Central London Office Market May 2019

Central London office lettings in May 2019 reached 1.3 million sq ft, from 40 mid-large size office transactions (5,000 sq ft+) during the month. The May 2019 deals volume figure is well above the current monthly London average of 1m sq ft.

May was characterised by 14 office deals over 20,000 sq ft, which were led by EBRD’s 365,000 pre-let at 1-5 Bank Street, E14; along with the letting of the refurbished 25 Cannon Street to Brewin Dolphin; WeWork at Film House, Soho, W1; Parliamentary Estates taking space at 64 Victoria Street, SW1, plus Quilter at Senator House in EC4 .

Financial Services topped the table of lettings by sector, compiled by Metropolis, underpinned by the EBRD pre-let and Brewin Dolphin’s new City of London HQ. This was followed by business services led by WeWork and Signature (Regus) deals. Public services, led by Parliamentary Estates and professional services with Cadwalader and Comply were also well represented.

Office deals ‘under offer’ in central London stood at 3m 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 34% of the office floorspace let in May 2019 at 437,000 sq ft. The West End saw 350,000 sq ft of take-up. Docklands 365,000 sq ft, Midtown contributed 109,000 sq ft of lettings and Southbank 21,000 sq ft. Current London office demand is calculated to be around 3.7m 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, reached a healthy 960,000 sq ft sq ft (74% of the monthly total), as transactions for new space maintained the recent strong showing. Availability is dominated by secondhand space in all London markets.

Metropolis research is currently monitoring 625 ‘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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London Office Development

The Deloitte Crane Survey Summer 2019 has just been published with data contributed by Metropolis and Cityoffices. In this blog we look at the main survey findings and some of the other additional trends that were not highlighted in the final report.

Last year the survey reported that after a small dip in Q3 2018. However in Q1 2019 the volume of London office space under construction has risen 12% to 13.2m sq ft. There were 37 new schemes started in the last six months. Major new starts included the 611,000 sq ft Facebook HQ at Kings Cross and the 245,000 sq ft 1 Finsbury Avenue, EC2.

Deloitte highlight a trend towards refurbishment construction projects in the City of London, whereas Kings Cross is leading the new-build starts. The City will see completions in 2019 to towers at 22 and 100 Bishopsgate, with more office towers planned.

Some 6m sq ft of office space is planned for completion in central London in 2019, matching the 2018 figure. Occupiers are jostling for the new space with 55% of the space due for completion this year already pre-let. Finanancial services, technology and serviced office occupiers are particularly active. The fringe areas of Southbank including Battersea, Kings Cross and Paddington are attracting more pre-lets than the West End.

Deloitte conclude that new Grade A office space availability is falling with 30m sq ft currently in the pipeline, which represents a 23% fall in the last two years. However, London’s office pipeline is always waxing and waning. The recent short term trend and looking back historically cannot be relied upon in the longer term. Indeed, the number of schemes at demolition or site preparation stage, such as the Leadenhall  Triangle, Ropemaker and 6-8 Bishopsgate, continues to be healthy. Research showed that 6.5m sq ft of central London offices are poised to start construction in the latter half of 2019, giving a healthy pipeline going forward.

Looking at planning applications over the last year in central London, in numbers terms, there is a trend towards refurbishment applications over new-builds. New applications for schemes in the pipeline such as 1 Undershaft could skew this trend back towards new builds again. Demand from London office tenants continues to underpin developer plans for the next wave of building.

Edinburgh Office Market Update

Metropolis ran nearly 50 business leads on Edinburgh occupiers relocating in the early months of 2019. There are nearly 200 office occupiers approaching lease events in the city in the next two years. Recent expansions are showing a rise in the number of financial services and technology companies taking space.

In Q1 2019, total office letting in Edinburgh reached 185,000 sq ft, of which nearly 60,000 sq ft was Grade A new office space. Figures from Savills show that 90% of Grade A deals came from Tech industries. The largest deals included Amazon signing for 30,000 sq ft at Exchange Crescent and Epic Games taking 10,000 sq ft at Quartermile 2. Over the past five years, Edinburgh has seen employment growth of 7% in the professional scientific and tech industries and is forecast to see a further 11% over the next five years.

Avison Young spotlight the wider Edinburgh office market, which also saw large deals. Two of the largest deals freehold purchases out-of-town with 49,000 sq ft to the Church of Scientology at Westfield House and 12,000 sq ft to Sime Hospitality at South Gyle Business Park. There were other mid-sized deals to CGI and Upward Mobility. Lloyds Bank is expanding into a 75,000 sq ft technology hub at its Scottish Widows’ headquarters.

In the centre of Edinburgh there has been a high concentration of sub 5,000 sq ft deals, with tech firms have particularly active in this size bracket, accounting for 33% of all take-up.

Analysts expect a boost in take-up for the business services sector over summer 2019, with a number of buildings under offer to providers of co-working serviced office space.

Avison Young reveal that overall availability in the city centre amounts to 448,000 sq ft, which is less than a year’s supply based on the recent past demand. Although future supply was boosted when M&G Real Estate has instructed Qmile Group to build its mixed-use Haymarket scheme, which includes 350,000 sq ft of office space. There is currently around 55,000 sq ft remaining at Capital Square ahead of completion in May 2020, 2 Semple Street has 35,000 sq ft available, and 30,000 sq ft of sub-let space is on offer at 20 West Register Street.

Looking ahead, with a vacancy level of 3%, more pre-letting looks likely. Metropolis is tracking around 30 confirmed and potential medium/large office searches in Edinburgh.

Central London Office Market in April 2019

Central London office lettings in April 2019 reached just over 1 million sq ft, from 35 mid-large size office transactions (5,000 sq ft+) during the month. The April 2019 figure is in line with the current monthly London average of 1m sq ft.

April was characterised by 16 office deals over 20,000 sq ft, which were led by Facebook’s 175,000 deal at expansion at Regents Place, NW1 along with a large pre-let to G-Research at the under construction Soho Place in London, W1; Spaces at Cabot Square, E14; Trade Desk expanding at One Bartholomew Square, EC1; plus Mastercard at 1 Angel Lane, EC1 and Splunk in Paddington, W2.

IT Services topped the table of lettings by sector, compiled by Metropolis, underpinned by the Facebook deal and G-research’s expansion pre-let. This was followed by business services led by a number of serviced office sector deals. Financial services, led by Mastercard, plus media led by Trade Desk were also well represented.

Office deals ‘under offer’ in central London rose to 3.6m 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 28% of the office floorspace let in April 2019 at 280,000 sq ft. The West End saw 500,000 sq ft of take-up. Midtown contributed 139,000 sq ft of lettings and Southbank 25,000 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 a healthy 417,000 sq ft sq ft (42% of the monthly total), as transactions for new space maintained the recent strong showing. Availability is dominated by secondhand space in all London markets.

Metropolis research is currently monitoring 630 ‘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.

Paul Ives Metropolis

Manchester Office Market Update

Recent research by Metropolis saw nearly 40 office Manchester moves confirmed in the first quarter of 2019, which is 10% above the same period last year. Furthermore, there are over 100 companies either searching or due to make decisions on future office space searches in 2019.

Local office agents expect take-up in the city centre market to top 1m sq ft for the sixth year running following a steady start to 2019. The first quarter of the year saw 314,733 sq ft of lettings according to the figures from the Manchester Office Agents Forum. The largest transaction so far this year is the long-awaited 47,465 sq ft pre-let at Two New Bailey to law firm Eversheds Sutherland.

Other large deals included co-working operator Huckletree taking 25,800 sq ft at the Express Building, the General Medical Council taking 22,000 sq ft at 3 Hardman Square and Knights Professional Services taking 16,272 sq ft at Two St Peter’s Square. Moneysupermarket.com took space at No. 1 Spinningfields at £35 per sq ft, a new record rent for the city.

The headline requirement is to BT, which it has recently increased its search to 150,000 sq ft. The out-of-town market saw lettings to two utilities companies Smart DCC and Landis & Gyr. There were also a number of deals to tech companies such as Capgemini, Playdemic and Cetus Solutions.

Analysis by Savills points to a diverse base of office occupiers, who are attracted to the city as a result of its strong talent pool, establishing it further as a key location outside of London.

Savills research points to a Manchester’s office market with record 2018 take-up levels of 1,750,276 sq ft, representing a 44 per cent year-on-year increase. It was also the fifth consecutive year that Manchester saw city centre take-up in excess of 1.2 million sq ft.

Recent office mover activity has been dominated by TMT, professional, financial services and public sector markets as well as co-working providers.

Manchester has seen an influx of flexible and serviced office providers looking to establish a presence outside of London including WeWork, Work Life and Central Working taking space as well as smaller independent providers.

Looking ahead, Metropolis has plans to speak to a further Manchester office occupiers that are approaching lease expiries on their office space over the next two years.

Paul Ives, Metropolis

Financial Sector and the London Office Market

The recent signing of a large pre-let of 123,000 sq ft of new London HQ offices by ICAP at 135 Bishopsgate, London, EC2 and large mid-size lettings to nearby to FIS Global and Peel Hunt, has underlined the contribution of the financial sector to London’s office market. Metropolis looks at the importance of the financial sector to office transactions and relocation moves in London.

In 2018, the financial sector made a huge 1.8m sq ft contribution to the 12m sq ft of office space let in central core area of London. Metropolis ran near 120 leads on financial sector firms finding medium or large premises during the year. There are thought to be over 3m sq ft of requirements in the London market, with Metropolis tracking 150 live requirements in London for 2019 and beyond, mainly driven by lease events, mergers and consolidation. Analysis of recent data suggests that financial sector office tenants are responsible for a quarter of London office deals so far in 2019.

JLL point to recent deals including 120,000 sq ft Grade A at 55 Gresham Street, EC2 let to Investec Asset Management. ICAP also taking acquiring 34,000 sq ft in Verde, SW1, consolidating from three West End offices, Sumitomo Mitsui Banking Corporation taking 161,000 sq ft pre-let at 100 Liverpool Street, EC2.

In the West End large recent Mayfair transactions include KKR pre-letting 57,000 sq ft at 18-19 Hanover Square, W1 and 21,000 sq ft over four floors to private equity firm Cerberus Capital Management at 5 Savile Row, W1. The King’s Cross Central development has attracted XTX Markets. There are up to 100 asset managers, private equity specialists and hedge fund managers in various stages of searches and potential requirements in the west end. Recent research suggests that London requirements will increase over the second quarter of 2019, with a number of prominent financial occupiers launching searches in advance of upcoming lease expiries.

Looking ahead, there are 300 London based media companies approaching lease expiries in the next two years. Future large identified requirements include: EBRD (Just signed in Canary Wharf), Bank of New York Mellon and The Northern Trust, together with expansion driven requirements from Brewin Dolphin and Smith & Williamson.

For further analysis and details contact Paul Ives at Metropolis

Media Sector and the London Office Market

The recent signing of a large pre-let of 124,000 sq ft of new London HQ offices by Sony at 4 Handyside Street, Kings Cross has brought renewed focus onto the contribution of the media sector to London’s office market. Metropolis looks at the importance of the media sector to office transactions and relocation moves in London.

In 2018, the technology and media sector once again dominated the London’s leasing profile, accounting for 27% of take-up across central London at around 3m sq ft and signing two of the year’s three largest deals. This is the third consecutive year that the sector has finished the year in the top spot. In many respects, the media and tech sector has been the standard bearer for London’s continued global magnetism

Kings Cross has become a popular destination for the creative and media sector with recent moves agreed with Universal and PRS for Music. In addition, Google and Facebook, which straddle the line between media and technology companies, also chose Kings Cross as their London HQ destinations.

Other large media sector moves announced recently, have included WPP agreeing to centralise HQ functions at 1 Southwark Bridge Road, SE1 and McCann Worldgroup pre-letting nearly 150,000 sq ft at the under construction 135 Bishopsgate, EC2.

Metropolis has also recently run large London moves planned by Publicis, Datamonitor, Ree, Macmillan Publishers and Trade Desk.

Media occupiers have been active across all sub-markets, but they have been particularly dominant in the West End, accounting for over 30% of all activity in 2018. In Midtown, Herbal House, EC1 and The Farmiloe, EC1 attracted a variety of media and creative tenants. Research by Colliers shows that media sector tenants negotiate the shortest lease lengths and therefore the sector is the most likely to be looking for its next move.

Looking ahead, there are 220 London based media companies approaching lease expiries in the next two years. Metropolis is tracking over 130 which have expressed an interest in a move. Future large identified requirements include: 20th Century Fox (80,000 – 100,000 sq ft) and The Telegraph Media Group (70,000 – 80,000 sq ft).

For further analysis and details contact Paul Ives at Metropolis