London Skyline Report Autumn 2014

Recent research by Cityoffices and Metropolis found that the central London office development market has stepped up another gear over summer 2014, with a further 32 office schemes starting (or poised ready to start in Q4 2014) since March 2014. Contrary to reports of a moribund construction sector, a healthy total of nearly 3.5m sq ft office space went under construction over the last 6 months. Notable recent scheme starts included: London Wall Place, EC2 (500,000 sq ft); Angel Tower, EC2 (360,000 sq ft) , River Plate House, EC2 (160,000 sq ft); 25 Chancery Lane (100,000 sq ft); St James’s Market, SW1 (212,000 sq ft) and 48 Leicester Square, WC2 (92,000 sq ft).

We expect nearly 15 further schemes to go under construction in the last quarter of the year. There is ‘only’ 8.7m sq ft of offices currently under construction (or about to start) following completion of  over 4m sq ft in the previous two quarters, including nearly 2m sq ft in three buildings 20 Fenchurch Street, Leadenhall Building and 25 Churchill Place. This is below the 10m sq ft long term average of London space under construction, but does not take account of a further 5m sq ft currently at demolition stage. Some 25 schemes such as 100 Bishopsgate, 52 Lime Street and Principal Place are on the verge of starting and even The Pinnacle may join them. Looking ahead to 2015, there are currently only 31 schemes due for completion, delivering 2.8m sq ft, although this figure will rise slightly as a number of refurbishments will join the list. However in relative terms, there is a shortage of large speculative office schemes scheduled to open next year, to add to the 7m sq ft of completions in 2014. In 2016 a further 7-8 million is forecast for completion, with half of that already underway.londond

Around 36% of office space under construction is already pre-let including recently-signed agreements with companies such as Amazon, KPMG and Estee Lauder. There is also a further raft of deals likely to be agreed in the near future which may include Societe Generale, Telefonica and Howden. Many schemes tend to find pre-lets closer to completion with over 50% of space completed during summer 2014 now pre-let. In contrast to some previous surveys, new-builds now make up the majority of new starts with 55% of the total compared to 45% refurbishments.

However, with nearly 3m sq ft of deals under offer and many of the larger central London occupiers beginning to appoint agents to advise on pre-let opportunities the expectation is that a new wave of refurbishments is just around the corner. In conclusion, although a large amount of central London office space was completed over summer 2014 and although some recent press reports have chosen to spotlight the drop in space actually under construction, writers have failed to note that it is about to be  replaced by almost as many schemes, if not the same volume of sq ft. In addition a large number of schemes are primed to start in 2015. The letting market continues to power on apace, exemplified by the recent pre-letting of the 400,000 sq ft Principal Place by Amazon and the rapid pre-letting of London Wall Place, EC2. Although 2015 looks likely to be a quiet year for completions, it will be balanced by up to 8m sq ft of completions in 2016.

Cardiff take-up doubles

Savills latest Cardiff office market report, reveals that office lettings in 2014 are up 102% on the same period in 2013 reaching 250,000 sq ft by mid year and surpassing the 300,000 sq ft let in 2013 by the end of Q3 2014.

There are several requirements over 20,000 sq ft including Geldards, PWC and Blake Morgan which, could further boost the take-up figure over the next year. The recently announced 150,000 sq ft BBC deal could mean that 2014 transactions could reach 500,000 sq ft, which is 69% up on last year’s figures.

Recent large office transactions over 2,323 sq m (25,000 sq ft) include International Baccalaureate Organisation taking 4,506 sq m (48,500 sq ft) at Cardiff Gate and Welsh Health Estate Shared Services taking 3,670 sq m (39,500 sq ft) at Companies House. This trend is set to continue with a number of larger recent deals in Q3 reported on Metropolis including Velindre NHS Trust for 3,362 sq m (36,200 sq ft), Finance Wales for 2,044 sq m (22,000 sq ft) and Cunningham Lindsey for 20,000 sq ft (1,858 sq m).

On the supply side, the City of Cardiff Council and Rightacres Property have revealed details of their proposed Foster + Partners-designed masterplan for the regeneration of Central Square in Cardiff. The plan includes more than 1m sq ft of office, retail and residential buildings around a new civic square. The new BBC Wales HQ will anchor the scheme which has also been designed by Foster + Partners and is scheduled for completion in 2017. There will be also be a further 46,500 sq m (500,000 sq ft) of speculative office space.

Metropolis is about to publish its Q3 2014 regional office market report for current and forthcoming subscribers.

Thames Valley Demand Up

A recent report from JLL concluded that while office demand in the Thames Valley has increased by 60% during 2014; the volume of actual office deals completed has remained subdued, suggesting that there is likely to be a surge of deals in late 2014 and early 2015.

While some 3m sq ft of office space was let in 2013, only a modest 800,000 sq ft has been let so far in the first three quarters of 2014. Only one deal over 50,000 sq ft was signed VM Ware’s acquisition in Staines (62,000 sq ft). Other major deals included Avnet moving to The Capitol Building, Bracknell (42,500 sq ft), Pernod Ricard taking space at 12 Chiswick Park (42,000 sq ft) and UK TV’s relocation 10 Hammersmith Grove (32,500 sq ft).

JLL say that with over 60% of current requirements in the area coming from US companies, that there is a trend for real estate decisions by US companies to be taken at the end of the year, suggesting a clutch of deals to come. JLL is now forecasting nearly 2m sq ft of office deals in the Thames Valley in the final quarter of the year. Metropolis’ own database of Thames Valley searches reveals about 50 outstanding, including 40 new ones added this year.

There is some 4.8m sq ft of identified office demand in the Thames Valley including large companies searching such as Pepsi, Boden, Ocado and Amadeus. There is also a solid batch of mid size requirements driven by forthcoming lease expiries and expansion plans.

Hammersmith, Chiswick and Bracknell are currently the most popular areas for office deals so far in 2014, under JLL’s definition of Thames Valley. There is around 1.6m sq ft of new office space under construction in the wider area Western corridor area. The area is due to deliver schemes in Chiswick, Slough and Reading, where four schemes are due to deliver nearly 400,000 sq ft, which could prompt some high profile moves to the town.

London Lettings – August 2014

Central London office lettings in August 2014 reached 807,000 sq ft in 43 medium or large deals, following the traditionally slower August deals month.

However the yearly total to date of 9.6m sq ft is comfortably above the same point in 2013. August deals were characterised by large lettings to Lloyds Bank, Havas and Zurich Insurance amongst others.

The financial, media and insurance sectors topped the table of lettings by sector. By area, the City accounted for more than half the deals. The West End saw a larger share of transactions than recent months.

The volume of grade A (newly built or refurbished office space) being let again topped 500,000 sq ft. This is from the smaller 800,000 sq ft August total transacted which was newly completed or refurbished.

There are now over 700 active London requirements on the Metropolis database and a further 2-3m sq ft of potential requirements in the pipeline.