Leeds Lettings Surge

A recent office market report on Leeds by Colliers International highlighted a surge of letting activity towards the end of 2015. Office take-up for the Q4 2015 reached 267,000 sq ft (just below the quarterly record) and the total of office deals for 2015 reached over 680,000 sq ft. Around 60% of 2015 was Grade A newly constructed or refurbished space.

The most high profile transactions in 2015, most of which were tipped in advance by Metropolis, included Sky’s 97,000 sq ft deal at Leeds Dock; Addleshaw Goddard pre-let 51,000 sq ft at 3 Sovereign Square and PWC preletting 50,000 sq ft at Central Square,. Legal and financial services accounted for 33% of take-up in 2015, followed by technology and media on 23%. Prime rents are around £27 psf and predicted to rise in 2016.

The Metropolis database reveals nearly 50 outstanding office requirements in Leeds including IPF, RSM and Jet2 with substantial requirements. In total, the fifty firms are currently searching for over 400,000 sq ft of office space in the city, with another 30 firms due to make decisions ahead of lease expiries in 2016 and 2017. Lease expiries are triggering 60% of current relocations.

The availability of grade A office space, newly constructed or refurbished, has fallen to a five year low at 5% and only 7.75 across all grades. More than 530,000 sq ft of new office space is due to be completed shortly including 6 Queen Street; Central Square; Sovereign Square and 6 Wellington Place. Manchester and Leeds have the two most active office construction markets in the UK outside London.

The five new build schemes in Leeds city centre are 30% pre-let with other pre-commitments in negotiation. A number of refurbishments are also underway such as 6 East Parade (45,000 sq ft) and Concordia Works (14,000 sq ft) . Looking ahead, Cadddick Developments has secured planning for a mixed use scheme at Quarry Hill, which will include 107,650 sq ft of offices and BAM have gained consent for another phase of Latitude.

London 2015 take-up tops 12m sq ft..Again

The results are in on central London office take-up in 2015.

Total transactions over 5,000 sq ft in the year amounted to 12.2m sq ft researched by Metropolis, a similar figure to 2014. The lettings breakdown included nearly 6m sq ft in the City; 1.2m sq ft in Docklands; Midtown 2.2m sq ft; West End 2.7m sq ft; Southbank 0.3m sq ft.

By office grade, a substantial 5.9m sq ft of the 12.2m sq ft was grade A, ie newly built or recently refurbished space. Some of the larger examples of grade A lettings included a flurry of deals at the Straford Quarter, Aldgate Tower, Leadenhall Tower, Alphabeta Building, Park House in Oxford Street and 58 Victoria Embankment. The highest rent recorded was nearly £100psf in a recently completed Mayfair scheme. Although the year saw more than 20 substantial pre-lets, the majority of grade A lettings came after the building completion. Developers seem to be benefitting from the ‘build it and they will come’ philosophy.

The most active sectors in 2015 are set out below. All figues in million sq ft.

Financial 3.2
TMT 2.5
Business Services 1.8
Professional 1.6
Insurance 0.4

Although financial services heads the list with 3.2m sq ft of deals, boosted by large pre-lettings to Deutsche Bank and Royal Bank of Canada, it was closely followed by TMT (technology, media and telecom). Large deals included Google, Facebook, Universal Music and Hewlett Packard. Also showing strongly are business services (WeWork took over 500,000 sq ft) in the year and professional services was boosted by big pre-lets to ashurst Morris Crisp and Deloitte.

Looking ahead to 2016, a similar year is in prospect. Some 7m sq ft of un-let speculative office space is under construction in central London, with a further 8m sq ft at demolition stage, according to Cityoffices.net. There are office requirements totaling around 10m sq ft for the City, Midtown, West End, Docklands and Southbank, plus a further large tranche of companies making decisions on future lease expiries. Based on current trends upto 6m sq ft of demand could go to under construction or newly refurbished space with a similar volume of secondhand space lettings. So another 12m sq ft of deals in 2016 is likely.

London West End Autumn 2015 – A Preview

Significant Demand In The Pipeline

This Metropolis blog breaks new ground with an attempt to give clients an insight into the ‘work in progress’ on forthcoming office requirements in the London West End market. In the spirit of those TV autumn trailers, we set out below a flavour of some of the stories we hope to bring Metropolis clients over the next two months.

Some Background

Outstanding, unsatisfied, named office requirements in central London are now estimated by Metropolis to be over 10m sq ft, which is the highest figure since the recession. This can only be an approximate figure as ‘requirements’ cover all types of searches from urgent ones involving tenants in buildings where the lease expires ahead of demolition to half-hearted searches by occupiers who are 90% sure that they will renew the lease, but want to compare the market in order to put some pressure on the existing landlord.

Many of the larger requirements (over 20,000 sq ft) are in advance of lease expiries in 2017-19. However, smaller searches below 10,000 sq ft, are often launched less than 18 months before lease expiry. In many cases the occupier is only looking because it needs more space, has a lease end, or it is affected by redevelopment. The costs of relocation tend to limit the number of ‘sideways moves’ involving a company relocating from one building to another, whilst keeping its occupancy size the same.

Recent West End Activity

Office relocation  activity in London’s West End has been a little muted so far in 2015. Figures compiled by Metropolis show Central London take-up in the 8 months to August was 7.6m sq ft, of which only 2m sq ft was to office space in the West End. Some 140,000 sq ft has been pre-let, 450,000 sq ft is grade A newly completed space, with the remainder secondhand.

Some of the larger deals have included Marshall Wace Asset Management’s 43,000 sq ft pre-let of 131 Sloane Street in Knightsbridge; Richemont’s 38,000 sq ft deal at Walmer House on Regents Street and just last month King.com’s letting of 65,000 sq ft at the recently-completed Ampersand Building on Oxford Street. Facebook is also set to confirm its 217,000 sq ft pre-letting of the under construction Rathbone Square in London, W1, which will be the largest West End letting this year.

What’s Coming Up

We are currently researching a number of promising West End leads which look likely to result in 40 named requirements and potentially 1.6m sq ft of office deals.

The majority of office requirements are for a move in 2016 (29), with the remainder lining up moves for 2017 or 2018. Some 23 occupiers are citing expansion as the trigger for their move, while 16 have lease events and the remainder are consolidating fragmented buildings or downsizing.

In terms of the sector, as the graph below shows, it is the media sector which dominates, followed by IT/e-commerce and financial services, including hedge funds and asset managers. The business services sector also remains important with a steady stream of new requirements from serviced office operators.

 

WE Requirements

 

 

 

 

 

 

Around a quarter of companies are looking in the core areas of Mayfair and St James’s, with a further quarter searching in Victoria. A further 25% are searching Soho and north of Oxford Street up to Kings Cross and Euston with the remainder looking in fringe areas such as Camden or Hammersmith.

By size, around half of the 40 requirements are below 20,000 sq ft, with a third between 20,000 and 50,000 sq ft and the remaining five searches are over 100,000 sq ft.

In Conclusion

There is a healthy pipeline of new requirements being launched in London’s West End this autumn. As would be expected, media companies, hedge funds and asset managers are very active, but these have been joined by some of the large e-commerce and social network companies and business service providers to increase the competition for space. Metropolis is working to research the details of these requirements and will be publishing these online for clients shortly.

 

Copyright Metropolis Property Research Ltd 2015

Newcastle boost

A recent report from property consultant BNP Paribas highlighted a rise in office relocation activity in Newcastle, with office take-up of over 363,000 sq ft in the first half of 2015. This was a 19% increase on the first half of 2014.

Although 95,000 sq ft of offices was let in Newcastle city centre in the first 6 months of the year, it was the out of town market which saw the most activity with 270,000 sq ft of offices let.

Office deals included iParadigms 19,000 sq ft move to Wellbar Central and Performance Horizon taking 9,800 sq ft at the West One building. Gardiner & Theobald, Adecco and Office Angels all took smaller offices. Out of town, CHP took 17,000 sq ft at Quorum Business Park; Bede Gaming at Great Park, Hewlett Packard and DNV took a combined 21,000 sq ft at Cobalt Business Park.

During Q3, Accenture has signed for a further 50,000 sq ft at Cobalt Business Park and Greggs has agreed a deal to a new 25,000 sq ft HQ at Quorum Business Park.

Current medium/large requirements being tracked by Metropolis include a tech company, a housing association and public sector bodies.

Late 2015 will see the completion of 35,000 sq ft of grade a offices at the Rocket office scheme at Stephenson Quarter in the city centre.

The Changing Professional Sector

CBRE’s recent report on the changing nature of the professional services (law firms, accountants, consultants etc) sector throws up a number of interesting points which are reflected in the research that Metropolis carries out with office tenants.

Firstly, cost as a relocation trigger. Professional services firms are using space more flexibly and efficiently in order to reduce costs. Metropolis has spoken to a number of companies that are using shared desk strategies and are looking to take short term serviced offices, instead of longer term leases. Recent examples include Pinsent Masons, Fieldfisher and CMS Cameron McKenna.

Secondly, staff attraction and retention. Companies are using attractive buildings, technology and aesthetics in order to attract and retain key staff. Previous Metropolis blogs have noted the increased willingness of professional firms to consider previously fringe locations, if staff can be housed in an attractive building.

Thirdly, building ‘wellness’ and the positive impact on staff retention. CBRE found that moving staff to a better location had positive impacts on productivity and company efficiency.  PwC’s refurbished Embankment Place is an example.

Fourthly, collaborative space in professional companies. Many accounting and management consulting groups require more dedicated collaborative space than existing locations can provide. In contrast, law firms require more quiet space for individual analysis and client contact. Deloitte recently took space at the Buckley Building, EC1 for this purpose. Metropolis has found professional companies increasingly opting for new space which can be designed to reflect their needs.

Fifthly, the implementation of technology straegies. The rapidly evolving use of technology, for example cloud strategies to allow for more mobile working, has led to re-configuration of office environments. KPMG recently spent £20m on an IT upgrade and Clifford Chance is innovating. Metropolis has found more companies inviting tenders for IT upgrades, amongst this sector, than many others.

Sixthly, outsourcing is becoming more important for cost control. Law firms in particular are making more use of external outsourcing or setting up their own support services operations in regional UK cities. a recent example is Hogan Lovells planning to double its lawyer count in its Birmingham. Metropolis has recently reported on a number of new offices in Manchester, Midlands, Scotland and Belfast.

The professional sector is also seeing a high number of mergers as a way of increasing competiveness and reducing cost. Metropolis reports a steady stream of mergers, which often lead to a requirement to bring offices under one roof. Recent examples are the Moore Stephens merger with Chantrey Vellacott and Charles Russell with Speechly Bircham. In addition in London, mid-level firms indicate that in the search for cost control further fringe locations are being considered such as Battersea, Shoreditch, Stratford and White City.

The outlook for professional services indicates further growth. During the past five years, professional services employment has increased by 20%, adding 42,500 new jobs in Central London according to government statistics forecasts suggest professional services sector will grow by 55,500 jobs between 2014 and 2019. There is 6.8m sq ft of professional sector breaks and expiries scheduled from 2015 to 2021, of which 4.9m sq ft is made up of legal firms. Metropilis’ own figures suggest over 100 companies with nearly 2m sq ft of outstanding London and UK office requirements looking for alternative office space over the next two years.

Office Demand in Edinburgh and Glasgow

Both Edinburgh and Glasgow recorded strong office demand in 2014 with Edinburgh deals totaling 740,000 sq ft including large lettings to Standard Life, Rockstar and FNZ. In Glasgow take-up reached 686,000 sq ft including large transactions involving Network Rail, Cigna Insurance and Clydesdale Bank. Metropolis reported on 476 deals, expansions and requirements in the Scotland in 2014.

Looking ahead, Metropolis has just completed an analysis of current named office demand in the city centres of Scottish cities. The survey encompasses 80 different companies that have told Metropolis that they are looking for office space in Edinburgh, Glasgow and Aberdeen over the past 12 months 2014-15.

The current total of office space required by the 80 companies tracked by Metropolis, is 82,300 sq m (885,600 sq ft) as of April 2015. Edinburgh takes the lion’s share of demand with 41,000 sq m (441,300 sq ft) of named requirements, followed by Glasgow with 38,800 sq m (417,600 sq ft).

By sector, financial services dominates by volume (boosted by a large Morgan Stanley search in Glasgow), followed by media and business services. However, it is business services which has the highest number of individual searches, followed by IT, recruitment and media. Public services, including Government agencies, remain an important slice of the market. By size band, 22 searches are 930 sq m (10,000 sq ft) and above; 20 are between 5,000 sq ft and 9,999 sq ft, with the remaining 33 searches less than 5,000 sq ft. Metropolis has analysed the reasons for an office search and lease expiries tops the poll with 58% of searches, followed by expansion on 32% and new office bases on 10%.

The predicted upsurge of demand following the referendum has not yet materialised, but the largest current searches are Morgan Stanley, Aecom and Aegis Global in Glasgow, Pinsent Masons, Simpson & Marwick, WS Atkins and EY in Edinburgh. There are nearly 100 companies in Glasgow and Edinburgh approaching lease expiries in 2015 to 2017, including Deloitte, KPMG and Brodies which are yet to make a decision. Local agents are predicting that new redevelopments and refurbishments are imminent due to lack of grade A supply in both cities.

Birmingham Riding High

A recent report by Colliers International on the Birmingham office market over the last 6 months, painted a picture of rising office take-up driven by occupier expansions and falling availability of office stock in the city.

The city is riding high after the announcement of HSBC’s (210,000 sq ft) relocation of 1,000 London staff to the Arena Central scheme in 2019. Office take up of 340,000 sq ft in the second half of 2014, took the yearly total to over 713,000 sq ft for the year, with over 70% of deals in the core area. Large recent deals include HS2 (97.958 sq ft) at Two Snow Hill, HSBC (37,530 sq ft) at 120 Edmund Street BCU (27,000 sq ft) at NTI Building, BDO (24,307 sq ft) also at Two Snow Hill and Weightmans (14,000 sq ft at St Phillips Point.

Financial (notably Deutsche Bank) and public sector occupiers (mainly skewed by HS2) were the most active in 2014, but the year also saw deals to Vodafone, Hogan Lovells and Amey. There is about 500,000 sq ft of office requirements circulating in Birmingham at the moment. Metropolis is tracking around 30 medium/large searches in the city including PKF Cooper Parry,, London School of Business & Finance and Birmingham Chamber of Commerce amongst others.

In terms of development, Rockspring and Sterling Property Ventures are planning redevelopment of 103 Colmore Row to produce an office scheme of 225,000 sq ft. Bruntwood has purchased the former KPMG Headquarters at 2 Cornwall Street and will begin a major refurbishment and extension of the building this year.

Looking ahead, the city is increasingly garnering mid-level banking operations from London, with Lloyds Bank the latest rumoured to be interesting in boosting its presence in Birmingham. The lack of new schemes and grade A office space across the city is now likely to trigger enquiries from a number of occupiers. There are also over 100 lease expiries due to be resolved by Birmingham tenants over 2015 and 2016.