London Office Market August 2019

Central London office lettings in August 2019 reached 925,000 sq ft, from 35 mid-large size office transactions (5,000 sq ft+) during the month. The August 2019 deals volume figure is just below the current monthly London average of 1m sq ft.

August was characterised by 12 office deals over 20,000 sq ft, which were led by Convene’s 99,300 sq ft now confirmed pre-let at 22 Bishopsgate, EC3; Nationwide’s 88,000 sq ft deal at The Post Building, WC1 and Spaces’s 78,000 sq ft pre-refurbishment deal at 68 King William Street, EC4

Financial services topped the table of lettings by sector, compiled by Metropolis, underpinned by lettings to Nationwide, Bank of Montreal and Intermediate Capital. This was followed by professional services led by deals to law firms Cooley, Kingsley Napley and Kirkland & Ellis. The business services sector was also prominent with more deals to Spaces and WeWork.

Office deals ‘under offer’ in central London fell slightly to 3.5m sq ft, but 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 71% of the office floorspace let in August 2019 at 653,000 sq ft. The West End saw 75,000 sq ft of take-up. Midtown contributed 151,000 sq ft of lettings and Southbank 30,000 sq ft. Current London office demand is calculated to be around 3.8m sq ft in the City and 3.3m sq ft in the West End.

The volume of grade A (newly built or refurbished office space) let during the month, reached 613,000 sq ft sq ft (66% of the monthly total), as transactions for new space maintained the recent strong showing. 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 620 ‘live’ London office requirements, including a large volume of requirements from the banking and finance sectors, with pending deals for space of up to 1.5m sq ft due to sign in the next few months.

City of London Update

A recent research update on the City of London office market by property consultant Savills, revealed that office take-up on the 12-month rolling total had reached 6.9m sq ft, the lowest it has been
since July 2017.

Savills say that demand for space in the fringes of the City has been reduced this year, with most large deals concluded in the core area. The largest deal to be signed in the last two months saw the financial group Brewin Dolphin acquire the whole of 25 Cannon Street, EC4 (114, 000 sq ft) with the relocation happening in July 2022. In addition, competitor Smith & Williamson signed for 86,975 sq ft at Gresham St Pauls, 40 Gresham Street, EC2 relocating from their current offices when the scheme completes in Q3 2020. Demand continues to be concentrate on the new schemes with a two tier market evident. For example 100 Liverpool Street has seen deals of 63,000 sq ft to Millbank and 40,000 sq ft to Peel Hunt, achieving higher than average rents for the area. During Q1, construction started on 6-8 Bishopsgate (710,000 sq ft), Ropemaker Place (480,000 sq ft) and 1 Portsoken Street (190,000 sq ft).

The Insurance and Financial services sectors are the mainstay of demand in the City, currently with 27% of the share of take-up, followed by the Serviced Office Provider sector with 18% share, and the Professional services sector in third with 11%.  Tech & Media sector is lagging in 2019. Tech & Media occupiers are thought to be choosing to move into serviced offices, which continue to expand. The Serviced Office
sector has taken 363,000 sq ft of offices in the City, so far this year, up on this point last year by 78% and up on the 10-year average. An example is WeWork acquiring 50,000 sq ft at 2 Minster Court, EC3. The average deal size for the quarter was just 13,621 sq ft, its lowest since 2012. This was due to a lack of larger transactions.

During the first 6 months of 2019 Metropolis ran leads on 180 occupiers looking for alternative office space in the City of London.

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.

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

Central London Office Market in March 2019

Central London office lettings in March 2019 reached nearly 850,000 sq ft from 48 mid-large size office transactions (5,000 sq ft+) during the month. The March 2019 figure is just below the current monthly London average of 1m sq ft.

March was characterised by 14 office deals over 20,000 sq ft, which were led by Sony Music’s 120,000 deal at Kings Cross Central, N1 along with large deals to Milbank Tweed at 100 Liverpool Street, EC2; Glencore at Hanover Square, W1; WeWork at Dixon House in EC3; plus Peel Hunt at 100 Liverpool Street, EC2 and Merian Global also in EC2.

Media topped the table of lettings by sector, compiled by Metropolis, underpinned by the Sony Music. This was followed by professional services led by law firm Milbank Tweedy. Business services, especially Spaces and WeWork, finance and mining sectors were also well represented.

Office deals ‘under offer’ in central London rose to 3.5m sq ft, and pending deal volumes are healthy in nearly all sub-markets, with a number of deals in solicitor’s hands.

By area, the City accounted for 46% of the office floorspace let in March 2019 at 390,000 sq ft. The West End saw 218,000 sq ft of take-up. Midtown contributed 160,000 sq ft of lettings and Southbank 72,000 sq ft. Current London office demand is calculated to be around 3.9m 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 a healthy 400,000 sq ft sq ft (47% of the monthly total), as transactions for new space maintained the recent strong showing. Availability is dominated by secondhand space in all London markets.

Metropolis research is currently monitoring 620 ‘live’ London office requirements, including a large volume of requirements from the banking and finance sectors, with pending deals for space of up to 1.5m sq ft due to sign in the next few months.

Paul Ives Metropolis, paul@metroinfo.co.uk

Central London Office Market in February 2019

Central London office lettings in February 2019 reached just over 950,000 sq ft from 50 mid-large size office transactions (5,000 sq ft+) during the month. The February 2019 figure is in line with the current monthly London average of 1m sq ft.

February was characterised by 11 office deals over 20,000 sq ft, which were led by Bank of Canada’s 250,000 sq ft pre-let at 100 Bishopsgate, EC2, along with large deals to House of Commons at Dartmouth House, SW1; Rothesay Life’s expansion at the Post Building, WC1; plus Challenge Partners at Elizabeth House, York Road in SE1 and TechHub at Fitzroy House, London, EC2.

Finance services topped the table of lettings by sector, compiled by Metropolis, underpinned by the Bank of Canada deal. This was followed by business services led by serviced office lettings. Insurance, professional and media were also well represented.

Office deals ‘under offer’ in central London rose to 3.4m sq ft, and pending deal volumes are healthy in nearly all sub-markets, with a number of deals in solicitor’s hands.

By area, the City accounted for 60% of the office floorspace let in February 2019 at 566,000 sq ft. The West End saw 171,000 sq ft of take-up. Midtown contributed 125,000 sq ft of lettings and Docklands 19,000 sq ft. Current London office demand is calculated to be around 3.8m sq ft in the City and 3.1m sq ft in the West End.

The volume of grade A (newly built or refurbished office space) let during the month, reached a healthy 569,000 sq ft sq ft (59% of the monthly total), as transactions for new space maintained the recent strong showing. Availability is dominated by secondhand space in all London markets.

Metropolis research is currently monitoring 620 ‘live’ London office requirements, including a large volume of requirements from the banking and finance sectors, with pending deals for space of up to 1.5m sq ft due to sign in the next few months.

Paul Ives Metropolis paul@metroinfo.co.uk

London Office Market – January 2019

Central London office lettings in January 2019 reached just under 1m sq ft from 44 mid-large size office transactions (5,000 sq ft+) during the month. The January 2019 figure is in line with the current monthly London average of 1m sq ft.

January was characterised by 15 office deals over 20,000 sq ft, which were led by the WeWork’s 159,000 sq ft deal at Merchant Square, Paddington, W2, along with large deals to Alvarez & Marsal in London, EC2; Cinven’s large deal at 21 St James’s Square, SW1; plus Foraspace and ETC Venues at Southwark Bridge Road and 133 Houndsditch, EC3 respectively.

Business services topped the table of lettings by sector, compiled by Metropolis, underpinned by the WeWork deal and several other serviced office lettings. This was followed by financial services led by lettings to Cinven and Gartner. Insurance, professional and media were also well represented.

Office deals ‘under offer’ in central London fell slightly to 3.3m sq ft, and pending deal volumes are healthy in nearly all sub-markets, with a number of deals in solicitor’s hands.

By area, the City accounted for 42pc of the office floorspace let in January 2019 at 400,000 sq ft. The West End saw 355,000 sq ft of take-up. Midtown contributed 74,000 sq ft of lettings and Docklands 50,000 sq ft. Current London office demand is calculated to be around 3.7m sq ft in the City and 3.1m sq ft in the West End.

The volume of grade A (newly built or refurbished office space) let during the month, reached a healthy 420,000 sq ft sq ft (45% of the monthly total), as transactions for new space maintained the recent strong showing. Availability is dominated by secondhand space in all London markets.

Metropolis research is currently monitoring 625 ‘live’ London office requirements, with pending deals for space of up to 1.5m sq ft due to sign in the next few months.

Paul Ives Metropolis paul@metroinfo.co.uk

Edinburgh Boost

Recent figures on the Edinburgh office market in 2018 revealed that take-up totalled 855,000 sq ft (79,461 sq m) in 2018. This level of office lettings exceeds the ten year average for the fourth year running according to Cushman & Wakefield and just fails to beat the record 1.05m sq ft of office moves registered in 2017.

Some of the larger deals in Edinburgh last year include Baillie Gifford acquiring 60,000 sq ft at Chris Stewart Group’s 20 West Register Street, Royal London taking 47,000 sq ft from Aviva at 22 Haymarket Yards, Artemis taking 13,710 sq ft at Exchange Plaza and law firms Brodies securing 43,000 sq ft and Pinsent Mason taking 25,000 sq ft at BAM/Hermes’ new development at Capital Square. Diageo’s pre-let 11-12 Lochside Place and Charles River expanded at Clearwater House, Heriot-Watt Research Park and now occupy the full building

Metropolis ran 200 leads on Edinburgh occupier’s move intentions including 50 companies searching for alternative space and a further 60 which have yet to decide whether to view space.

The insurance and financial services sectors have been particularly active within Edinburgh, accounting for 45% of Edinburgh’s total take-up – while they typically form an active part of the market this is a 54% increase on the five-year average. Major occupiers are signing deals to pre-let the best new space under construction, leaving limited choice for occupiers coming to lease breaks who want to upgrade.

Vacancy rates have come down even further from 3.55 per cent in Q2 to 3.35 per cent in Q4.

Looking ahead, only future schemes at 2 Semple Street and 80 George Street are capable of providing supply of Grade A office space. However, over the longer term, Edinburgh now has its development hopes pinned on the future of the planned scheme at The Haymarket, following the sale to M&G.

Metropolis is currently tracking 40 Edinburgh based occupiers with future move plans and a further 60 office occupiers which are expected to come to a decision in 2019.

Birmingham Offices Looking Ahead

Birmingham office market during 2018 saw 754,000 sq ft of office space transacted in 113 letting deals. This was a little down on the 1m sq ft of take-up in 2017 which included a 240,000 sq ft Government letting at Arena Central, but up on the 693,000 sq ft of office moves agreed in 2016.

Major lettings during 2018 included: WSP taking 46,000 sq ft at The Mailbox, BE Group taking 38,000 sq ft at Somerset House, Zurich Insurance taking 23,000 sq ft at Colmore Square and General Dental Council agreeing to move to 22,000 sq ft at 1 Colmore Square.

Metropolis ran 80 leads on Birmingham office moves during 2018, with 25 searches for office space ongoing.

A recent report by Knight Frank highlights notable expansions such as Hogan Lovells have quadrupling the size of its Birmingham office, taking 23,000 sq ft at The Colmore Building. The law firm is taking advantage of the cost benefits such as lower wages and property costs in the city.

Over the last 18 months Birmingham has witnessed an upsurge in flexible office provision. More than 20% of Birmingham transactions (approx 313,000 sq. ft.) have been divided between various flexible models such as co-working, traditional managed centres, and operators who are providing a fixed term, fully serviced office, to identified occupiers. Instant Offices (3 buildings), Spaces (2 buildings) and MSO have been notably active, acquiring a number of locations.

Knight Frank say take-up of Grade A accommodation repeatedly accounts for over 50% of total activity within central Birmingham. High quality space deals are driven in part by the occupiers’ seeking to raise the profile of their business and enhance their staff recruitment potential. The wellbeing of staff and the workplace is shaping occupier decision-making. Access green walls, health and leisure facilities and high quality on-site catering is becoming as important.

Looking ahead, Knight Frank confirm a number of potential lettings are currently in advance talks at city centre office buildings including The Lewis Building, One Colmore Square, The Colmore Building and Baskerville House as well as some pre-let discussions. Metropolis lists a number of the occupiers interested in these schemes.

At developments under construction, including 103 Colmore Row, 3 Snowhill and 2 Chamberlain Square at Paradise, there is a significant level of advanced pre-let discussions with occupiers

London Office Market in 2018

Central London office lettings in 2018 reached just over 12.3m sq ft from 554 mid-large size office transactions (5,000 sq ft+) during the year. The 2018 figure matched the 2017 London take-up total, but with slightly fewer deals.

2018 was characterised by 167 office deals over 20,000 sq ft, which were led by two large deals Facebook in Kings Cross and The Chinese Embassy at the Royal Mint; followed by a clutch of smaller, mainly pre-let deals to Sumitomo, WPP, Sidley Austin and WeWork.

IT and business services topped the table of lettings by sector, compiled by Metropolis, underpinned by the Facebook deal and the large number of lettings to serviced office operators. This was followed by financial services led by lettings to Sumitomo, BGC and TP Icap. Insurance, professional and media were also well represented. Office deals ‘under offer’ in central London remained at 3.1m 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 43pc of the office floorspace let in 2018 at 5.3m sq ft. The West End saw 2.5m sq ft of take-up. Midtown contributed 2.4m sq ft of lettings and Docklands 900,000 sq ft. 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 year, reached a healthy 6.5m sq ft sq ft (53% of the yearly total), as transactions for new space continued their recent strong showing. Availability is dominated by secondhand space in all London markets.

Metropolis research is currently monitoring 645 ‘live’ London office requirements, with pending deals for space of up to 1.4m sq ft due to sign in the next few months.

Details on Metropolis database from Paul Ives at paul@metroinfo.co.uk