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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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

Metropolis Christmas Quiz

Just a bit of fun – answers later in the week

 

1. What was the biggest letting in London in 2017?

a) Deutsche Bank, b) Dentsu Aegis, c) Apple

 

2. How many NEW office searches/requirements have Metropolis published in 2017?

a) 1300, b) 1400, c) 1500

 

3) How much office space is under construction in central London according to the winter 2017 Metropolis Skyline report?

a) 14.6m sq ft, b) 13.6m sq ft, c) 12.6m sq ft

 

4) What % of Metropolis leads have an email address attached?
a) 75%, b) 70%, c) 65%

 

5) Vedanta is paying a record West End rent in Berkeley Square, Mayfair W1 of

a) £125 psf, b) £130 psf c) £135 psf

 

6) How many occupiers have Metropolis reported to be ‘under offer’ on office space in 2017?

a) 85, b) 90, c) 95

 

7) The largest office letting in Manchester in 2017 was ?

a) Kelloggs, b) WeWork c) Clyde & Co

 

8) How many pre-lets has Metropolis reported on in 2017?
a) 160, b) 170, c) 180

 

9) Which contractor topped the table of fit-out contractors in the 2017 Metropolis Fit-out report?

a) Overbury b) Como c) ISG

 

10) Metropolis has reported on London office lettings from January to November 2017 of

a) 9m sq ft, b) 10m sq ft, c) 11m sq ft

22m sq ft of office demand

Metropolis 2015 UK Research Review

The Metropolis research team produced a total of 6,439 relocation, construction and refurbishment leads in 2015.  1,195 new office requirements were identified in total,  accounting for 22m sq ft of demand from companies looking for new office space.

62% of Metropolis leads were projects located in the South of the UK, with 38% of lead projects located in Wales, the Midlands, North, North West, Yorkshire & Humberside, Scotland and Northern Ireland. Greater London projects represented 44% of the 2015 lead total.

 

3Leadsbyregionuk

 

 

 

 

 

 

Greater London

In Greater London, Metropolis identified  just over 16m sq ft of requirements for offices, with over 827 companies looking for new space. About 12.6m sq ft of this demand was for central London space. The top 5 most sought after postcode areas by demand were:  EC2 (2.2m sq ft), W1 (2m sq ft),  SW1 (1.7m sq ft),  EC3 (1.3m sq ft) and E14 (1.2m sq ft).

 

South East

The number of leads in the South East (not including London) jumped by 22% when compared to 2014’s total. Over 150 office requirement leads were researched in the region in 2015,  representing just over 3.5m sq ft of office demand. The largest office requirements centered on RG1 and SL1 postcodes, including several 9,290 sq m (100,000 sq ft) + requirements from energy, media, pharmaceutical and technology companies.

 

North West

Office relocation and refurbishment activity continued to be strong in the North West, particularly between 186 sq m (2,000 sq ft) and 929 sq m (10,000 sq ft) projects.  Just over 2m sq ft of office demand was identified in the region, the largest requirements centered on the Greater Manchester area. About 60 Manchester companies were linked with searches for new space, around 1.5m sq ft of office demand.

 

Scotland

Leads numbers in Scotland were slightly up on 2014’s result (3.5% up). The region remains the UK’s 4th most active in terms of the number of  Metropolis lead projects researched, but 3rd in terms of total office demand.  Metropolis identified 2.1m sq ft of office demand in Scotland as a whole in 2015, 1m sq ft of which was demand for Edinburgh space and 0.8m sq ft of which was demand for space in Glasgow.

Some of the largest requirements came from the banking and finance sector, which were mainly centered on Glasgow. The largest requirements for Edinburgh space came from the accountancy, law and technology sectors.

 

Yorkshire & Humberside

In Yorkshire and Humberside, just over 1m sq ft of office requirements were identified, with 115 companies looking for new space. Demand for new space in Leeds accounted for 0.8m sq ft.

 

West Midlands

West Midlands lead numbers were up 21% on the 2014 total. Just over 1m sq ft of office demand was identified in the region, 0.7m sq ft in Birmingham. About 180,000 sq ft of office demand was identified in Coventry, boosted by a 100,000 sq ft requirement from an energy company.

 

South West

In the South West, just over 0.5m sq ft of new office demand was identified. Bristol was the preferred location in the South West for large insurance and law sector moves.

 

North

Lead numbers in the North increased significantly for the second year running, up 29% on 2014. About 0.6m sq ft of office demand was identified in the region, 0.2m sq ft in Newcastle.

 

East Midlands

Lead numbers in East Midlands were slightly up on the five year average. The largest requirements mainly came from the manufacturing and retail sectors looking for distribution space with offices.

 

East of England

East of England lead numbers were up 33% on 2015’s total. The top five office requirements by size came from technology, pharmaceutical, accountancy and law sector companies. Office demand tracked in Cambridge reached 0.4m sq ft.

 

Wales

The largest office requirements in Wales came from the Public sector, with a 130,000 sq ft requirement from a government department  looking in Cardiff. However there were also two 100,000 sq ft requirements from law and insurance firms also looking in Cardiff, where total office demand was just over 0.5m sq ft.

 

Northern Ireland

The largest office requirements unsurprisingly came from Belfast occupiers, with government, accountancy and technology sectors the most active.

 

 

UK Lead Projects By Size

50% of Metropolis leads in 2015 reported on projects over 10,000 sq ft. 44% of leads were made up of projects between 5,000 sq ft and 30,000 sq ft. 68% of leads covered projects over 5,000 sq ft.

 

4Leadsbyprojectsizeuk

 

 

 

 

 

 

The increase in lead projects between 2,000 and 5,000 sq ft was  significantly influenced by added investment into regional research by Metropolis, particularly in the South East, West Midlands and South West.

A significant number of new office mover leads, typically 20 to 50 staff relocations,  were identified in these areas in 2015.

The 40 and 50 redevelopment schemes in London that effected existing tenants in 2015 also contributed to an increase in the proportion of these lead projects.

These schemes, which include demolition and refurbishment of existing buildings,  forced hundreds of SME office occupiers to find new space, the significant proportion of which occupied between 1,000 and 5,000 sq ft.

 

5picoflondon

 

 

 

 

 

 

 

UK Lead Numbers by Sector

The Banking & Finance Sector just edged ahead of  Technology & Telecoms leads in 2015 and was the most active UK business sector in terms of relocation and refurbishment projects. Lead numbers fell by 8.5% when compared to 2014’s strong result,  but were still about equal to the five year average.

The largest requirements in this sector were focused on space in Docklands and London EC2. The largest office lettings were on space in London EC4 and EC2.

7leadsbybusinesssectorukchart

 

 

 

 

 

Office demand from the technology and telecoms sector was just over 3m sq ft. Two of the top five largest requirements for new space from the T&T sector came from social media companies, both seeking in excess of 100,000 sq ft of space in the West End of London.

The majority of requirements for new space over 50,000 sq ft centered on London, but there were notable exceptions, including a 150,000 sq ft requirement for space in Cambridge from a US Software firm and a 100,000 sq ft requirement for offices in Warrington from a US computer manufacturer.

Office demand from media sector companies, often grouped with Technology and Telecoms under the banner “TMT”, reached 2.5m sq ft.

Central London, particularly SW1, W1 and WC2, was the overwhelmingly preferred location for this sector. The largest media requirement outside of London came from a media broadcaster looking for 150,000 sq ft in the Thames Valley.

Demand for new space in the law sector focused on London EC2, with three 200,000 sq ft + requirements for new space in this postcode.  Outside of London, the largest office requirements centered on Manchester and Birmingham.

 

Copyright Metropolis Property Research Ltd 2016

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 – Q1 2015

9.6m sq ft of demand

The Metropolis team researched over 455 UK company office requirements in Q1 2015, representing 9.6m sq ft of office demand.

5.5m sq ft of this demand was for space in Greater London, 4.3m sq ft of which was demand for central London space. 4.1m sq ft of demand was identified by our team in the rest of the UK.

Demand for City of London space continued to be strong during Q1, with 2.1m sq ft required in over 91 planned office relocations. Four of the top five requirements by size were searches by banks with the other a significant requirement from a major accountancy firm. The top five requirements were moves planned in 2016, 2017 and 2018. EC2 demand made up 42% of the total central London space required.

0.8m sq ft of demand was identified in the West End of London, 0.5m sq ft in London SW1 and 0.3m sq ft in London W1. Two of the top five requirements by size were searches by banking and finance companies. All of the top five largest moves are planned for late 2015 and 2016.

Mid Town office demand was mainly focused on London WC2, with two of the largest requirements centered on this postcode. One of the most significant requirements identified was an 80,000 sq ft HQ search by a TMT company planning a move in 2017.

In London SE1, where 0.3m sq ft of demand was researched, the largest requirement came from a construction group. In E14, a 400,000 sq ft requirement from an investment bank made up 66% of the 0.6m sq ft of total demand for offices in the area.

Banking & Finance sector UK office demand reached 2m sq ft in Q1 2015. The largest searches centered on the City of London and Docklands, although there was a notable search for 175,000 sq ft of space in central Birmingham.

0.8m sq ft of demand was identified from the Technology & Telecoms sector, and similar to banking and finance was largely focused on the City of London. There were however also significant searches for space in Manchester and Newcastle-upon-Tyne.

The largest government requirements were for space outside of central London, the most significant a search for over 400,000 sq ft in Manchester. The largest media sector requirements centered on fringe central London locations and the top three law sector requirements were for space in Birmingham, Manchester and Bristol.

 
Metropolis is currently tracking over 700 unique searches for space in London and over 400 in the rest of the UK.

 

DemandbysectordemandinLondon

 

Central London Office Lettings 2014

Sharddong

Best Year For Deals Since 2007

Metropolis has recently published its latest client newsletter, this month a special report on central London office lettings in 2014. Highlights include:

– Central London deals hit 12.8m sq ft, up 5% on 2013 take-up
– 14 deals were over 100,000 sq ft
– Metropolis is tracking over 700 central London office requirements
– Just over 2m sq ft currently under offer

The newsletter was provided exclusively to Metropolis clients. If you are interested in finding out how Metropolis could help your company win new business please visit us at http://www.metroinfo.co.uk.