 65pc of the office floorspace let in July. The West End saw 150,000 sq ft of take-up. Southbank had a good month helped by the Guys & St Thomas deal. Current London office demand is calculated to be around 4m sq ft in the City and 3m sq ft in the West End.

The volume of grade A (newly built or refurbished office space) let during the month hit an impressive 429,000 sq ft (52% of the total), as transactions for new space recovered slightly in July.

New research from Metropolis reveals there are some 400 medium/large companies in central London which have yet to make decisions on leases due to expire in 2017.

Birmingham Summer 2016 Office Market Update

A recent report by Colliers International concluded that central Birmingham city office take-up reached 217,000 sq ft in 40 deals during Q2 2016, which was above the five-year quarterly average.

Birmingham office transactions in 2016 added up to 501,000 sq ft in 76 deals. Network Rail agreed to take 85,000 sq ft over three floors at Baskerville House in Centenary Square; Energy Systems Catapult is to relocate to 18,000 sq ft office space at Cannon House; DAC Beachcroft has signed to take 40,000 sq ft of office space on part third, fourth and fifth floors, at Tricorn House and Monarch Recruitment is taking another 10,000 sq ft floor at Temple Point, 1 Temple Row.

Metropolis is tracking over 30 medium/large requirements in Birmingham, including from searches from the likes of London Midland, Emcor and Zurich Insurance.

Birmingham city core is expected to bring onstream up to 1 million sq ft of new development between 2017 and 2019. Schemes include Stirling Property Ventures and Rockspring 235,000 sq ft at 103 Colmore Row, formerly Natwest Tower. Also 3 Snowhill will deliver 385,000 sq ft of Grade A office space by early 2019.

In the short term the refurbishment of 55 Colmore Row, will deliver 156,000 sq ft of prime Grade A space; the Cornerblock will deliver 110,000 sq ft of Grade A refurbished space in Q4 2016, while Ardstone Capital’s 1 Newhall Street will provide 45,000 sq ft of Grade A space by late 2016.

Manchester Office Market Summer 2016

Lambert Smith Hampton has just published its Q2 summary of the Manchester office market.

Manchester city centre office take-up for Q2 2016 reached 218,400 sq ft bringing the total for the first half of the year to 416,110 sq ft. LSH say that a number of large scale transactions are expected to complete in the second half of the year, which could lead to a year end total of 1m sq ft, close to the 5 year average.

Recent transactions included 11,000 sq ft to Mazars at One St Peter’s Square, 33,000 sq ft to the Co-op Bank at Martins House and 16,000 sq ft to Ericsson at MediaCity.

Recent Manchester pre-lets have included:

1 Spinningfields: PWC – 49,400 sq ft
Two St Peters Square: EY – 41,630 sq ft
XYZ: Global Radio – 16,670 sq ft
XYZ: Shoosmiths – 32,000 sq ft
XYZ: NCC Group – 60,000 sq ft

Swinton Insurance is under offer on 160,000 sq ft at 101 Embankment, Freshfields are due to complete imminently on 80,000 sq ft at New Bailey, DWP have a 80,000 sq ft Manchester requirement and PwC are being linked to taking further space at 1 Spinningfields.  There has growth in demand for companies looking to move operations (called northshoring) from London, for example law firm Freshfields, as well as Lonza and Escada opening new city centre operations.

Metropolis is also monitoring over 60 named Manchester office requirements from a wide variety of companies such as the likes of AJ Bell and Weinberger, as well as over 100 approaching lease expiries in late 2016 and 2017.

There is just over 1m sq ft of new office space under construction in Manchester, including schemes such as English Cities Fund’s 190,000 sq ft Two New Bailey and Ask Real Estate’s 164,000 sq ft 100 The Embankment.