London Office Market Q3 2019

The London Office market saw an increased level of letting activity in Q3 2019. Overall quarterly take-up rose by 13% from the 2nd quarter to a 12-month high. Appetite for pre-letting is growing as occupier concern over supply shortages, encourages deals to conclude at an increased rate, with 1.3m sq ft of London office pre-lets concluded in Q3.

Absorption levels are more subdued as a high proportion of secondhand space is bypassed in favour of new builds. However, the good new for the fit-out industry is that confirmed major pre-lets for schemes completing in 2020-2022, include G-Research, Cooley, Bridgepoint, Splunk and Millbank increasing the size of their floorspace in their pre-lettings.

Central London office market vacancy levels have has edged below 5% for the first time since early 2017, with availability of completed recently new/refurbished space just above the all-time record low for London.

Recently emerging separate requirements for over 100,000 sq ft, across the entire London market, prioritising product availability over include occupiers such as IBM, BNY Mellon, Mastercard, The Telegraph
and Kingfisher.

The City office market has seen an increased level of demand. In the last three months deals to BT, Monzo, ICG Longbow, Urban Outfitters, ION and Reinsurance Group of America have boosted Grade A letting activity surpassing 1 million sq ft for the first time in nearly 20 years. Rival flexible offices providers are also active with Knotel pre-letting 82,000 sqft at City Place House, Uncommon forward purchasing Templar House WC2 (140,000 sq ft)and Convene taking over 100,000 sq ft at 22 Bishopsgate, EC2. The pipeline in the City of London is set to see 2.5 million sq ft of speculative space delivered up to the end of 2021. Future large-scale schemes not under construction will not impact the market until 2022 at the earliest.

The West End also saw take-up improve in Q3, to 1.0 million sq ft, with pre-letting activity accounting for 30% of lettings including Diageo, Bridgepoint and Nationwide Digital. Vacancy rates rose very marginally, but the future pipeline includes 3.5m sq ft to be delivered up to end of 2020, albeit that 80% of that is pre-let, There are only three speculative schemes over 50,000 sq ft set to be delivered up to the end of 2020.

Thanks, best wishes and Merry Christmas to all Metropolis office blog readers!

Paul Ives, Apollo Business Research, can be reached via Linkedin

Pre-letting offices in London

The London office market has seen 42 medium/large pre-lets of office space so far in 2019, totalling 2.5m sq ft, which represents a 20% rise on 2018. With one month to go the 42 pre-lets matches the record from any of the previous ten years. Central London occupiers launching searches further in advance of their planned lease expiries than ever before. Pre-letting has gradually risen in importance and is now accounting for around 25% of London office space being transacted.

Cushman and Wakefield say that pre-letting has historically been an important part of the Central London office market, accounting for 23% of total transactions over 5,000 sq ft between 2009 and 2018. Some 24.4 million sq ft was pre-let across 267 pre-let transactions completed during this period. On average, there were 27 pre-lets each year. The pre-let market will play an increasingly important role in the London office market over the next five years.

Pre-letting has traditionally been more prevalent in the City and City fringe of London than in the West End, with 148 pre-lets and 119 pre-lets, respectively. The average duration between exchange and practical completion was 13 months. Pre-lets for buildings which were under construction, the average duration between exchange
and completion was 9 months.

Many pre-lets tend to involve large-scale occupiers with examples in 2019 including 300,000 sq ft to BT at 1 Braham Street, E1 and 360,000 sq ft to EBRD at Bank Street, E14. This trend has historically been driven by the financial services sector (such as EBRD) taking large pre-lets in the City Core and Canary Wharf. But in the last ten years the most active sector for pre-lets has been the media & technology sector (eg BT in 2019). Followed by banking & financial companies and public & government sector.

Large transactions from several new London market entrants have boosted pre-let volumes in recent years including Apple’s acquisition at Battersea Power Station (475,000 sq ft), Dentsu Aegis’ 312,000 sq ft pre-let at 1 Triton Square and Facebook’s recent signing at King’s Cross (600,000 sq ft).

Last year pre-lets to finance sector companies such as Deutsche Bank at 21 Moorfields (469,000 sq ft), SMBC’s acquisition at 100 Liverpool Street (161,000 sq ft) and TP ICAP’s acquisition of 135 Bishopsgate (122,000 sq ft) dominated the league table.

The City Core has seen the largest volume and the highest total number of pre-let transactions such as Brewin Dolphin and Smith & Williamson, but King’s Cross is becoming a close competitor with virtually all the new office stock pre-let in recent years (Sony Music pre-let 130,000 sq ft this year). In addition, West End submarkets such as White City, Battersea and Nine Elms have attracted pre-lets of a large part of their total stock levels. Stratford has also seen a high level of pre-let activity.

C&W estimate that the total potential size of the development pipeline over the next 5 years is 35 million sq ft, with 10m sq ft already either pre-let or under offer. The prospect is that shortages of completed speculative space could make pre-lets even more popular and a large number of companies are currently at an early stage in London large move searches.

Paul Ives, November 2019

 

Central London Office Market September 2019

Central London office lettings in September 2019 reached 1.2m sq ft sq ft, from 57 mid-large size office transactions (5,000 sq ft+) during the month. The September 2019 deals volume figure is above the current monthly London average of 1m sq ft.

September was characterised by 14 office deals over 20,000 sq ft, which were led by WeWork’s long awaited 287,000 sq ft deal at 30 Churchill Place, London, E14; Li Fung’s 51,000 sq ft deal at West Works, W12; Intermediate Capital’s 50,000 sq ft pre-let at Procession House, EC4 and Hana’s 45,000 sq ft deal at 70 St Mary Axe, EC3.

Business services topped the table of lettings by sector, compiled by Metropolis, underpinned by lettings to WeWork, Knotel and Hana. This was followed by financial services, led by deals to Ion Trading, Nasdaq and Triton. The IT services sector was also prominent.

Office deals ‘under offer’ in central London rose slightly to 3.7m sq ft, with pending deal volumes are healthy in nearly all sub-markets, with a number of impending deals in solicitor’s hands.

By area, the City accounted for 36% of the office floorspace let in September 2019 at 442,000 sq ft. The West End saw 280,000 sq ft of take-up. Midtown contributed 181,000 sq ft of lettings. Current London office demand is calculated to be around 4m 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 416,000 sq ft sq ft (35% of the monthly total). Slightly down on recent months. 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 640 ‘live’ London office requirements, including a large volume of requirements from the banking and finance sectors, with pending deals for space of up to 2.5m sq ft due to sign in the next few months.

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

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

Pre-lets on the rise

JLL’s recent London office report reveals that London office take-up reached 2.4 million sq ft in Q1 (Metropolis registered 3m sq ft), lower than the quarterly average but ahead of both the equivalent period in 2017 and the 10 year average for the first quarter.

JLL say that The West End was the strongest performing market, with take-up reaching 932,000 sq ft, the strongest Q1 for three years. City leasing volumes were robust at 1.3 million sq ft, marginally ahead of the equivalent period in 2017.

Pre-letting was a major feature of the market, accounting for nearly a third of quarterly take-up. JLL say that this will remain a feature of the market throughout the year with 45% of the 3.5 million sq ft currently under offer.

Metropolis saw around 40% of office space let being accounted for by pre-lets in the first months of 2018.

Across central London development completions have continued to be quickly absorbed, with 70% of quarterly completions pre-leased or let shortly after completion.

In The City, banking and finance sectors were most active with a 28% share of take-up, buoyed by the largest transaction of the quarter, Sumitomo Mitsui Banking Corporation Europe’s pre-let of 161,000 sq ft at 100 Liverpool Street, EC2. The service industries and professional services sectors were also prominent, accounting for 27% and 25% of quarterly take-up respectively, including major transactions to Sidley Austin LLP, Charles Taylor and Prudential.

In the West End, The TMT and services sectors had the largest share of quarterly take-up with 33% and 25% respectively. Within the services sector, the majority of take-up (63%) involved flexible office providers indicating that this sector is continuing to expand.

To conclude, JLL say that business sentiment remains robust and employment continues to rise strongly

Metropolis Office Movers October 2017

Metropolis ran 548 business leads on ‘office movers’ in the month of October 2017. If all reported moves were added together the total would exceed 8 million sq ft of office searches and transactions, researched by Metropolis’ unique market led intelligence research team. London was the largest region with 251 leads during month, but there were also strong showings from the South East (60), North West (40) and Scotland (36). IT services, professional and financial were the largest business sectors planning relocations or agreeing moves during the month.

The business leads covered the whole UK and provided details of the size of the office occupier, its likely move dates, a description of the reasons for the move, its business sector and full contact details including an address for written inquiries, at least one telephone number and in most cases an email address. Some of the largest planned moves and top picks amongst the 548 October leads, included those on Dentsu Aegis, Sumitomo Mitsui Bank, WeWork, Royal London Insurance and Dyson.

The October 2017 leads included 165 ‘identified requirements’. Which means that the company confirmed to researchers that it has current or future plans to search for alternative office space. Of these 165 searches, 100 were new office searches, not previously notified to clients.

The most recent research also included 150 ‘potential movers’ which were mainly longer-term leads on occupiers, considering a relocation, but the occupier has yet to make a final decision on whether to search.

Most of the remaining stories covered companies that have signed for new office space and have set a move date, including some large pre-lets and companies inviting tenders for fit-out contracts. The shortest planned move date is just over a month away, whilst the longest was late 2020.

Recent research by Metropolis concluded that a conservative estimate of ‘live’ business opportunities on the database in recent months exceeded £1bn of business.

If you would like some information on flexible Metropolis subscription packages, then please email Simon at simon@metroinfo.co.uk

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Cityoffices.net, the sister property leads service to Metropolis, is about to publish its ‘Autumn 2017’ survey on the office construction market in central London, with details of new schemes starting, the dozens of schemes at preparation stage and 200 office schemes in the pipeline for construction starts in 2017-2020.

For more information on Cityoffices, email Andy at andy@metroinfo.co.uk