Central London office lettings in August 2018

Central London office lettings in August 2018 reached just over 750,000 sq ft from 40 mid-large size office transactions (5,000 sq ft+) during the month. The August 2018 figure is below the current monthly London average of 1m sq ft.

August was characterised by 9 office deals over 20,000 sq ft, which were led by the Investec’s 123,000 sq ft deal to pre-let 55 Gresham Street, EC2, N1; Competition and Markets Authority 105,000 sq ft deal at 25 Cabot Square, E14 and Hiscox’s 75,000 sq ft pre-let at 22 Bishopsgate, EC2.

Financial services topped the table of lettings by sector, compiled by Metropolis, underpinned by the Investec deal. This was followed by business services led by a number of lettings to Office Space in Town and LEO. Insurance, professional and media were also well represented. Office deals ‘under offer’ in central London increased to 3.9m sq ft, and pending deal volumes are healthy in nearly all sub-markets, with a number of deals pending.

By area, the City accounted for 47pc of the office floorspace let in August 2018 at 354,000 sq ft. The West End saw 150,000 sq ft of take-up. Midtown contributed 69,000 sq ft of lettings. Current London office demand is calculated to be around 3.7m 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 413,000 sq ft sq ft (55% of the monthly total), as transactions for new space resumed their recent strong showing. Availability is dominated by secondhand space in all London markets.

Metropolis research is currently monitoring 645 ‘live’ London requirements, with deals for space of up to 1.8m sq ft due to sign in the next few months.

Cityoffices is working on its autumn ‘Skyline Survey’ in London. Further details of office scheme planning applications and consents, with scheme by scheme detail are listed on the Cityoffices.net website. Details on Metropolis and the Cityoffices database from Andy King at andy@metroinfo.co.uk

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Future of M25 Offices

Knight Frank have recently published a report on the future of the office market around the M25 motorway.

Key conclusions include:

The South East office market is a major attraction to occupational demand from the technology sector. The tech sector has accounted for, on average, 23% of annual office take-up in the region over the
last five years and has absorbed some 3.8 million sq ft of office transactions. Examples include Farnborough Business Park or the Aerospace Centre, which are driving technology sector take-up levels.

Also, occupiers drawn from other sectors have been transformed by the application of new technology to business processes, often fuelling new property requirements;  Gartner, Future Electronics, VMWare and
Service Now are major players in this field.

Co-working and flexi providers – not yet prominent within the M25 market – place tremendous emphasis on providing real estate and associated services that support the creation of a highly connected,
collaborative community housed within a modern, curated and highly serviced environment and could be a major sector in the future. The serviced and co-working offering is becoming increasingly sophisticated to take advantage of the major corporate occupier presence around Heathrow. This occupational drive toward greater flexibility and amenity is filtering into the business park model where Stockley Park and Bedfont Lakes become more service orientated.

Occupiers want to attract and retain talented staff. They will locate in buildings and locations that support them in this task. They are seeking what ‘talent magnets’; locations that have a buzz, vibrancy and cohesion. New growth areas are appearing in West London with White City, Imperial College and the redevelopment of Television Centre, propelling West London to become a recognised and established London hub;

The knowledge economy is the trump card for the South East of England over other regions and indeed other European location.

Metropolis is tracking around 50 major office requirements in the M25 region.

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.

 

Central London Office Lettings in June 2018

Central London office lettings in June 2018 reached just over 1m sq ft from 58 mid-large size office transactions (5,000 sq ft+) during the month. The June 2018 figure is in line the current monthly London average of 1m sq ft.

June was characterised by 16 office deals over 20,000 sq ft, which were led by the Sony Picture’s 77,000 sq ft deal to take Brunel Building in Paddington; Trade Desk’s 54,000 sq ft pre-letting at Barts Square, EC1 and WeWork’s 49,000 sq ft at 70 Wilson Street, EC2.

Business Services topped the table of lettings by sector, underpinned by WeWork, Office Group and Foraspace deals. This was followed by professional services led by a number of lettings by sdeals to Herbert Smith and Kaplan. Financial services, technology and media were also well represented. Office deals ‘under offer’ in central London increased to 3.6m sq ft, and pending deal volumes are healthy in nearly all sub-markets, with a large number of deals pending.

By area, the City accounted for 40pc of the office floorspace let in June 2018 at 400,,000 sq ft. The West End saw 349,000 sq ft of take-up. Midtown contributed 126,000 sq ft of lettings, plus 50,000 sq ft of Docklands deals. Current London office demand is calculated to be around 3.3m 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 366,000 sq ft sq ft (37% of the monthly total), as transactions for new space resumed their recent strong showing. Availability is dominated by secondhand space in all London markets.

Metropolis research is currently monitoring 645 ‘live’ London requirements, with deals for space of up to 1.9m sq ft due to sign in the next few months.

Cityoffices is working on its current ‘Skyline Survey’ in London. Further details of office scheme planning applications and consents, with scheme by scheme detail are listed on the Cityoffices.net website. Details on Metropolis and the Cityoffices database from Andy King at andy@metroinfo.co.uk

Edinburgh’s Strong 2nd Quarter

Recent research by CBRE Scotland has pointed to a strong second quarter for Edinburgh’s office market, after a slow start to the year. Figures show a Q2 take-up of 351,916 sq ft of take-up – a 150% increase in take-up from Q1 2018, bringing office take-up in the first half of 2018 in Edinburgh to just under half a million sq ft (491,885 sq ft).

The recently announced pre-let to asset management firm Baillie Gifford taking over 60,000 sq ft at the newly developed Mint Building in St Andrew Square was possibly the stand out deal of the quarter, followed by other large lettings including 43,801 sq ft at 11-12 Lochside Place to Diageo and 14,832 sq ft at Atria One to EDP Renewables. The largest deal of the quarter was Edinburgh Palette (a workspace facility) occupying 109,153 sq ft of space at 525 Ferry Road, albeit on a short-term lease.

Metropolis is tracking around 40 occupiers searching for office space in Edinburgh. In general, tenant demand is considered to be buoyant, with a number of existing occupiers approaching lease expiries and seeking to relocate.

Meanwhile in the mid size range: The Scottish Public Services Ombudsman (SPSO) took 16,568 sq ft of out of town space at Bridgeside House, a Smart development at MacDonald Road, while Instant Offices, the serviced office provider, took 2,230 sq m (24,000 sq ft) of offices at the Cornerstone Building in South Gyle.

Total Edinburgh office supply remains at a low level at 923,540 sq ft, with 225,231 sq ft for city centre Grade A space. This represents a 30% decrease on the available space from the same period in 2017. The next scheme to complete is 2 Semple Street in Edinburgh city centre, which is due to be ready for occupation at the end of July 2018,  providing 38,648 sq ft of Grade A office accommodation across six floors.

CBRE say that there continues to be a number of larger, unsatisfied requirements for Edinburgh city centre.

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

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