The Squeeze on Space

A recent report by property consultant DeVono Cressa has revealed that office occupiers taking the best or better space on the market is leading to a dearth in choice for some occupiers. At a macro level the volume of available office space across central London continues to be high at 15.2 million sq ft. The figures are masking the difficulty in matching requirements with the available office buildings.

DeVono say that in the West End there is 3.5 million sq ft available, with just 22% of this is Grade A space. Victoria and Soho are particularly tight for available space. Even in the City where many new buildings are being built, Grade A space in this market is reducing, largely as a result of early-letting and pre-letting of new developments ahead of completion. Occupier searches are increasingly getting earlier in order to secure space, as well as more occupiers being open to fringe locations and taking more space for future expansion.

A noticeable trend in 2019 has been the rise in demand from the legal sector. A high number of active requirements have been launched recently. Whilst only 201,000 sq ft has been let so far this year, more moves are expected as legal firms scour London for space.

Metropolis is currently tracking nearly 50 law firms looking at options for alternative London office space.

The largest deal up to the end of Q2 2019 was 68,275 sq ft taken by Milbank at 100 Liverpool Street, London, EC2. Followed by Cadwalader, Wickerhsam & Taft pre-letting 21,700 sq ft in the soon to be completed 100 Bishopsgate tower. Some 62% of space leased by law firms this year is of Grade A quality.

DeVono Cressa say that in recent months 23 firms have begun a search or will soon start their search. If all firms decide to move, close to 1.9 million sq ft of office space could be let. Some of these requirements could take 2-3 years, as breaks or expiries are approached searches are showing signs of being started early to secure the right space.

The third quarter has seen US law firm Cooley pre-let 75,000 sq ft of tower space at 22 Bishopsgate, expanding from the 26,000 sq ft they currently occupy. Also in the City Kingsley Napley are doubling their space to 51,344 sq ft at the soon-to-be completed 20 Bonhill Street. Legal occupiers are becoming more footloose in their choice of location. More moving to the City and even the Southbank. Moving to newer buildings, newer locations and introducing new ways of working and/or new technologies is expected to facilitate a change. In an industry that is rife with competition for business and talent, all tools need to be deployed to stay ahead.

Metropolis is talking to nearly 100 law firms which have lease expiries or lease break options in the next three 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.

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.

Media Sector and the London Office Market

The recent signing of a large pre-let of 124,000 sq ft of new London HQ offices by Sony at 4 Handyside Street, Kings Cross has brought renewed focus onto the contribution of the media sector to London’s office market. Metropolis looks at the importance of the media sector to office transactions and relocation moves in London.

In 2018, the technology and media sector once again dominated the London’s leasing profile, accounting for 27% of take-up across central London at around 3m sq ft and signing two of the year’s three largest deals. This is the third consecutive year that the sector has finished the year in the top spot. In many respects, the media and tech sector has been the standard bearer for London’s continued global magnetism

Kings Cross has become a popular destination for the creative and media sector with recent moves agreed with Universal and PRS for Music. In addition, Google and Facebook, which straddle the line between media and technology companies, also chose Kings Cross as their London HQ destinations.

Other large media sector moves announced recently, have included WPP agreeing to centralise HQ functions at 1 Southwark Bridge Road, SE1 and McCann Worldgroup pre-letting nearly 150,000 sq ft at the under construction 135 Bishopsgate, EC2.

Metropolis has also recently run large London moves planned by Publicis, Datamonitor, Ree, Macmillan Publishers and Trade Desk.

Media occupiers have been active across all sub-markets, but they have been particularly dominant in the West End, accounting for over 30% of all activity in 2018. In Midtown, Herbal House, EC1 and The Farmiloe, EC1 attracted a variety of media and creative tenants. Research by Colliers shows that media sector tenants negotiate the shortest lease lengths and therefore the sector is the most likely to be looking for its next move.

Looking ahead, there are 220 London based media companies approaching lease expiries in the next two years. Metropolis is tracking over 130 which have expressed an interest in a move. Future large identified requirements include: 20th Century Fox (80,000 – 100,000 sq ft) and The Telegraph Media Group (70,000 – 80,000 sq ft).

For further analysis and details contact Paul Ives at Metropolis

February 2018 Central London Lettings

Central London office lettings in February 2018 reached just over 1m sq ft of deals from 50 mid-large size transactions (5,000 sq ft+) during the month. The February 2018 figure is in line with the current monthly average of 1m sq ft.

February was characterised by 11 office deals over 20,000 sq ft, which included Sumitomo’s 161,000 sq ft re-letting at 100 Liverpool Street, EC3; Sidley Austin’s 135,000 sq ft pre-letting at 70 St Mary Axe, EC3 and Prudential took 59,000 sq ft at Angel Court Tower, EC2.

Financial Services topped the table of lettings by sector, underpinned by Sumitomo and Prudential deals. This was followed by professional services mainly underpinned by the signing of the Sidley Austin pre-let. Office deals ‘under offer’ in central London stayed at 3.5m sq ft, but pending deal volumes are healthy in nearly all sub-markets, with over 30 deals pending.

By area, the City accounted for 50pc of the office floorspace let in February 2018 at 501,000 sq ft. The West End saw 266,000 sq ft of take-up. Midtown contributed 66,000 sq ft of lettings, plus 143,000 sq ft of Docklands deals. Current London office demand is calculated to be around 3m sq ft in the City and 2.9m sq ft in the West End.

The volume of grade A (newly built or refurbished office space) let during the month reached 557,000 sq ft (55% 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 655 ‘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 the report and the Cityoffices database from Andy King at andy@metroinfo.co.uk

Scottish Offices 2018

Lambert Smith Hampton, the property adviser, has just published its review of the Scottish office market in 2017 and makes its predictions for 2018.

LSH say that for half of office movers in Glasgow, Edinburgh and Aberdeen (57% of occupiers), relocation was more likely to be prompted by a lease expiry or break option, a pattern that underlines the importance of market churn over inward moves from companies based outside Scotland.

Notable transactions triggered by lease events included State Street Bank and Trust Company (65,628 sq ft at Lauriston Place, Edinburgh), the Scottish Prison Service (51,009 sq ft at
Redheughs Rigg, Edinburgh) and Balfour Beatty (43,568 sq ft at Maxim 7, Glasgow).

Expansion was the trigger for 26% of relocations, indicating ongoing confidence among occupiers. Expansion also played a part in a number of deals in Aberdeen despite the dip in oil prices, albeit none of these involved occupiers in the energy sector. Key deals spurred by expansion included the University of West Scotland (225,000 sq ft), Computershare (41,395 sq ft) and the Student Loans Company (40,853 sq ft). Common among these occupiers was a desire for better quality office space or a more effective working environment.

In Edinburgh, location was behind the vast majority of relocation choices. In Glasgow, location accounted for less than half of deals. In some instances, occupiers were able to expand at the current base. For
example, Wescot Credit Services acquired an additional 10,567 sq ft at 38 Cadogan Street, Glasgow while Actavo acquired a further 10,685 sq ft at Alexandra Parade, Citypark, Glasgow.

Better quality office space was cited as the key driver of choice in 14% of deals, a notable example being Mott MacDonald’s acquisition of 34,515 sq ft of grade A space at St Vincent Plaza in Glasgow. Improved efficiency was the key driver of choice for 12% of deals, the largest being ST Microelectronics acquisition of 21,530 sq ft of grade A space at Tanfield, Edinburgh.

Looking ahead, to the end of 2020, Scotland’s five largest town’s and cities possess almost 450 known lease events in excess of 5,000 sq ft. 2018 will see 145 lease expiries and breaks above 5,000 sq ft across the
key markets, amounting to just over 2.1m sq ft of potential demand.

Metropolis is currently monitoring over 50 Scottish companies with plans to move in 2018 and over 100 occupiers coming up to decisions on leases in Aberdeen, Glasgow and Edinburgh.

Metropolis Office Movers in November 2017

Metropolis ran 640 business leads on ‘office movers’ in the month of November 2017. If all reported moves were added together the total would exceed 12 million sq ft of office searches and transactions, researched by Metropolis’ unique market led intelligence research team. London was the largest region with 288 leads during month, but there were also strong showings from the South East (64), North West (63) and Scotland (39). Business services, IT and financial services were the largest business sectors planning relocations or agreeing moves during the month.

The business leads 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 640 November leads, included those on Facebook, Channel 4, WeWork, Bupa and Lloyds.

The November 2017 leads included 214 ‘identified requirements’. Which means that the company confirmed to researchers that it has current or future plans to search for alternative office space. Of these 214 searches, 124 were new office searches, not previously notified to clients.

The most recent research also included 149 ‘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 2020.

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

If you would like some information on flexible Metropolis subscription packages, then please email Simon at simon@metroinfo.co.uk

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Cityoffices.net, the sister property leads service to Metropolis, has published its ‘Autumn 2017’ survey on the office construction market in central London, with details of new schemes starting, the dozens of schemes at preparation stage and 200 office schemes in the pipeline for construction starts in 2017-2020.

For more information on Cityoffices, email Andy at andy@metroinfo.co.uk