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.

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Bristol Office Market Picks Up

Recent research by JLL and CBRE reveals that the Bristol city centre market had a slow start to 2019 with some 58,140 sq ft of city centre office deals representing the lowest level since Q1 2009. The only deal over
5,000 sq ft between January and March, was Forrest Brown taking 23,207 sq ft of space at Templeback in the city centre.

However, recent research by Metropolis shows the pace picking up in Q2.  Turner & Townsend signed for 7,000 sq ft at Desklodge House, Historic England took 6,000 sq ft at Finzels Reach, Efinor took 5,000 sq ft at Whitefriars, Unite Integrated Solutions is taking 27,000 sq ft at South Quay Temple Back and Brunel Studios taking 4,000 sq ft at Petherton Road. Ashfords Solicitors, the Bristol-based law firm, is understood to be under offer to take 1,580 sq m (17,000 sq ft) of new offices at the under construction ‘The Assembly’ office building in Temple Quarter.

Out of town, there have been large lettings of 40,000 sq ft to St James Place Wealth Management at 2610 Aztec West,13,000 sq ft to Elbit Systems UK at 600 Aztec West and 13,000 sq ft to Integral at Waterside Drive have boosted the totals.

JLL say the outlook for the remainder of the year is more positive with a quarterly increase in overall registered demand from a broad range of business sectors, including flexible workspace operators.  The overall vacancy rate remained stable during Q1 at 4.3%. Bristol continues to have the lowest New Grade A vacancy rate of the large provincial city office markets at just 0.1%.

The development pipeline is responding to this with AXA’s Building A, Assembly (200,000 sq ft) and RLAM’s 90,000 sq ft The Distillery both under construction on a speculative basis. Bristol currently has a number of schemes in the pipeline totalling up to 850,000 sq ft. Some of these schemes could be delivered as soon as 2021. Headline prime rents remain stable at £35.00 psf.

Metropolis Research is following up on 200 lease expiries in Bristol due in the next two years.

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