Boost for Newcastle Office Market

Recent research from Lambert Smith Hampton reveals a spike in activity in the Newcastle office market.

While Newcastle city centre saw 21 lettings completed within the three months to June totalling 46,010 sq ft. In contrast, it was a record breaking quarter for the out-of-town market, with 322,827 sq ft of office space let, across 32 transactions.

Recent lettings bring the total space let or sold across the city centre and out-of-town markets combined during the first half of 2019 to an exceptional 583,924 sq ft.

The largest confirmed office movers, recently announced, include software giant Sage’s letting of two buildings at Cobalt Business Park totalling 203,728 sq ft, marking it the largest out-of-town office letting in the North East region. In addition, Repairify UK took 15,600 sq ft at Traynor House in Newcastle and Eldon Consulting took 6,000 sq ft at Pandon Bankside, NE1. Elsewhere a 10,000 sq ft deal was agreed by a
confidential occupier at Berrymoor Court, Cramlington and there was a handful of circa 5,000 sq ft deals.

Metropolis is monitoring a number of occupiers interested in moves in Newcastle, including Performance Horizon and Barclays Bank. Starling Bank, the digital lender, has a requirement for around 930 sq m (10,000 sq ft) of regional offices and Newcastle is one of three locations on the shortlist. Metropolis is talking to 100 office occupiers in Newcastle and Gateshead approaching lease expiries in the next two years.

Newcastle has seen substantial growth in the tech sector over the last five years, with digital tech start-ups increasing by 154% from 2011 to 2016. The long-awaited JEREMIE2 funding now live and new access to finance should also stimulate the city’s tech sector. The £120 million fund could support 600 businesses over future years.

The 106,000 sq ft Lumen building at the Newcastle Helix regeneration scheme in the city centre is expected to complete at the end of this year, with the next phase of the scheme, 107,000 sq ft Spark, due to commence soon. At the Stephenson Quarter, Newcastle Council are looking to appoint a development partner to complete the next mixed-use phase, to include offices.

London Docklands Review

Recent research by Cushman & Wakefield on London Docklands office markets revealed that in the second quarter of 2019 826,000 sq ft of office moves were agreed. This is the highest quarterly leasing volume for the area since Q2 2015. The total of 949,000 sq ft for the first half of 2019 is 46% above the five-year first half of the year average of 648,000 sq ft and significantly ahead of the same period in 2018.

The biggest transactions included the 358,000 sq ft pre-let by the European Bank for Reconstruction and Development (EBRD) at 5 Bank Street, which was the largest transaction in Q2. In addition, WeWork’s acquisition of 287,000 sq ft at 30 Churchill Place on a sublease from the European Medicines Agency, also made a large contribution. Consequently, Q2 take-up was dominated by the banking & finance and flexible workspace sectors, which accounted for 40% and 38% of quarterly take-up respectively. The public & government sector (18%) continued to feature, especially in nearby Stratford. There were also moves in Docklands for PKF Littlejohn, London, Borough of Tower Hamlets and Revolut.

Space under offer fell during the quarter, due to the leases signed by EBRD and WeWork. Overall office requirements in Docklands fell to 3.9m sq ft. This total is still 25% above the long term average of 3.1m sq ft, although this total also reflects companies that are also looking at other areas such as the City of London and West End. Business services and banking are the most active sectors in terms of office demand. Metropolis is monitoring office demand from tenants such as Clifford Chance, Citigroup and China Telecom.

Metropolis is monitoring the plans of over 130 office tenants that have lease expiries approaching in the London Docklands area over the next two years.

There is currently 2.9 million sq ft of space under construction in Docklands, of which 1.4 million sq ft (47%) is pre-let or under offer. The total volume of speculative space under construction increased for the second consecutive quarter to 1.5 million sq ft, up from the 1.2 million sq ft at the end of Q1. This was driven by two new starts at the Wood Wharf development: The Market Building (213,000 sq ft) and Frameworks Building, (250,000 sq ft), both due to complete in late 2022.

Birmingham Review

Recent research from Colliers International saw office move activity in Q2 2019 in central Birmingham rise a substantial 65% on Q1 leasing levels, albeit driven by three large serviced office deals. The total number of agreed deals hit 320,595 sq ft in 30 deals according to the property consultant.

The quarter represents one of the strongest Q2 leasing levels in Birmingham since Q2 2015. The first half of 2019 overall saw 514,000 sq ft leased in 55 deals including Irwin Mitchell taking 46,750 sq ft at the Colmore Building and The Commonwealth Games who took 72,261 sq ft of Grade A space at One Brindleyplace. In Q2, the serviced office sector was responsible for 72% of total take-up. All three of the largest deals this quarter were attributed to WeWork, which leased a total of 229,042 sq ft in three separate deals: 92,670 sq ft over seven floors at 6 Brindleyplace, together with Louisa Ryland House (81,280 sq ft) and 55,092 sq ft at 55 Colmore Row simultaneously setting a new headline rent for Birmingham at £34 per sq ft. The 6 Brindleyplace deal was the largest in the city centre this year.

Without WeWork, the 2nd quarter would have seen take-up levels at their lowest (91,553 sq ft) since Q2 2012. Business services were the second-most active sector in Q2, accounting for 9% of total take-up.
The largest deal was for 8,097 sq ftat 52 Charlotte Street, let to Newhall Charlotte.

Total Grade A take-up totalled 262,587 sq ft, which was heavily skewed by the WeWork deals. Grade A take-up increased by 70% from Q1. Four out of 19 Grade A deals transacted this half was for space greater than 50,000 sq ft. The average Grade A deal size in H1 2019 was 21,935 sq ft.

Metropolis is talking to nearly 60 Birmingham occupiers of 5,000 sq ft or more approaching lease expiries in the next two years.

Agents say that the mover size bracket of 5,000-15,000 sq ft is unlikely to be affected by WeWork or the other serviced office providers, so agents expect to see continued healthy levels of take-up of this size. The 2,000-5,000 sq ft bracket will be watched with particular interest.

London West End Review

Recent research by Cushman & Wakefield on the London West End office market reveals:

West End office lettings in the Q2 of 2019 reached nearly 800,000 sq ft which was 7% above the average for second quarter take-up in the last five years. Across the first half of 2019 this brought total transactions to 1.83m sq ft which was 10% ahead of the five year average and 4.3% up on 2018.

Pre-lets played an important role in total take-up with 24% of space pre-let in the West End including large deals to G-Research, UK Parliament and Li & Fung

The volume of office space under offer in the West End increased to 1.2m sq ft. This was 54% ahead of the five year average and should fuel more deals in the second half of the year. Indeed we have already seen another big West End pre-let, with the 105,000 sq ft pre-leased to Diageo at Great Marlborough Street, London, W1. Further deals have been concluded to the serviced office sector.

Metropolis is monitoring a large number of large West End requirements by occupiers such as: Apollo Management, Technicolour and Ralph Lauren. West End requirements at 4.7m sq ft are well above their  long-term average.

New, Grade A space lettings accounted for 65% of lettings according to C&W. In addition, nearly 50 of the 180 recorded office moves or expansions were over 5,000 sq ft in Q2. Some 20% of the relocations were by office tenants in the financial sector, followed by 19% in the technology and media sector.

Supply of offices is tight in the West End with a vacancy rate of 4% and only one building able to accommodate movers of greater than 100,000 sq ft. There are currently only 28 buildings which are set to be delivered over the next five years, which will have floorplates 15,000 sq ft and over. The majority of available space is in the fringe, Hammersmith and White City. Some 72% of space in the West End currently under construction was pre-let.

 

What Do Office Tenants Want?

Savills’ fourth edition of ‘What Workers Want’ survey reviews and analyses the results from the UK respondents to identify key trends for landlords and office-based occupiers across all business sectors.

Savills say: Office trends are increasingly driven by the employee rather than the occupier. It is important that occupiers understand their employees’ needs when they relocate or open a new office. This is particularly important during the fit-out process when moving into a new office.

The main conclusions of the Savills survey are:

Location – office workers place a high importance on public transport connectivity and proximity to amenities.

Layout – Open-plan offices are the dominant layout preference for occupiers with 80% working in this type of layout, but 45% of respondents believe hot-desking decreases their productivity.

Comfort – 60% of office workers preferred to have their own dedicated desk. Only 34% of respondents have been asked for their views on the office environment by their employer.

Flexibility – Occupiers are encouraging their staff to work flexibly whether that be remote working or promoting hot-desking. However, a third of respondents believe the company they work for does not possess the relevant technology.

Technology – Landlords and tenants may be able to increase staff productivity by use of smartphone apps.

Deliveries – Occupiers and landlords need to consider how they can improve the provision of parcel lockers by potentially using redundant ground floor/basement space.

Break-Out – Landlords and tenants need to ensure there are appropriate break-out areas or purpose-built cafés for their staff.

The most important factor in an office worker’s ideal workplace was the comfort of work area with 92% of the respondents considering this as highly important.

The quality of Wi-Fi technology has become a key factor in the workplace. This was evident from the survey, as 80% of respondents believed this was an important component in their ideal workplace. Tenants are increasingly using smart technologies, which are also becoming incorporated into office buildings.

Further research by Metropolis has highlighted the importance of ‘smart buildings’ to potential incoming tenants.

Central London office lettings in July 2019

Central London office lettings in July 2019 reached 1.1 million sq ft, from 40 mid-large size office transactions (5,000 sq ft+) during the month. The July 2019 deals volume figure is in line with the current monthly London average of 1m sq ft.

July was characterised by 15 office deals over 20,000 sq ft, which were led by BT’s 328,000 sq ft pre-let at One Braham, E1; Diageo’s 106,000 sq ft pre-let at 16 Great Marlborough Street and WeWork’s 88,000 sq ft at Queen Victoria Street.

Telecom topped the table of lettings by sector, compiled by Metropolis, underpinned by the BT pre-let. This was followed by business services led by WeWork, Office Group and Knotel. The food and drink sector was also prominent with the Diageo West End prelet.

Office deals ‘under offer’ in central London rose to 4.1m 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 60% of the office floorspace let in July 2019 at 615,000 sq ft. The West End saw 319,000 sq ft of take-up. Docklands 76,000 sq ft, Midtown contributed 90,000 sq ft of lettings and Southbank 66,000 sq ft. Current London office demand is calculated to be around 3.9m sq ft in the City and 3.2m sq ft in the West End.

The volume of grade A (newly built or refurbished office space) let during the month, reached 550,000 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.

The large number of upcoming lease events in the core has been a key driver to mover activity .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.

Manchester Update

Recent research by Avison Young and MOAF reveals that Manchester city centre office activity reached 491,300 sq ft during Q2. The figure was 64% above the quarterly average and brings the year to date total to over 800,000 sq ft. Metropolis ran 40 business leads featuring companies relocating in the Manchester market in Q2 2019.

The largest move of the quarter involved Spaces agreeing the largest flexible workspace deal in the UK outside London, taking 122,000 sq ft at 125 Deansgate.  It also understood that BT is close to taking a significant amount of space. Other large moves recently researched by Metropolis included relocations by Hewlett Packard, ME Group, Jones Lang Lasalle and BASF.

There is considerable activity from the flexible workspace sector as WeWork has signed for its fourth location in Manchester, 51,000 sq ft at Hyphen and there are more than half a dozen co-working operators
looking for substantial amounts of space. Business services tends to dominate take-up in Manchester, accounting for a third of take-up.

Advertising and public relations company WPP have committed to 82,000 sq ft which will be constructed at Enterprise City, St John’s. Barclays expanded by 33,000 sq ft at Piccadilly Place. The largest deal in the out-of-town market was to telecommunications company Verastar, which has agreed a 61,000 sq ft deal at One Dovecoat in Sale. Marks & Spencer took 12,000 sq ft at the Alexandra, The Home Office taking 20,490 sq ft at the Soapworks and Capgemini taking 11,360 sq ft at Venus.

Looking ahead, Metropolis is monitoring almost 40 medium/large firms looking for space in Manchester, together with a further 70 tenants approaching lease expiries over the next two years.

There is 1.6 million sq ft of space under construction in Manchester, of which 38% is pre-let. Of the million sq ft of speculative space under construction, key developments include Landmark Oxford Road, 100 Embankment and Circle Square. Grade A remains in good stock with new developments such as 125 Deansgate and Landmark at St Peter’s Square due to complete in 2019. Between them they will bring 305,000 sq ft to the market, 133,000 sq ft of this currently under offer to new tenants.