London West End Review

Recent research by Cushman & Wakefield on the London West End office market reveals:

West End office lettings in the Q2 of 2019 reached nearly 800,000 sq ft which was 7% above the average for second quarter take-up in the last five years. Across the first half of 2019 this brought total transactions to 1.83m sq ft which was 10% ahead of the five year average and 4.3% up on 2018.

Pre-lets played an important role in total take-up with 24% of space pre-let in the West End including large deals to G-Research, UK Parliament and Li & Fung

The volume of office space under offer in the West End increased to 1.2m sq ft. This was 54% ahead of the five year average and should fuel more deals in the second half of the year. Indeed we have already seen another big West End pre-let, with the 105,000 sq ft pre-leased to Diageo at Great Marlborough Street, London, W1. Further deals have been concluded to the serviced office sector.

Metropolis is monitoring a large number of large West End requirements by occupiers such as: Apollo Management, Technicolour and Ralph Lauren. West End requirements at 4.7m sq ft are well above their  long-term average.

New, Grade A space lettings accounted for 65% of lettings according to C&W. In addition, nearly 50 of the 180 recorded office moves or expansions were over 5,000 sq ft in Q2. Some 20% of the relocations were by office tenants in the financial sector, followed by 19% in the technology and media sector.

Supply of offices is tight in the West End with a vacancy rate of 4% and only one building able to accommodate movers of greater than 100,000 sq ft. There are currently only 28 buildings which are set to be delivered over the next five years, which will have floorplates 15,000 sq ft and over. The majority of available space is in the fringe, Hammersmith and White City. Some 72% of space in the West End currently under construction was pre-let.

 

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Central London Office Market May 2019

Central London office lettings in May 2019 reached 1.3 million sq ft, from 40 mid-large size office transactions (5,000 sq ft+) during the month. The May 2019 deals volume figure is well above the current monthly London average of 1m sq ft.

May was characterised by 14 office deals over 20,000 sq ft, which were led by EBRD’s 365,000 pre-let at 1-5 Bank Street, E14; along with the letting of the refurbished 25 Cannon Street to Brewin Dolphin; WeWork at Film House, Soho, W1; Parliamentary Estates taking space at 64 Victoria Street, SW1, plus Quilter at Senator House in EC4 .

Financial Services topped the table of lettings by sector, compiled by Metropolis, underpinned by the EBRD pre-let and Brewin Dolphin’s new City of London HQ. This was followed by business services led by WeWork and Signature (Regus) deals. Public services, led by Parliamentary Estates and professional services with Cadwalader and Comply were also well represented.

Office deals ‘under offer’ in central London stood at 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 34% of the office floorspace let in May 2019 at 437,000 sq ft. The West End saw 350,000 sq ft of take-up. Docklands 365,000 sq ft, Midtown contributed 109,000 sq ft of lettings and Southbank 21,000 sq ft. Current London office demand is calculated to be around 3.7m sq ft in the City and 3m sq ft in the West End.

The volume of grade A (newly built or refurbished office space) let during the month, reached a healthy 960,000 sq ft sq ft (74% 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, 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.

London Office Letting Forecast for 2019

Metropolis research suggests that despite the political uncertainty, the number of London office occupiers intending to move in 2019 remains in line with previous years. Confirmed office lettings in Q1 2019 are approaching around 2.5m sq ft, which is just below previous years. There are also a large number of companies awaiting a Brexit outcome before confirming move plans in the rest of the year.

Office market analysts report that Central London leasing activity continued to perform positively in 2018, however there remains fear of occupier inertia as a threat to leasing activity in early 2019 with leasing demand slowing in the early part of the year. JLL anticipate this is likely to be short lived as so much of today’s demand is structural – lease breaks and expiries – and a bounce back is expected in the latter part of the year. Tech employment is forecast to overtake banking and financial services in terms of total numbers employed. The tech sector is expected to take a larger part of London lettings during the next 12 months.

West End take-up is outperforming the 10-year average with the services sector was the most active. Some of the momentum was provided by Facebook’s acquisition of circa 600,000 sq ft in King’s Cross, followed by the business services sector with a share of 30% driven by flexible workspace providers. Flexible space is accounting for 22% of take-up volumes with several new entrants taking space including independent operators as well as British Land’s Storey and Brockton’s FORA.

Pre-letting remains a key driver of the leasing market and on an annual basis, pre-leasing accounted for 36% of take-up. Under offers in the West End are down slightly on the back of strong leasing volumes, but they remain well above the 10-year average, Active demand totalled 4.0 million sq ft and remains above the 10-year average Demand is being driven by business services followed by finance and media.

In the City, office take-up is surpassing the 10-year average with business service the most active, driven by the flexible workspace and insurance sectors. Flexible workspace providers continued
to expand rapidly, however the largest recent transaction to an insurance company was at Twentytwo Bishopsgate, EC2 where Beazley Group have pre-let 50,000 sq ft. WPP plc have pre-let 210,000 sq ft at 1 Southwark Bridge Road, SE1 and McCann have pre-leased 127,000 sq ft at 135 Bishopsgate, EC2.

In the City during 2018, pre-letting was at its highest level since 2000 in terms of volume and at peak levels in terms of proportion of activity (39%). Both space under offer and demand remain ahead of 10-year average levels. Space under offer is 1.4 million sq ft and active demand is 6.3 million sq ft.

In conclusion, trends in 2019 are likely to continue the patterns of 2018, albeit after a slow start in the first half of the year. However, the accumulated weight of demand and the impending pressure of upto a thousand lease expiries due over the next 12 months is likely to keep London lettings healthy.

London Office Market – November 2018

Central London office lettings in November 2018 reached just over 1m sq ft from 57 mid-large size office transactions (5,000 sq ft+) during the month. The November 2018 figure is in line with the current monthly London average of 1m sq ft.

November was characterised by 16 office deals over 20,000 sq ft, which were led by the Deloitte Digital’s 99,000 sq ft deal at Shoe Place, EC4 along with large deals to Starlizard in Camden; THB Group’s pre-let at 22 Bishopsgate, EC3 plus Axis Speciality and National Australia Bank at ‘The Scalpel’.

IT services topped the table of lettings by sector, compiled by Metropolis, underpinned by the Deloitte deal. This was followed by business services led by lettings to Knotel, ETC Venues and Wework. Insurance, professional and business services were also well represented. Office deals ‘under offer’ in central London remained at 3.7m 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 48pc of the office floorspace let in November 2018 at 480,000 sq ft. The West End saw 200,000 sq ft of take-up. Midtown contributed 150,000 sq ft of lettings and Docklands 40,000 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 a healthy 460,000 sq ft sq ft (46% 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 635 ‘live’ London office requirements, with pending deals for space of up to 1.5m sq ft due to sign in the next few months.

Cityoffices is close to completing on its autumn ‘Skyline Survey’ Report in London. Details on Metropolis database from Paul Ives at paul@metroinfo.co.uk

Banking and the Office Market

CBRE has just published its report: “Why We Can Bank on London 2018” which looks at subsectors within London’s financial services ‘ecosystem’: investment and retail banks, fintech firms, traditional asset managers and private equity firms and hedge funds. The intentions of occupiers in these sectors make up a large part of the Metropolis weekly office leads output.

The financial sector accounted for 27% of active space requirements by sq ft in autumn 2018

CBRE say Since the EU referendum, banks have continued to commit to London with Deutsche Bank taking 550,000 sq ft and SMBC taking 161,000 sq ft, while Wells Fargo took 220,000 sq ft for its new European
headquarters. However, banks have also been ‘nearshoring’ (moving staff to regional hubs in the UK) with Bank of America, JP Morgan and Deutsche Bank all announcing plans in late 2012 to move 3,000 jobs away from London.

The UK has been ranked first globally for the strongest fintech sector since 2016. It’s largest companies include Funding Circle, a peer-to-peer financing platform for companies and mobile banking service Revolut is achieving ‘unicorn’ status in April 2018 on reaching a valuation of $1.7bn (both companies’ intentions recently featured on Metropolis).  Fast growing Nutmeg is the first firm to offer an online discretionary investment management service in the UK. Fintech firms are dispersed but have tended to cluster in areas such as Canary Wharf and the City, where initiatives such as Level39 provide provide space. The typical lifecycle of a fintech firm begins in low-cost flexible space, usually in fringe locations. Typically, the firm then moves to a larger and more corporate space as it matures. Metropolis has run nearly 40 leads on fintech companies recently.

Private equity and hedge funds. London is the second largest centre globally for hedge fund managers  Over the past 10 years, firms other than banks or traditional asset managers have accounted for 61% of the sector’s total take-up of 27m sq ft in Central London. There are currently over 200,000 sq ft of office requirements live in this sector in central London. Metropolis has brought subscribers over 30 stories about hedge fund companies office move intentions in recent months.

CBRE conclude by forecasting the rise of agile working becoming more widely adopted in the banking sector, increasingly shifting towards more open plan offices and policies such as working from home. Firms are also increasingly considering an area’s wealth of amenities and transport links. For private equity firms in particular this could become a growing trend as they move away from prestige locations such as Knightsbridge and Mayfair to better connected locations.

Metropolis has run over 500 leads on London-based financial sector occupiers relocation intentions in 2018.

Merry Christmas to all Metropolis blog readers.

Paul Ives, Metropolis Head of Research. December 2018

Law Sector and the Office Market Update

Knight Frank, the property consultant, has just published an update on trends in the law sector over 2017-18 which impact on the UK office market. Some of the main points include:

Consolidator firms such as Gordon Dadds, Redkite Solicitors, Knights and Metamorph Law are acquiring smaller rivals to gain market share. Consolidation activity is driving occupier demand in certain markets as merged firms looked to consolidate into single offices;

Some mid-tier law firms are aggressively expanding, in particular those that have focussed on niche services. One such firm that is forging ahead is Weightmans which has invested £1.3million on new technology over the last year. Another leading mid-tier firm is Fieldfisher who recorded a second consecutive year of double-digit growth that included moving into a single site in London;

New market players are expanding in regional markets. These included Leeds-based Alpaca, who launched in 2017, and Rradar, who relocated to larger office space at the Bruntwood Platform building in Leeds having undergone rapid growth;

Meanwhile, Norton Rose Fulbright revealed plans to create 100 new jobs in its legal process hub in Newcastle, Simmons & Simmons taking larger offices in Bristol, Walker Morris will relocate to 33 Wellington Street, Leeds, Reed Smith opening in Leeds, Graysons moved into larger, more modern premises in Sheffield, Pinsent Masons consolidated their two offices into 141 Bothwell Street in Glasgow, while Hogan Lovells tripled its space in Birmingham;

Manchester recorded the highest legal services sector takeup by square footage across all the UK regional cities at 155,328 sq ft or 13% of total take-up last year. This was followed by Bristol where legal services accounted for 9.4% of total take-up

Knight Frank conclude that changing business structures will demand a resetting of the corporate footprint with most relocating to higher quality office space in core CBD locations.

Metropolis is tracking over 100 law firms with either identified requirements or potential requirements for relocation from October 2018 onwards.

 

Metropolis Movers in August 2018

Metropolis ran 601 business leads on ‘office movers’ in August 2018. If all reported moves were added together the total would exceed 15 million sq ft of office searches and transactions, researched by Metropolis’ unique market-led intelligence research team, last month.

London was the largest region with 309 business leads during month, but there were also strong showings from the South East (72),  North West (60) and Yorkshire (46). Financial services, IT and business services were the largest business sectors planning relocations or agreeing moves during the month.

The relocation leads geographically covered the whole UK and provided details of the size of the office occupier, company likely move dates, a description of the reasons for the move, its business sector and full contact details including an address for written inquiries, at least one telephone number and in most cases an email address. Some of the largest planned moves and top picks amongst the 601 July leads, included those on occupiers AstraZeneca, NTT Data, BNY Mellon, Booking.com and BGC International.

The August 2018 leads included 203 ‘identified requirements’, including 120 in London. Which means that the company confirmed to researchers that it has current or future plans to search for alternative office space. Of these 203 searches, 104 were newly posted office searches, not previously notified to clients.

The most recent research also included 133 ‘potential movers,’ which were mainly longer-term leads on occupiers, considering a relocation, but the occupier has yet to make a final decision on whether to search.

Most of the remaining stories covered companies that have just signed for new office space and have set a move date, including some large pre-lets and companies inviting tenders for fit-out contracts. The shortest planned move date is just over a month away, whilst the longest was late 2021.

Recent research by Metropolis concluded that a conservative estimate of ‘live’ business tender opportunities on the database in recent months, exceeded £1bn of business.

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