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.

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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.

Thames Valley Update

Recent reports from CBRE and LSH revealed that office deals (take-up) across the Thames Valley region totalled 393,653 sq ft during Q1 2019. Metropolis Research listed 58 ‘space found’ leads during that time as part of 62 recorded deals of 4,000 sq ft and over in the market area.

CBRE say that deal volumes represented a solid start to the year, which is marginally up on the same period in 2018 and in line with the five year quarterly average. The largest deal took place at Ascent 3, Farnborough Aerospace Centre where 45,788 sq ft was let by Discover Financial Services. Other large relocations announced included Gartner taking over 40,000 sq ft at Lovett Road, Staines; Arena taking 37,000 sq ft at Quantum House, Basingstoke; Axa taking 17,000 sq ft in Weybridge and HP taking 30,000 sq ft at Thames Valley Park

CBRE say there is currently 351,014 sq ft of office space under offer (deals about to be signed) across the Thames Valley for space over 10,000 sq ft, the majority of demand in the sub 20,000 sq ft size band. Total office availability at the end of Q1 2019 was 5.7 million sq ft. Grade A supply at the end of Q1 stood at 2.3 million sq ft which is 34% below the five-year average. CBRE have identified four new developments due to
complete in 2019 and say there is already competition for the best existing stock.

In the northern half of the region there were five transactions over 10,000 sq ft in Q1. The largest deal to complete was at The Maylands Building in Hemel Hempstead, where serviced office provider Spaces acquired nearly 25,000 sq ft. Other deals completed in Milton Keynes, including K2, Timbold Drive and The Pinnacle, which both let 19,000 sq ft respectively.

Take-up in the M25 South region in Q1 2019 totalled only 28,030 sq ft. There were two transactions over 10,000 sq ft. Cabot Financial took almost 11,000 sq ft at 35 Kings Hill Avenue, West Malling, while Zoetis Pharmaceuticals acquired just over 17,000 sq ft at Birchwood Building, The Office Park, Leatherhead.

Lambert Smith Hampton identify the Technology, Media and Communications (TMT) sector providing a major source of demand across the South East region. Since the beginning of 2018, it has accounted for almost a third of take-up, well above the next most active sources: Pharmaceuticals, Medical and Healthcare (12%) and Professional Services (10%). Whilst TMT remains the cornerstone of demand in the South East, the rapid growth in activity among flexible office providers has been the most striking trend in the market and indicative of clear structural shifts in occupier demand and a race for market share among operators. Rising from a nearly zero just three years ago, take-up from serviced office providers amounted to over 500,000 sq ft over the past 12 months.

Lease events were the primary trigger of recent office relocations in the Thames Valley, accounting for 44% of transactions. This was closely followed by expansions, with 39%. Workspace improvement also
played a significant role, being the key driver in a significant proportion of deals. These included several deals in which companies upgraded to newflagship offices. For example, KPMG recently agreed a 45,478 sq ft deal that will see it relocate its Reading office to the newly-built 2 Forbury Place in Reading.

Inward investment deals – those involving occupiers locating to new markets in which they were not previously present – represented 20% of recent transactions over 5,000 sq ft. Reading was by far the biggest attractor of inward investment, which accounted for 334,559 sq ft of occupier transactions last year. This was more than half of the town’s total take-up and it represented 42% of inward investment across the whole of the SouthEast. The largest deal in Reading saw Virgin Media take 120,000 sq ft for a new UKheadquarters at Green Park. Other major entrants to the Reading market included Sanofi, Ericsson and Fora.

Rise of the pre-let

Recent research by Metropolis revealed that a total of 133 occupiers were involved in pre-let searches or deals during 2018. These included a wide variety of moves across the whole of the UK. In London, a record breaking 39 pre-let deals were signed during 2018 totalling 3.8m sq ft, ahead of the previously record-breaking 2.74 million sq ft of pre-lets agreed in 2013.

Reasons given by occupiers for the risingof pre-lets are varied, but include upcoming lease events, continued limited new developments coming on the market and faith in London. It is clear that tech and media firms are making significant long-term commitments to new buildings, alongside traditional City occupiers, including those in the insurance and financial sectors. 2018 was the year that global brands made big commitments, including the likes of real estate-savvy Facebook and Sony both committing to new European headquarters in the West End and King’s Cross.

Metropolis has identified up to 50 named occupiers, which have on-going London searches, which could sign pre-lets on under construction, new or newly refurbished office space in 2019.

Recent research by Cushman & Wakefield indicated that over the last ten years there has been a total of 24.4 million sq ft of office space let pre-let transactions completed. On average, there were 27
pre-lets each year over this period, with the peak being 2013 and 2014. Pre-letting is more common in the City, Docklands and City fringe, than in the West End.

Large pre-lets from TMT (tech, media and telecom) companies in recent years including Apple’s acquisition at Battersea Power Station (475,000 sq ft), Dentsu Aegis Network’s 312,000 sq ft deal at 1 Triton Square, Linkedin in Farringdon and Facebook’s recent commitment at King’s Cross (600,000 sq ft). Banking & financial occupiers were the next most active sector, accounting for 31% of total pre-let volumes over the last ten years, including Deutsche Bank’s future relocation into 21 Moorfields (469,000 sq ft), SMBC’s acquisition at 100 Liverpool Street (161,000 sq ft), Wells Fargo and TP ICAP’s pre-let of part of 135 Bishopsgate (122,000 sq ft).

Public sector and government occupiers have also driven pre-let volumes, including large-scale consolidations from HMRC, FCA and TfL, as well as the Chinese Embassy’s transaction at Royal Mint Court.

King’s Cross is one of the most popular desinations for new office stock secure pre-let in recent years, including deals in 2018 to Nike (63,000 sq ft), Facebook, Google, Spaces and WeWork. West End submarkets such as White City, Battersea and Nine Elms have have also attracted significant pre-lets including in 2018, Penguin Random House (83,000 sq ft).

It is clear that occupiers are looking beyond the traditional core office markets. Banking & financial occupiers took the largest share of tower pre-lets over the last 10 years with 32% of total volumes, matched by insurance companies (32%). Some 17% of lettings were prelet prior to construction and 29% let during the construction process, compared to 54% let post completion.

Outside of London, Barclays pre-let 470,000 sq ft at Buchanan Wharf in Glasgow. The new campus complex will house existing Glasgow staff along with new positions created in technology and operations functions. in Manchester, Booking.com has pre-let 222,000 sq ft at St John’s Building, as the new global headquarters for its ground transportation division, consolidating four offices around the city.

Research has revealed that larger occupiers are considering their options 3-4 years ahead of a move, especially if the target is a move in the core districts. Trends also include some smaller pre-lets with shorter leases, particularly whilst schemes are under construction. Competition for core space is making fringe locations more desirable, especially with the possibility of rental savings.

Metropolis is currently tracking over 100 occupiers looking for over 20,000 sq ft of offices in 2019-20, more than half of which could consider a pre-let.

Paul Ives Metropolis Head of Research – paul@metroinfo.co.uk