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.

Edinburgh Office Market Update

Metropolis ran nearly 50 business leads on Edinburgh occupiers relocating in the early months of 2019. There are nearly 200 office occupiers approaching lease events in the city in the next two years. Recent expansions are showing a rise in the number of financial services and technology companies taking space.

In Q1 2019, total office letting in Edinburgh reached 185,000 sq ft, of which nearly 60,000 sq ft was Grade A new office space. Figures from Savills show that 90% of Grade A deals came from Tech industries. The largest deals included Amazon signing for 30,000 sq ft at Exchange Crescent and Epic Games taking 10,000 sq ft at Quartermile 2. Over the past five years, Edinburgh has seen employment growth of 7% in the professional scientific and tech industries and is forecast to see a further 11% over the next five years.

Avison Young spotlight the wider Edinburgh office market, which also saw large deals. Two of the largest deals freehold purchases out-of-town with 49,000 sq ft to the Church of Scientology at Westfield House and 12,000 sq ft to Sime Hospitality at South Gyle Business Park. There were other mid-sized deals to CGI and Upward Mobility. Lloyds Bank is expanding into a 75,000 sq ft technology hub at its Scottish Widows’ headquarters.

In the centre of Edinburgh there has been a high concentration of sub 5,000 sq ft deals, with tech firms have particularly active in this size bracket, accounting for 33% of all take-up.

Analysts expect a boost in take-up for the business services sector over summer 2019, with a number of buildings under offer to providers of co-working serviced office space.

Avison Young reveal that overall availability in the city centre amounts to 448,000 sq ft, which is less than a year’s supply based on the recent past demand. Although future supply was boosted when M&G Real Estate has instructed Qmile Group to build its mixed-use Haymarket scheme, which includes 350,000 sq ft of office space. There is currently around 55,000 sq ft remaining at Capital Square ahead of completion in May 2020, 2 Semple Street has 35,000 sq ft available, and 30,000 sq ft of sub-let space is on offer at 20 West Register Street.

Looking ahead, with a vacancy level of 3%, more pre-letting looks likely. Metropolis is tracking around 30 confirmed and potential medium/large office searches in Edinburgh.

Manchester Office Market Update

Recent research by Metropolis saw nearly 40 office Manchester moves confirmed in the first quarter of 2019, which is 10% above the same period last year. Furthermore, there are over 100 companies either searching or due to make decisions on future office space searches in 2019.

Local office agents expect take-up in the city centre market to top 1m sq ft for the sixth year running following a steady start to 2019. The first quarter of the year saw 314,733 sq ft of lettings according to the figures from the Manchester Office Agents Forum. The largest transaction so far this year is the long-awaited 47,465 sq ft pre-let at Two New Bailey to law firm Eversheds Sutherland.

Other large deals included co-working operator Huckletree taking 25,800 sq ft at the Express Building, the General Medical Council taking 22,000 sq ft at 3 Hardman Square and Knights Professional Services taking 16,272 sq ft at Two St Peter’s Square. Moneysupermarket.com took space at No. 1 Spinningfields at £35 per sq ft, a new record rent for the city.

The headline requirement is to BT, which it has recently increased its search to 150,000 sq ft. The out-of-town market saw lettings to two utilities companies Smart DCC and Landis & Gyr. There were also a number of deals to tech companies such as Capgemini, Playdemic and Cetus Solutions.

Analysis by Savills points to a diverse base of office occupiers, who are attracted to the city as a result of its strong talent pool, establishing it further as a key location outside of London.

Savills research points to a Manchester’s office market with record 2018 take-up levels of 1,750,276 sq ft, representing a 44 per cent year-on-year increase. It was also the fifth consecutive year that Manchester saw city centre take-up in excess of 1.2 million sq ft.

Recent office mover activity has been dominated by TMT, professional, financial services and public sector markets as well as co-working providers.

Manchester has seen an influx of flexible and serviced office providers looking to establish a presence outside of London including WeWork, Work Life and Central Working taking space as well as smaller independent providers.

Looking ahead, Metropolis has plans to speak to a further Manchester office occupiers that are approaching lease expiries on their office space over the next two years.

Paul Ives, Metropolis

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

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