Smaller end of the market

Recent research from property firm Colliers International suggests a higher demand for startup-sized offices in London and this in turn is putting a downward pressure on lease lengths.

Colliers say that across London in 2018 to date, transactions for space of 5,000 sq ft or less represented 78% of the total deals by number, up from 69% in 2015. Sub-2,500 sq ft offices represented 57% of the deals by number – the category’s highest level since 2012.

Metropolis saw 306 letting in the first six months of 2017 of over 5,000 sq ft each, although in the same period in 2018 this fell slightly to 278 deals.

Colliers, which is forecasting the average lease to fall to 5.5 years during the course of 2018. The property adviser says that 2018 is the third successive year in which the proportion of sub-5,000 sq ft deals has risen.

According to Colliers, the trend is particularly evident across Shoreditch, Soho and Paddington.

WeWork’s exposure to London is likely to exceed 3.5 million square foot in 2018, putting increasing pressure on landlords, particularly those with assets around the 5,000 sq ft mark, to offer a more flexible, hybrid product to attract occupiers.

Stuart Melrose, director and head of occupier advisory for London offices at Colliers, commented: “We are seeing demand for flexible office space under 5,000 sq ft approaching an all-time high.

Research by Metropolis of over 820 London office lettings between January and June 2018 suggests an average lease size of 8130 sq ft compared to nearly 9,000 sq ft in 2017. The average lease length is 5 years, but with over 40% of lettings of 4 years or less.

The implication of this trend could be that companies operating in the market may need to contend with smaller relocations, with occupiers moving more frequently.

 

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Opportunities in Serviced Offices

Colliers International has published a new report on the serviced or flexible workspace sector. Colliers outline how the workplace solutions providers have been hoovering up office space in London at a faster rate than any other sector apart from tech and media.

Flexible office providers have accounted for 18% of take-up across London during 2017 date. Central London is now home to over 7.8 million sq ft of flexible workspace from 4.5 million sq ft in 2009. This is a rise of 73% in eight years, although flexible workspace space currently only represents 4% of total London office stock.

2017 is set to deliver up to 15,000 desks by year end. Serviced office lettings appeared to have peaked at 1.4 million sq ft in 2015, however, 2017 is set to see that figure eclipsed with 1.2 million already let and a further 750,000 sq ft under offer.

WeWork has taken over 1.25 million sq ft of office space within the past 12 months. Blackstone and British Land have both begun in-house flexibile solution without leasing space to major providers like WeWork or Regus.

Paddington and City fringe, have seen increasing vacancy rates below 5,000 sq ft, and Victoria and parts of Midtown have seen void periods double in 2017. The City core has held up, but also seen activity from providers such as WeWork, Prospect Business Centres, i2, Regus and LEO.

Metropolis has researched nearly 20 specific requirements for medium/large London serviced offices in recent months. These new searches come on top of 25 recent transactions for space. Opportunities exist for agents recruiting occupiers for the large new flexible work centres, for fit-out contractors refurbishing usually previously vacant space, for furniture providers and removal firms handling the myriad moves to the new buildings.

Colliers say the need for short leases and flexible space, particularly since the Brexit vote, is driving demand for increasing volumes of flexible workspace space. Although, flexible workspace only represents 4% of London office stock, it looks set to become an important slice of the market, not just in London, but increasingly in regional cities too.

Trends in the London Tech Market

Colliers International has just published its ‘Tech Market Monitor’ for summer 2016. The report looks at the impact of the Tech and Media sectors in London over the last five years and the current trends in the London market.

The main conclusions include:

  • London companies are becoming increasingly ‘footloose’ and are increasingly not tied to traditional London office districts;
  • Tech and Media are now the ‘key drivers’ of the London office market and the sector has seen 5.2m sq ft of moves in the last five years;
  • Tech and Media occupiers, such as Facebook (227,000 sq ft), Google (180,000 sq ft) and Universal Music (173,000 sq ft) were responsible for 26% of London office space taken in 2015;
  • The fastest growing areas include King’s Cross, Southbank and Midtown fringe (Farringdon, Aldgate, Clerkenwell and Shoreditch), with major relocations including Omnicom, Ogilvy & Mather (Southbank), Google (King’s Cross) and Amazon (Shoreditch);
  • Technological innovation is helping to drive the refurbishment and redevelopment of buildings in fringe London office districts. Apple’s decision to take up to 450,000 sq ft at Battersea Power Station is an illustration;
  • The ‘Tech City’ area in London, EC1 has seen a 90% occupation growth since 2009;
  • Tech and media occupiers are prepared to pay high prices to secure the right space and specifications;
  • Future schemes likely to attract occupiers will include: Shoreditch, specifically Helical’s The Tower, EC1 (171,000 sq ft), GPE’s 148 Old Street, EC1 (162,000 sq ft) and Derwent’s Whitechapel Building, E1 (200,000 sq ft).

Metropolis occupier research backs up these trends. Our research uncovered nearly 400 unique new London Tech and Media occupier requirements for subscribers in the last 12 months totalling 6m sq ft. Most of these companies still have ‘live’ requirements.