London Office Market Analysis

Estates Gazette has just published in analysis of the London office market in 2017. The main conclusions include:

 

  • Total central London office take up was 12.6m sq ft (all deals) which was up around 2m sq ft on the 2016 total in a relatively strong year and just above the five year average;

 

  • The City core saw just under 3.6m sq ft of deals in 2017, together with 1.8m sq ft in the City fringe. Both figures are down on previous years;

 

  • Lettings in the Midtown, West End and Southbank areas were strongly up by over 40% last year;

 

  • Lettings of Grade A space were up strongly at 52% of all lettings in 2017, compared to 42% in 2016;

 

  • Overall, TMT was the most active sector in 2017 as a whole, accounting for more than 27% of all lettings. The five biggest deals in the quarter were from the TMT, Central and Local Government, Property, and Financial sectors. A proportion of small and medium sized occupiers are being absorbed by serviced office space;

 

  • Some 3.7m sq ft of new office space was started in 2017, but this compares with an average of over 5m sq ft of starts in 2015 and 2016. This means there are lots of speculative completions coming through, which in turn in driving higher take-up;

 

  • Around 8.3m sq ft of new London office completions are planned for 2018 (a ten year high), with over 6.3m sq ft of completions already planned for 2019;

 

  • Overall London office availability has risen from 4.3% in 2015 to 7.4% in late 2017, driven by a rise in secondhand space that now stands at 12.4m sq ft;

 

  • As a result rents overall are edging down, which could encourage more occupiers to relocate;

 

  • 2018 take-up in central London is likely to be driven by new build deals;

 

Metropolis forecasts that the rising volume and proportion of new build letting transactions will sustain the fit-out and office equipment supply markets in 2018-19.

Cityoffices.net forecasts a strong pipeline of new schemes (there are over 200 in the pipeline of 20,000 sq ft or more) seeing construction starts in 2018.

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Central London office lettings in December and 2017 Summary

Central London office lettings in December 2017 reached a healthy 1.1m sq ft of deals from 40 mid-large size transactions (5,000 sq ft+) during the month. The December figure slightly outperforms the current monthly average of 1m sq ft . Annual London take-up reached 12.2m sq ft, just above the 2016 figure.

December was characterised by 13 office deals over 20,000 sq ft, which included Turner Broadcasting’s 100,000 sq ft letting at 160 Old Street, EC1; Penguin’s 83,000 sq ft letting at Embassy Gardens, SW8; Vitol took 48,000 sq ft at Nova, SW1 and Enstar took 32,000 sq ft at Creechurch Place, EC3.

Media topped the table of lettings by sector, underpinned by Turner and Penguin deals. This was followed by IT services with the large deals involving Google and Dell.  Insurance and business services also performed well, helped by the lettings to Enstar and XBridge. Office deals ‘under offer’ in central London fell slightly to 3m sq ft but pending deal volumes are healthy in nearly all sub-markets.

By area, the City accounted for 39pc of the office floorspace let in December at 419,000 sq ft. The West End saw 184,000 sq ft of take-up, underpinned by Vitol. Midtown contributed 236,000 sq ft of lettings, plus 90,000 sq ft of Docklands deals. Current London office demand is calculated to be around 3m sq ft in the City and 2.7m sq ft in the West End.

The volume of grade A (newly built or refurbished office space) let during the month reached 558,000 sq ft (52% of the monthly total), as transactions for new space resumed their recent strong showing.

Metropolis research is currently monitoring 640 ‘live’ London requirements, with deals for space of up to 1.8m sq ft due to sign in the next few months.

Cityoffices is shortly to publish its annual review of the planning pipeline in London. Further details of planning applications and consents, with scheme by scheme detail are listed on the Cityoffices.net website. Details on the report and the Cityoffices database from Andy King at andy@metroinfo.co.uk

2017 Review

The 12.2m sq ft of central London take-up recorded in 2017 (deals 5,000 sq ft and above) was slightly above the 11.9m sq ft recorded in 2016.

The largest deals were lettings to Deutsche Bank, Dentsu Aegis, then 3 lettings to WeWork

The serviced office sector took nearly 2m sq ft of offices in 2017. WeWork let over 1.24m sq ft (10%) of the total 2017 take-up

As well as Business services, Financial services took 1.9m sq ft, IT sector took 1.5m sq ft, Media took 1.2m sq ft and Professional 1.1m sq ft

The City accounted for 5.1m sq ft, Midtown 2.4m sq ft, West End was 3.1m sq ft

Refurbishment change

A recent report from Savills highlights the changing nature of office schemes in regional cities.

Rising construction costs and slim margins are pushing developers towards refurbishments and the new trend is for a higher quality of refurbishments according to Savills. Nearly 40% of the pipeline of office schemes in regional cities will be delivered in the form of refurbishments.

A sustained level of demand for space in many of the regional cities alongside a lack of new office schemes, is boosting demand for refurbished office space. Landlords are turning to refurbishments to capture lettings from professional occupiers including lawyers, accountants and engineering firms.

As an example, Helical’s ongoing refurbishment of Churchgate House in Manchester which has transformed the building from part-occupied and unattractive to now being fully let. Occupiers have been attracted by a new reception incorporating touch down space, collaborative working areas and a high quality cafe.

Aviva is refurbishing 11 Portland Street, Manchester, which will provide single floors of up to 20,000 sq ft. The major refurbishment incorporates an entirely new principal reception area which has been repositioned to the corner of Portland Street and Aytoun Street.

Savills expect Bristol to be the next city to see a step change in demand for refurbished office space, driven by both a shortage of new build office space.

Metropolis has published business leads on 160 planned office schemes in London and regional cities over the last six months including details of developers and architect contacts, as well as timescales and any pre-lets. In addition Cityoffices.net includes details of all pipeline schemes, with full contact names and numbers.

London Cityoffices – A Scheme A Day

The Cityoffices.net website brought subscribers one of the best years yet for London office scheme leads with over 250 leads published between January and December 2016 – equivalent to one scheme per working day during the year.

More than 36m sq ft of London office space was either applied for, given consent or went under construction during the year and all was reported on Cityoffices.

Some of the more high profile schemes included:

– Canary Wharf at North Quay, E14;
– Axa Reim at 22 Bishopsgate, EC2:
– Wilmar International’s ‘Number One Tower’ at Undershaft, EC3

And at the other end of the scale 25 refurbishments and small office projects under 20,000 sq ft.

Cityoffices brought contact details for hundreds of players involved each scheme. Starting from the investor/landlords to subsequent planning advisers, architects and eventually project managers, structural, services and property consultants.

Cityoffices brought subscribers timescales for each project, details of site visits and photos for many. In addition, Cityoffices brings details of scheme lettings to incoming tenants and details of pre-lets of space in schemes still under construction.

Cityoffices now has an archive of London projects stretching back to 1998 with all data is set out in an easy to use interactive website complete with weekly news, graphs and analytical tools.

Cityoffices also covers regional markets in Bristol, Birmingham, Leeds, Manchester, Glasgow and Edinburgh.

If you would like to know more about becoming a subscriber in 2017 simply email Andy King at andy@metroinfo.co.uk with ‘Cityoffices’ in the subject line.

Metropolis London Skyline Report

The London Wrecking (Christmas) Ball

or “What Comes Down Must Go Up”

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Metropolis and Cityoffices have completed their bi-annual ‘Skyline’ survey of the central London office development market for the period April 2015 to October 2015. The survey takes a snapshot of the central London office construction in Q4 2015, recent completions, recent pre-letting activity and looks ahead to future pipeline projects that will shape the next three years.

There are now 78 office schemes under construction in central London (compared to 74 six months ago) totaling an increased 11.1m sq ft (9.5m sq ft in April 2015). In the last six months there have been 31 new scheme starts, totaling 3.4m sq ft, including major new-builds such as the 866,000 sq ft 100 Bishopsgate in EC3, the 400,000 sq ft 10 Fenchurch Place in the City of London and the 228,000 sq ft 33 King William Street (33 Central) in EC4.

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The City dominates construction with 6m sq ft of new office space in schemes now underway (up from 4m sq ft in early 2015). There is now 500,000 sq ft of office space under construction at Kings Cross, with more at site clearance stage. The West End, including Paddington, has 2.7m sq ft under construction and a further 600,000 sq ft of office build is on-site in Midtown, but Southbank and Docklands still lag behind the rest of London.

The big story is the forthcoming space at demolition stage, with over 7m sq ft lined up to start in early 2016 and more to follow later in the year. In reality, further schemes currently at planning stage will add to these numbers, particularly the 2017 and 2018 totals. Therefore we expect development completions in 2017 and 2018 could reach 7-8m sq ft.

Looking ahead, some 33 future schemes are currently at site preparation stage with 7.2m sq ft of additional office space due to go under construction in the next 6 months. Many of these schemes will not be completed until 2017 or 2018, however it is clear there is a strong development pipeline.

 

The full Skyline report is currently available to Metropolis clients. Further details on the Metropolis service can be found at http://www.metroinfo.co.uk.

Copyright Metropolis Property Research Ltd 2015

 

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

Metropolis Office Requirements – H1

Over 450 companies vie for London space

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Metropolis research identified over 17m sq ft of UK office demand in the first half of 2015. Just over 9.2m sq ft of this demand was for office space in Greater London, with over 450 companies searching for London space. In the rest of the UK Metropolis uncovered 400 requirements for new space representing 8.1m sq ft of office demand.

Central London office demand reached 8m sq ft, 3.8m sq ft (47.5%) of which was focused on the City of London. EC2 was the most popular postcode for companies planning a move,  with 1.4m sq ft of demand emerging in H1.

A significant proportion of total City of London demand (11%) came from two new law firm requirements, each firm looking for 200,000 sq ft. A new 150,000 sq ft requirement from an insurance group was also worthy of note. Demand from the banking and finance sector reached 1m sq ft, 26% of total City of London demand.

Demand for space in the West End, where rents can reach £125 psf, hit 1.8m sq ft. The largest West End requirement (150,000 sq ft) came from a social media group looking for offices in SW1. Just over 400,000 sq ft of office space (26% of total demand) was required by the banking & finance sector, 79% of which (315,000 sq ft) came from hedge funds and private investment firms.

Mid Town office demand reached 0.9m sq ft, pretty evenly split between WC1 and WC2. About 100,000 sq ft of Mid Town demand came from the technology sector and 90,000 sq ft from the media sector. Demand from law firms was just over 120,000 sq ft and demand from the banking and finance sector totalled 110,000 sq ft.

The largest office requirement in the South Bank (SE1) was a 140,000 sq ft search by an engineering and construction firm. Other requirements of note include a US insurance firm switching a 60,000 sq ft search from Maidenhead to London SE1, and a TV Broadcaster looking for 30,000 sq ft to house its news department.

Two big requirements dominated demand for office space in the Docklands: a German investment bank back office requirement for 350,000 sq ft and an information company requirement for 300,000 sq ft, with a sub-let mooted.

 

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The Top 5 Regional Cities

Manchester – The largest requirement, 400,000 sq ft, was a search by a government department considering space near Piccadilly Station in Manchester. Just over 250,000 sq ft of Manchester office demand came from the legal sector and 300,000 sq ft of demand was attributed to the insurance sector.

Edinburgh – Similar to the picture in Manchester, Edinburgh demand was dominated by a large government requirement for office space (300,000 sq ft), although this requirement could move to Glasgow. In terms of private sector demand, notable requirements included a 100,000 sq ft search by a US Bank and two significant searches from law firms seeking a move in central Edinburgh, one for 50,000 sq ft and the other 30,000 sq ft. There was also significant demand from the accountancy sector, with four firms searching for just over 130,000 sq ft.

Birmingham – A retail bank was linked with the largest office requirement in Birmingham: 170,000 sq ft,  a search now satisfied by space at Miller Developments Arena Central scheme.  Other significant requirements include a potential 100,000 sq ft search from a law firm and a 50,000 sq ft search from a business education group.

Reading – The largest requirement for Reading offices came from a network broadcaster looking for 150,000 sq ft, closely followed by a utility company searching for 140,000 sq ft. Both requirements also consider other Thames valley locations such as Bracknell, Farnborough and Slough.

Bristol – Bristol office demand was dominated by insurance company requirements, with the sector accounting for 56% of total demand (280,000 sq ft). Other notable requirements include an 80,000 sq ft search from a Bristol based law firm planning to combine two of its offices (which may now be a refurbishment and extension of the existing building) and an engineering group searching for 25,000 sq ft.

 

Top Ten Cities (Excluding London) by H1 Office Demand

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Copyright Metropolis Property Research Ltd 2015