Central London Office Market June 2019

Central London office lettings in June 2019 reached 1.05 million sq ft, from 64 mid-large size office transactions (5,000 sq ft+) during the month. The June 2019 deals volume figure is in line with the current monthly London average of 1m sq ft.

June was characterised by 15 office deals over 20,000 sq ft, which were led by Parliamentary Estate’s 97,000 sq ft deal at 64 Victoria Street, SW1; Smith & Williamson taking 87,000 sq ft at  40 Gresham Street, EC2; Squire Patton Boggs taking 61,000 sq ft at Devonshire Place, EC2 and WeWork taking 47,000 sq ft at Hounsditch, EC3.

Professional Services topped the table of lettings by sector, compiled by Metropolis, underpinned by the Smith & Williamson and Squire, Patton Boggs pre-lets. This was followed by financial services led by Liberty and Business Research. The Business Services sector was also prominent with deals to WeWork, Spaces and Knotel

Office deals ‘under offer’ in central London rose to 4m sq ft, and pending deal volumes are healthy in nearly all sub-markets, with a number of deals in solicitor’s hands.

By area, the City accounted for 40% of the office floorspace let in May 2019 at 406,000 sq ft. The West End saw 356,000 sq ft of take-up. Docklands 66,000 sq ft, Midtown contributed 134,000 sq ft of lettings and Southbank 93,000 sq ft. Current London office demand is calculated to be around 3.8m sq ft in the City and 3.1m sq ft in the West End.

The volume of grade A (newly built or refurbished office space) let during the month, reached 349,000 sq ft sq ft (33% of the monthly total), as transactions for new space maintained the recent strong showing. Availability is dominated by secondhand space in all London markets.

Across Q2 2019, there were deals covering 3.3m sq ft of office space, slightly down on 2018, led by the EBRD pre-let at 5 Bank Street in Docklands, followed by Brewin Dolphin in the City and G-Research in the West End. Some 40% of space let in Q2 was in pre-lets. Financial and business services were the two most active sectors.

Metropolis research is currently monitoring 620 ‘live’ London office requirements, including a large volume of requirements from the banking and finance sectors, with pending deals for space of up to 1.5m sq ft due to sign in the next few months.

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Leeds Offices Step Up

Recent research by Avison Young showed a strong start to 2019 in Leeds city centre with 222,000 sq ft take-up in 39 deals, 56% above the 10 year average. TMT occupiers accounted for the lion’s share of activity, and with Channel 4’s announcement that it intends to acquire 25,000 sq ft at Rushbond’s Majestic this commitment is likely to act as a further stimulus for the continued growth of this sector in the Leeds region. Banking and finance combined with professional services also accounted for a third of transactions.

Take up was led by the 71,000 sq ft letting at M&G’s Central Square to Link Asset Services, a share registry provider. There were also five transactions above 10,000 sq ft, the largest of which was 20,700 sq ft to WYG plc at 3 Sovereign Square as well as Unite Union (12,800 sq ft) and Opera North (11,000 sq ft). There were two further 5,000 sq ft deals to engineering companies BAM Nuttall and Buro Happold. The Government Hub announced its move in 2017 and will open in the next 12 months. Metropolis has published details of 20 future relocations and 36 companies considering a move in recent months.

Out-of-town mover activity was more subdued but there was also a greater than average level of take-up for deals below 5,000 sq ft across both markets.

Channel 4’s deal to lease three floors of the 66,000 sq ft Majestic, the former cinema located opposite the train station will account for one office scheme. Along with 34 Boar Lane (46,000 sq ft) this is currently undergoing a major refurbishment in the city centre. The speculative 4 Wellington Place (155,000 sq ft) is also under construction in the city centre and due for completion by the end of 2020. The only new development completed recently was the newly refurbished 33 Wellington Street of which 15,000 sq ft is still available.

Metropolis is tracking around 40 companies looking for office space in the Leeds area.

City of London Update

A recent research update on the City of London office market by property consultant Savills, revealed that office take-up on the 12-month rolling total had reached 6.9m sq ft, the lowest it has been
since July 2017.

Savills say that demand for space in the fringes of the City has been reduced this year, with most large deals concluded in the core area. The largest deal to be signed in the last two months saw the financial group Brewin Dolphin acquire the whole of 25 Cannon Street, EC4 (114, 000 sq ft) with the relocation happening in July 2022. In addition, competitor Smith & Williamson signed for 86,975 sq ft at Gresham St Pauls, 40 Gresham Street, EC2 relocating from their current offices when the scheme completes in Q3 2020. Demand continues to be concentrate on the new schemes with a two tier market evident. For example 100 Liverpool Street has seen deals of 63,000 sq ft to Millbank and 40,000 sq ft to Peel Hunt, achieving higher than average rents for the area. During Q1, construction started on 6-8 Bishopsgate (710,000 sq ft), Ropemaker Place (480,000 sq ft) and 1 Portsoken Street (190,000 sq ft).

The Insurance and Financial services sectors are the mainstay of demand in the City, currently with 27% of the share of take-up, followed by the Serviced Office Provider sector with 18% share, and the Professional services sector in third with 11%.  Tech & Media sector is lagging in 2019. Tech & Media occupiers are thought to be choosing to move into serviced offices, which continue to expand. The Serviced Office
sector has taken 363,000 sq ft of offices in the City, so far this year, up on this point last year by 78% and up on the 10-year average. An example is WeWork acquiring 50,000 sq ft at 2 Minster Court, EC3. The average deal size for the quarter was just 13,621 sq ft, its lowest since 2012. This was due to a lack of larger transactions.

During the first 6 months of 2019 Metropolis ran leads on 180 occupiers looking for alternative office space in the City of London.

Bristol Office Market Picks Up

Recent research by JLL and CBRE reveals that the Bristol city centre market had a slow start to 2019 with some 58,140 sq ft of city centre office deals representing the lowest level since Q1 2009. The only deal over
5,000 sq ft between January and March, was Forrest Brown taking 23,207 sq ft of space at Templeback in the city centre.

However, recent research by Metropolis shows the pace picking up in Q2.  Turner & Townsend signed for 7,000 sq ft at Desklodge House, Historic England took 6,000 sq ft at Finzels Reach, Efinor took 5,000 sq ft at Whitefriars, Unite Integrated Solutions is taking 27,000 sq ft at South Quay Temple Back and Brunel Studios taking 4,000 sq ft at Petherton Road. Ashfords Solicitors, the Bristol-based law firm, is understood to be under offer to take 1,580 sq m (17,000 sq ft) of new offices at the under construction ‘The Assembly’ office building in Temple Quarter.

Out of town, there have been large lettings of 40,000 sq ft to St James Place Wealth Management at 2610 Aztec West,13,000 sq ft to Elbit Systems UK at 600 Aztec West and 13,000 sq ft to Integral at Waterside Drive have boosted the totals.

JLL say the outlook for the remainder of the year is more positive with a quarterly increase in overall registered demand from a broad range of business sectors, including flexible workspace operators.  The overall vacancy rate remained stable during Q1 at 4.3%. Bristol continues to have the lowest New Grade A vacancy rate of the large provincial city office markets at just 0.1%.

The development pipeline is responding to this with AXA’s Building A, Assembly (200,000 sq ft) and RLAM’s 90,000 sq ft The Distillery both under construction on a speculative basis. Bristol currently has a number of schemes in the pipeline totalling up to 850,000 sq ft. Some of these schemes could be delivered as soon as 2021. Headline prime rents remain stable at £35.00 psf.

Metropolis Research is following up on 200 lease expiries in Bristol due in the next two years.