London Office Development

The Deloitte Crane Survey Summer 2019 has just been published with data contributed by Metropolis and Cityoffices. In this blog we look at the main survey findings and some of the other additional trends that were not highlighted in the final report.

Last year the survey reported that after a small dip in Q3 2018. However in Q1 2019 the volume of London office space under construction has risen 12% to 13.2m sq ft. There were 37 new schemes started in the last six months. Major new starts included the 611,000 sq ft Facebook HQ at Kings Cross and the 245,000 sq ft 1 Finsbury Avenue, EC2.

Deloitte highlight a trend towards refurbishment construction projects in the City of London, whereas Kings Cross is leading the new-build starts. The City will see completions in 2019 to towers at 22 and 100 Bishopsgate, with more office towers planned.

Some 6m sq ft of office space is planned for completion in central London in 2019, matching the 2018 figure. Occupiers are jostling for the new space with 55% of the space due for completion this year already pre-let. Finanancial services, technology and serviced office occupiers are particularly active. The fringe areas of Southbank including Battersea, Kings Cross and Paddington are attracting more pre-lets than the West End.

Deloitte conclude that new Grade A office space availability is falling with 30m sq ft currently in the pipeline, which represents a 23% fall in the last two years. However, London’s office pipeline is always waxing and waning. The recent short term trend and looking back historically cannot be relied upon in the longer term. Indeed, the number of schemes at demolition or site preparation stage, such as the Leadenhall  Triangle, Ropemaker and 6-8 Bishopsgate, continues to be healthy. Research showed that 6.5m sq ft of central London offices are poised to start construction in the latter half of 2019, giving a healthy pipeline going forward.

Looking at planning applications over the last year in central London, in numbers terms, there is a trend towards refurbishment applications over new-builds. New applications for schemes in the pipeline such as 1 Undershaft could skew this trend back towards new builds again. Demand from London office tenants continues to underpin developer plans for the next wave of building.

Central London Office Market in April 2019

Central London office lettings in April 2019 reached just over 1 million sq ft, from 35 mid-large size office transactions (5,000 sq ft+) during the month. The April 2019 figure is in line with the current monthly London average of 1m sq ft.

April was characterised by 16 office deals over 20,000 sq ft, which were led by Facebook’s 175,000 deal at expansion at Regents Place, NW1 along with a large pre-let to G-Research at the under construction Soho Place in London, W1; Spaces at Cabot Square, E14; Trade Desk expanding at One Bartholomew Square, EC1; plus Mastercard at 1 Angel Lane, EC1 and Splunk in Paddington, W2.

IT Services topped the table of lettings by sector, compiled by Metropolis, underpinned by the Facebook deal and G-research’s expansion pre-let. This was followed by business services led by a number of serviced office sector deals. Financial services, led by Mastercard, plus media led by Trade Desk were also well represented.

Office deals ‘under offer’ in central London rose to 3.6m 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 28% of the office floorspace let in April 2019 at 280,000 sq ft. The West End saw 500,000 sq ft of take-up. Midtown contributed 139,000 sq ft of lettings and Southbank 25,000 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 417,000 sq ft sq ft (42% 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 630 ‘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