New Lease Research from Metropolis

The London office market has maintained steady office letting take-up during 2017. The latest figures calculated by Metropolis to the end of Q3 2017 reveal office transactions totaling 8.8m sq ft for the first nine months of the year (deals 5,000 sq ft and above). Based on these figures and a number of large office moves under offer, 12m sq ft take up by the end of the year is not out of the question. If 12m sq ft is achieved this would surpass the 11m sq ft of 2016 and match the total for 2015.

The table below breaks down take-up in London in 2017 by the five largest sectors

Sector                             % of take-up
Financial                          20%
Business Services           19%
IT/Computer                   15%
Professional                     12%
Media                                11%

Financial services leads the way, boosted by the large pre-let in the City to Deutsche Bank. Business services comes a close second helped by over 900,000 sq ft of lettings to serviced office operator WeWork. IT has been driven by large expansions by Expedia, Amazon and Spotify. By area, the City has taken around 40% of take-up, with West End, Midtown and Southbank broadly taking 15% each. Docklands has had  a very quiet 2017.

Metropolis has recorded 96 deals for London office space of 20,000 sq ft or more in so far 2017 amounting to 5m sq ft. Business services, underpinned by WeWork deals, takes over 1.2m sq ft of that, followed by 880,000 sq ft of financial sector driven by Deutsche Bank, 600,000 sq ft of IT industry deals and nearly 500,000 sq ft from professional companies (law firms, accountants, consultants). a further 2m sq ft of deals are ‘under offer’ and close to signing in Q4 2017.

Recently some office market analysts have advanced the view that the London office market for moves under 20,000 sq ft is ‘patchy’. So Metropolis went back to all the potential office occupiers contacted in 2016, approaching 2017 lease expiries, to trace what happened next.

Taking a sample from the 700 London-based occupiers contacted during 2016, Metropolis found that, despite the fact that many were simultaneously negotiating with the landlord of the existing office, over 70% of occupiers decided to move, prior to the upcoming lease expiry. The sector with the strongest propensity to move was media and the least likely to move was business services. The larger a company, the slightly higher propensity to move. West End companies were slightly more likely to move than City-based ones.

The last nine months has seen a strong pace of office space pre-lets set by incoming tenants in advance of construction completion. In total, some 4.3m sq ft of London office space, that is currently under construction, has been pre-let. Some of the high profile recent pre-lets included Boston Consulting, Metro Bank taking 67,000 sq ft of offices at 20 Old Bailey, EC4; Boston Consulting and Arup at 80 Charlotte Street, W1; HSBC taking 30,000 at Cork Street, W1 and Kings College at Roman Wall House, EC3.

The most common trigger for pre-let relocation is expansion. Nearly 50% of the space completed over the previous 6 months has now been let and includes big lettings to likes of Universal Music, Cancer Research, XTX Markets, British Council, Cleary Gottlieb, Schroders and Moneysupermarket.

Looking ahead, our research with thousands of London office tenants suggests a robust level of take-up in Q4 2017, although the increasing attractions of serviced office space and Brexit uncertainty could have an impact in the medium term.

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Central London Lettings – August 2017

Central London office lettings in August 2017 reached an exceptional 1.57m sq ft of deals from 58 mid-large size transactions (5,000 sq ft+) during the month. The August figure exceeds the current monthly average of just under 1m sq ft .

August was characterised by 13 office deals over 20,000 sq ft, which included Deutsche Bank’s 470,000 sq ft pre-let at 21 Moorfields, EC2: WeWork’s two pre-lets at The Stage, EC2 and the nearby ‘Shoreditch Exchange’; Kings College London took 73,000 sq ft at Roman Wall House, EC3, and Atos took 42,000 sq ft at Mid City Place, WC1.

Financial services topped the table of lettings by sector, underpinned by the Deutsche Bank deal. This was followed by business services with large deals involvingWeWork. IT services also performed well, helped by the lettings to OpenText and Kobalt. Office deals ‘under offer’ in central London held steady at 3.5m sq ft and pending deal volumes are healthy in nearly all sub-markets.

By area, the City accounted for 68pc of the office floorspace let in August at 1,066,000 sq ft. The West End saw 233,000 sq ft of take-up. Midtown contributed 145,000 sq ft of lettings. Current London office demand is calculated to be around 3.3m 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 1.2m sq ft (77% of the monthly total), as transactions for new space resumed their recent strong showing.

Metropolis research is currently monitoring 600 London requirements, with deals for space of up to 2.5m sq ft due to sign in the next few months.

Cityoffices and Metropolis are working on an autumn 2017 update to their twice yearly London Skyline report. The update will contain details of dozens of new office schemes under construction, planning applications and consents, with scheme by scheme detail on the Cityoffices.net website. Details on Cityoffices from Andy King at andy@metroinfo.co.uk

Central London Lettings – June 2017

Central London office lettings in June 2017 bounced back just over 1.75m sq ft of deals from 108 mid-large size transactions (5,000 sq ft+) during the month.

The June figure represents a near tripling of the 600,000 sq ft sq ft of lettings in May. It brings the Q2 2017 central London lettings to a very respectable 3.1m sq ft and comfortably above the 2.4m sq ft in Q1.

June was characterised by 14 office deals over 20,000 sq ft, which included WeWork’s 283,000 sq ft pre-let of the under construction Southbank Place building, SE1: Framstore took 93,000 sq ft at 28 Chancery Lane, WC2; Industrial Light and Magic took 47,000 sq ft at Lacon House, Theobalds Road, WC1 and Hermes taking 46,000 sq ft at 150 Cheapside in EC2.

Business Services topped the table of lettings by sector, underpinned by WeWork deals, this was followed by media and financial services with large deals involving Industrial Light and Hermes. IT services also performed well, helped by the lettings to Misys and Reply. Office deals ‘under offer’ in central London held steady at 3.5m sq ft and volumes are healthy in nearly all sub-markets.

By area, the City accounted for 32pc of the office floorspace let in June at 566,000 sq ft. The West End saw 315,000 sq ft of take-up. Midtown contributed 400,000 sq ft of lettings, which was equalled by Southbank. Current London office demand is calculated to be around 3.3m 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 840,000 sq ft (48% of the monthly total), as transactions for new space resumed their recent strong showing.

Cityoffices and Metropolis are releasing its twice yearly Skyline report on the London office construction market. The summer report features analysis of the 100 schemes under construction and the trends for the next wave of schemes. Details on Cityoffices from Andy King at andy@metroinfo.co.uk