Cambridge Office Market

Savills has just published its September 2018 report on the Cambridge office market.

Savills say that the majority of take-up in Cambridge, whether for offices and/or laboratories, has occurred in the city centre (Zone 1) around the central station and Hills Road. This area has accounted for 38% of take-up by square footage up to summer 2018.

Available offices total 100,000 sq. ft. of existing stock in this area currently. At current levels of demand Cambridge has less than one years’ supply. The city centre market has around 156,000 sq. ft. under construction, of which 30,372 sq. ft. is pre-let. Developer confidence is growing outside of the city centre. St Johns College and Turnstone recently completed the 65,000 sq ft Maurice Wilkes Building at St John’s Innovation Park which was let to seven occupiers prior to practical completion. Biomed Realty is speculatively developing 108,000 sq. ft. of laboratory space at Babraham Research Park across two new buildings and Churchmanor Estates are speculatively developing 40,000 sq ft. In addition the Howard Group are to speculatively construct over 60,000 sq ft of office/R&D space at Pampisford. Savills expect record rents to be achieved in the city centre at 50 & 60 Station Road.

Astra Zeneca is soon to complete its new campus of 850,000 sq ft. Samsung has recently committed to opening a new AI research hub in Cambridge. Microsoft also have a research base covering AI at 21 Station Road.  Darktrace is moving to The Maurice Wilkes’ Building at St John’s Innovation Park. Amazon took 72,289 sq ft at One Station Square, CB1, while Astex Pharmaceuticals took 42,688 sq ft at Cambridge Science Park. Also at Cambridge Science Park, in Q1, Huawei acquired 11,500 sq ft at Building 101 for £29.50 psf. Savills is also aware of 100,000 sq. ft. of requirements from serviced office operators and envisage stronger demand from this sector in the future.

Metropolis is tracking around 40 Cambridge office moves and requirements.

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Technology Companies and Offices

CBRE has recently published its ‘Tech Cities’ report looking at  office leasing patterns in the technology sector across Europe.

Conclusions include:

Technology companies still dominate tech activity across Europe in real estate terms – 65% of all deals tracked fall under software, IT services, telecom or hardware;

The e-commerce sub-sector accounts for the largest average deal size of leasing transactions, which reflects the aggressive growth of the sector across industries. Berlin for instance has attracted larger
e-commerce floorplates than anywhere else in Europe along with London, Dublin and Amsterdam;

While new tech companies make up a smaller proportion of total deals than traditional sub-sectors, they are just as space-hungry as the more traditional companies in terms of average deal size. This reflects differences in growth speeds of companies within each of these two categories in the global marketplace, with the new tech sector seeing particularly rapid growth;

Depending on the tech sub-sector and business strategy, occupiers will be able to agglomerate with peers within the same sub-sector, or identify a different sub-sector that offer benefits of a close location, with London, Reading, Bristol and Cambridge as examples;

London is CBRE’s top-ranking technology cluster. The city is a magnet for young technology talent, and employment in the tech sector has grown by 20% since 2008. Major employers in the IT services sub-sector include Capgemini & Cognizant; the largest employers in the software sub-sector include Microsoft and Oracle and in telecoms the city is home to major operations for BT & Vodafone. Other top employers of tech talent in London include Accenture, IBM, and Thomson Reuters;

The Thames Valley region is one of the most established technology clusters in Europe. The Thames Valley is dominated by very large organisations which make up more than 62% of employment. Telecoms, IT services and software are the dominant sub-sectors in the cluster with major employers being largely global tech companies including Vodafone, Huawei, Telefonica, Microsoft, Oracle and Hewlett Packard. Oracle, Cisco and Microsoft are major employers of development talent in the Thames Valley region with Visa and Sky also having large operations in the cluster;

Bristol is one of the major regional centres for tech outside of London and the Thames Valley with employment in the sector growing by 25% since 2008. Bristol is a major centre for the telecoms industry with EE, BT, Nokia, Orange and Vodafone all having a presence in the city. Other major employers of tech talent include Lloyds Banking, IBM and Hewlett Packard. Bristol is also home to IT service companies Softcat plc and Civica.

CBRE say that understanding underlying demand conditions using this framework helps inform potential future office transaction strategies.

Metropolis is currently tracking around 150 IT, technology and telecom companies searching for offices across the UK.

 

Metropolis Law Sector Report 2018

Initial findings from the 2018 Metropolis report on office relocation in the UK Law sector revealed that 360 legal sector firms were involved in office property decisions in the year to end 2018.

The survey also found that over 7m sq ft of office space was transacted or required by occupiers searching for alternative space over the last year by law sector firms.

The report found over 120 firms searching for space that were interviewed by Metropolis researchers. Over a half of requirements were prompted by upcoming lease expiries, backed by expansions, mergers and restructuring.

The biggest law sector office deals in London involved leases signed for HQ relocations by Freshfields, DLA Piper, Sidley Austin and Minster Law.

Outside of London, Clyde & Co had the biggest office transaction, with a deal to occupy 69,000 sq ft in the Royal Exchange, Manchester. Simmons & Simmons signed a 12-year lease to occupy the top two floors (27,000 sq ft) of the Aurora building in Finzels Reach, Bristol, from January. Hogan Lovells will take over the eighth floor (23,388 sq ft) of The Colmore Building in Birmingham’s business district, where it currently occupies 7,620 sq ft on the tenth floor.

Leeds will house a relocation by Walker Morris, which announced that its 500 staff, who are currently split across two buildings in King Street, will relocate to a flagship office in 33 Wellington Street next summer. The building, in the city’s business district, is currently undergoing a comprehensive £10m refurbishment.

In a sign of things to come, Knight Frank points out that magic circle firm Allen & Overy has developed its Fuse incubator in its London headquarters while Mishcon De Reya has created MDR Lab – its programme for tech start-ups in the legal sphere – in its London office.

Fit-Out Market Review

CBRE has just published its latest 2018 European Fit-Out Cost Review. Amongst its conclusions are:

Nearly three quarters of companies in the region have looked to boost the space efficiency of existing buildings in the past year, according to CBRE’s Occupier Survey. CBRE expect further evolution of workplace strategies and new approaches to flexible working over the coming years.

Trends include: Space designed to foster more effective collaboration (generating ideas and driving innovation); Space with improved environmental qualities (temperature, lighting, décor, etc.), more attention to ‘wellness’ and smarter use of technology.

In terms of furniture, CBRE say careful planning and programming is essential. This usually involves a move consultant working with client to identify and understand the current set-up, to plan for and accommodate activities critical for business continuity, movement of employees, furniture and equipment. The move consultant will implement a comprehensive communications plan.

In terms of removals CBRE estimate costs in central London vary between 24 euros for a basic move (agile working) within a floor to 136 euros per person for a full desk and IT move between buildings.

In terms of Lease reinstatement (also known as‘dilapidations’), CBRE estimate 200-240 euros per square metre in central London.  assuming moderate wear based on a 1,000 sq m office.

In terms of procurement and interior build, CBRE estimate 25-30 weeks for a UK location for a medium specification 1,000 sq m fit-out project.

CBRE also outline the implications of potential tax savings across various EMEA countries, based on a total expenditure of €2,500,000 for a CAT B fit-out.

CBRE estimate that typical fit-out costs for a 1,000 sq m office range from 1,000 euros per sq m for a low budget move to 2,200 euros per sq m for a high budget London move. These costs would include Cat B fit-out, furniture, security, AV, IT, fees and contingency.  These costs would be around 20% cheaper in Manchester or Glasgow.

Metropolis leads provide a stream of notifications on fit-out tendering opportunities and contract awards. It has published 100 such leads in the last 3 months.

Southbank attracts relocations

Hubble, the office and co-working provider, reports that tech startups and other growing SMEs in London are leaving the capital’s best known tech hotspots, including Shoreditch and Soho, while favouring the Southbank. Hubble’s search data suggests that London Bridge (29 percent of all searches) is now the most popular location in London for companies searching for flexible office space in 2018 (a sharp rise from 3.7 percent of searches in 2017), beating Shoreditch with 27 percent of all searches.

Additionally, analysis by Metropolis shows nearly 50 medium or large occupiers launching or renewing searches for offices in London, SE1 since January 2018, compared to 40 in Soho, 30 in Clerkenwell and 25 in the Shoreditch area.

Hubble say that more than 37 percent of searches were for office space in south London, counting London Bridge and the Southbank (8.5 percent). Startups and SMEs are branching out to different creative “hub-spots” within London, but most prominently is an unprecedented shift to south of the river. Searches for London Bridge specifically make up 29 percent of all searches and the Southbank, as a whole, making up 37.5 percent of all search queries.

Meanwhile Soho’s market share dropped from 45.2 percent in 2017 to 23.5 percent in 2018 while Clerkenwell dropped from 26.7 percent to 2 percent.

Hubble’s data is backed up by a recent Knight Frank report which named the Southbank as London’s newest commercial hotspot and claims: “South Bank has followed the trend in brownfield regeneration. Former industrial buildings have been put to new uses”. High quality offices have been developed in recent years, and new transport infrastructure built, which has opened up the market to businesses seeking new headquarters buildings.” Knight Frank say London has seen a 41% increase in small and medium enterprises (SMEs) since 2010, much of which has been driven by a marked increase in funding from venture capital. The growth of the gig economy has led to an increase in freelancing and contract based working. 70% of all transactions to TMT firms in the past five years (by number) have involved units smaller than 5,000 sq ft.

Looking ahead, Metropolis is tracking 140 occupiers of all sizes, which have lease expiries approaching in the next two years in the Southbank area, with a further 800 in neighbouring City and Midtown postcodes.

Bristol Office Demand

A recent report from Savills concluded that Bristol experienced a solid year for office market demand in 2017 with 611,000 sq ft of office space taken, 6% above the long term annual average. 57% of take up was signed for during the second half of 2017.

This was driven by Dyson taking 29,000 sq ft with University of Bristol’s letting 27,000 sq ft at 1 Cathedral Square.
The report identifies the recent Simmons & Simmons signing for 27,000 sq ft at Aurora, Finzels Reach as a key move. The 95,000 sq ft speculative Finzels Reach scheme is now 40% pre-let with competition for space intensifying among tenants for the remaining floors.

Bristol’s TMT (Technology, Media and Telecoms) sector took 134,000 sq ft of the office space taken last year, 22% of the city centre total. Savills highlight that 28 of the 30 deals were on floor sizes below 10,000 sq ft, indicating the depth of demand within the sector.

Take up in Bristol’s out of town market reached 425,000 sq ft, 34% above the 10 year average. This was largely driven by Babcock signing for 86,000 sq ft at 100 Bristol Business Park during the final quarter.

Office requirements remain robust in the Bristol market, and Savills expect take up to again reach circa 600,000 sq ft during 2018, 10% above the 10 year annual average.

Metropolis is tracking around 30 tenants with office requirements for Bristol, with a further 50 companies approaching decisions on whether to search.

Birmingham Breaks 1m sq ft

Colliers has just published its latest report on the Birmingham office market.

It reveals that Central Birmingham office take-up in Q4 2017 totalled 354,530 sq ft in 49 deals, taking the annual total past 1 million sq ft for the first time. The total was boosted by the 239,000 sq ft pre-let by the UK Government (GPU) at 3 Arena Central in Q3. The year-end take-up totalled 1,005,072 sq ft in 130 separate deals. Further GPU requirements are also in the pipeline for the next five years as departments including Ministry of Justice and DWP also seek to consolidate and upgrade their regional offices in Birmingham.

Amongst the largest Q4 lettings, IWG (formerly Regus) secured 76,000 sq ft of offices at Crossway on Great Charles Street, as well as 33,300 sq ft of the newly refurbished Lewis Building. Co-working operator iHub signed for 18,000 sq ft at Colmore Gate and MSO Workspace took 9,850 sq ft at 11 Brindleyplace. Serviced office providers are catering for a growing demand from banking, outsourcing and infrastructure clients who seek a flexible occupational solution as a result of investment by HSBC and HS2.  In addition, PwC took an additional pre-let of 58,631 sq ft at Two Chamberlain Square to add to the 90,000 sq ft it took at the scheme in 2016. Metropolis also reported that Spark44 took  14,176 sq ft at Norfolk House and The Princes’s Trust, took 1,773 sq m (18,980 sq ft) of offices at the Beorma Quarter. Recently, engineering consultancy firm WSP signed for 47,000 sq ft of refurbished space at Mailbox for its West Midlands regional headquarters.

On the supply side, Three Snowhill (420,000 sq ft) and 1&2 Chamberlain Square (232,000 sq ft) are due for completion by late 2019. The 42-acre Birmingham Smithfield is due to be redeveloped into over 3 million sq ft of commercial space, and in Edgbaston, there is consent for a £300 million regeneration of a 10.7-acre plot along Hagley Road. by Calthorpe Estates and U+I, known as New Garden Square, which could potentially deliver more than 600,000 sq ft of office space.

Metropolis is monitoring 50 companies searching for offices in the Birmingham area and nearly 60 companies approaching lease decisions over the next two years.