Birmingham Review

Recent research from Colliers International saw office move activity in Q2 2019 in central Birmingham rise a substantial 65% on Q1 leasing levels, albeit driven by three large serviced office deals. The total number of agreed deals hit 320,595 sq ft in 30 deals according to the property consultant.

The quarter represents one of the strongest Q2 leasing levels in Birmingham since Q2 2015. The first half of 2019 overall saw 514,000 sq ft leased in 55 deals including Irwin Mitchell taking 46,750 sq ft at the Colmore Building and The Commonwealth Games who took 72,261 sq ft of Grade A space at One Brindleyplace. In Q2, the serviced office sector was responsible for 72% of total take-up. All three of the largest deals this quarter were attributed to WeWork, which leased a total of 229,042 sq ft in three separate deals: 92,670 sq ft over seven floors at 6 Brindleyplace, together with Louisa Ryland House (81,280 sq ft) and 55,092 sq ft at 55 Colmore Row simultaneously setting a new headline rent for Birmingham at £34 per sq ft. The 6 Brindleyplace deal was the largest in the city centre this year.

Without WeWork, the 2nd quarter would have seen take-up levels at their lowest (91,553 sq ft) since Q2 2012. Business services were the second-most active sector in Q2, accounting for 9% of total take-up.
The largest deal was for 8,097 sq ftat 52 Charlotte Street, let to Newhall Charlotte.

Total Grade A take-up totalled 262,587 sq ft, which was heavily skewed by the WeWork deals. Grade A take-up increased by 70% from Q1. Four out of 19 Grade A deals transacted this half was for space greater than 50,000 sq ft. The average Grade A deal size in H1 2019 was 21,935 sq ft.

Metropolis is talking to nearly 60 Birmingham occupiers of 5,000 sq ft or more approaching lease expiries in the next two years.

Agents say that the mover size bracket of 5,000-15,000 sq ft is unlikely to be affected by WeWork or the other serviced office providers, so agents expect to see continued healthy levels of take-up of this size. The 2,000-5,000 sq ft bracket will be watched with particular interest.

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

The Triggers for Relocation

Recent research by Metropolis Property Research on its 6,400 office occupier relocation leads in 2018, suggested that nearly 50% of moves were triggered in some part by lease events, either expiries or break options. Some 3,112 office leads made some reference to a lease expiry in 2018. Of the remainder, the majority were mostly either expansions, start-ups or mergers.

The research chimes with a recent report on office occupiers the Thames Valley by property consultant Lambert Smith Hampton (LSH).  It says that triggers for 2018 corporate relocation remain more or less on trend with the previous 5 years. LSH say that moves predicated on a lease event are slightly less prevalent at 40% than they were when the research was started in 2012 (43%), but still make up a large part of the market. For example see Riverbed Technology (Metropolis lead id 120785), JDA International (id 122285) and Midwich (id 121691) moves in Bracknell alone in 2018 . In 2015-16, the percentage of relocations triggered by a lease event was down to 36%, however LSH point to a high proportion of merger and acquisition activity (20%) that same year which forced some occupiers to relocate to accommodate such activity ahead of a lease expiry or break clause.

In 2012-13, expansion accounted for 34% of relocation triggers, however this has since grown to 38% in 2018 while merger and acquisition activity has reduced to 9%. LSH use the example of significant corporate expansion is provided by Oxford Nanopore Technologies (Metropolis lead id 121255) which freehold purchased the Danby Building on Oxford Science Park. The 55,000 sq ft deal came alongside their pre-let of a 35,000 sq ft manufacturing/R&D base at Harwell. This type of occupier is synonymous with the current Oxfordshire market; huge expansion as funding is being increased both from the University and globally.

Location, location, location remains the predominant criteria when relocating and some 37% to 50% of occupiers specify moves to particular districts over the last 6 years, but it is always the majority influencer. Alongside location is betterment, as occupiers desire to improve the quality of their working environment. The number of companies looking for better quality workspace has increased from 22% in 2012 to 34% in 2018. At the same time cost has reduced in importance over the period of the research from 22% down to 11%, albeit up from 6% in 2016.

Occupiers are more and more seeking better working environments in order to attract and retain the best staff and maximise productivity. LSH point to corporate occupiers coming to the market seeking more cost effective space only to change their minds and commit to better space having reviewed and evaluated the options. Mobile Broadband Networks (Metropolis id 121223) were seeking sub £30 per sq ft space in Reading only to move to Thames Tower at £35 per sq ft despite there being cheaper space available nearby. Occupiers often lean towards better space both in terms of quality and amenity once options are shortlisted

Looking into the future, Some 3,000 occupiers are looking for space in 2019 in advance of lease events with more at an early stage in advance of 2020 lease events. The number of occupiers asking for more fitted and furnished office space has risen considerably. This may be as a result of flexibility and Brexit concerns and is related with the demand for shorter leases.

Paul Ives Metropolis Head of Research. paul@metroinfo.co.uk

Law Sector and the Office Market Update

Knight Frank, the property consultant, has just published an update on trends in the law sector over 2017-18 which impact on the UK office market. Some of the main points include:

Consolidator firms such as Gordon Dadds, Redkite Solicitors, Knights and Metamorph Law are acquiring smaller rivals to gain market share. Consolidation activity is driving occupier demand in certain markets as merged firms looked to consolidate into single offices;

Some mid-tier law firms are aggressively expanding, in particular those that have focussed on niche services. One such firm that is forging ahead is Weightmans which has invested £1.3million on new technology over the last year. Another leading mid-tier firm is Fieldfisher who recorded a second consecutive year of double-digit growth that included moving into a single site in London;

New market players are expanding in regional markets. These included Leeds-based Alpaca, who launched in 2017, and Rradar, who relocated to larger office space at the Bruntwood Platform building in Leeds having undergone rapid growth;

Meanwhile, Norton Rose Fulbright revealed plans to create 100 new jobs in its legal process hub in Newcastle, Simmons & Simmons taking larger offices in Bristol, Walker Morris will relocate to 33 Wellington Street, Leeds, Reed Smith opening in Leeds, Graysons moved into larger, more modern premises in Sheffield, Pinsent Masons consolidated their two offices into 141 Bothwell Street in Glasgow, while Hogan Lovells tripled its space in Birmingham;

Manchester recorded the highest legal services sector takeup by square footage across all the UK regional cities at 155,328 sq ft or 13% of total take-up last year. This was followed by Bristol where legal services accounted for 9.4% of total take-up

Knight Frank conclude that changing business structures will demand a resetting of the corporate footprint with most relocating to higher quality office space in core CBD locations.

Metropolis is tracking over 100 law firms with either identified requirements or potential requirements for relocation from October 2018 onwards.

 

Cambridge Office Market

Savills has just published its September 2018 report on the Cambridge office market.

Savills say that the majority of take-up in Cambridge, whether for offices and/or laboratories, has occurred in the city centre (Zone 1) around the central station and Hills Road. This area has accounted for 38% of take-up by square footage up to summer 2018.

Available offices total 100,000 sq. ft. of existing stock in this area currently. At current levels of demand Cambridge has less than one years’ supply. The city centre market has around 156,000 sq. ft. under construction, of which 30,372 sq. ft. is pre-let. Developer confidence is growing outside of the city centre. St Johns College and Turnstone recently completed the 65,000 sq ft Maurice Wilkes Building at St John’s Innovation Park which was let to seven occupiers prior to practical completion. Biomed Realty is speculatively developing 108,000 sq. ft. of laboratory space at Babraham Research Park across two new buildings and Churchmanor Estates are speculatively developing 40,000 sq ft. In addition the Howard Group are to speculatively construct over 60,000 sq ft of office/R&D space at Pampisford. Savills expect record rents to be achieved in the city centre at 50 & 60 Station Road.

Astra Zeneca is soon to complete its new campus of 850,000 sq ft. Samsung has recently committed to opening a new AI research hub in Cambridge. Microsoft also have a research base covering AI at 21 Station Road.  Darktrace is moving to The Maurice Wilkes’ Building at St John’s Innovation Park. Amazon took 72,289 sq ft at One Station Square, CB1, while Astex Pharmaceuticals took 42,688 sq ft at Cambridge Science Park. Also at Cambridge Science Park, in Q1, Huawei acquired 11,500 sq ft at Building 101 for £29.50 psf. Savills is also aware of 100,000 sq. ft. of requirements from serviced office operators and envisage stronger demand from this sector in the future.

Metropolis is tracking around 40 Cambridge office moves and requirements.

Technology Companies and Offices

CBRE has recently published its ‘Tech Cities’ report looking at  office leasing patterns in the technology sector across Europe.

Conclusions include:

Technology companies still dominate tech activity across Europe in real estate terms – 65% of all deals tracked fall under software, IT services, telecom or hardware;

The e-commerce sub-sector accounts for the largest average deal size of leasing transactions, which reflects the aggressive growth of the sector across industries. Berlin for instance has attracted larger
e-commerce floorplates than anywhere else in Europe along with London, Dublin and Amsterdam;

While new tech companies make up a smaller proportion of total deals than traditional sub-sectors, they are just as space-hungry as the more traditional companies in terms of average deal size. This reflects differences in growth speeds of companies within each of these two categories in the global marketplace, with the new tech sector seeing particularly rapid growth;

Depending on the tech sub-sector and business strategy, occupiers will be able to agglomerate with peers within the same sub-sector, or identify a different sub-sector that offer benefits of a close location, with London, Reading, Bristol and Cambridge as examples;

London is CBRE’s top-ranking technology cluster. The city is a magnet for young technology talent, and employment in the tech sector has grown by 20% since 2008. Major employers in the IT services sub-sector include Capgemini & Cognizant; the largest employers in the software sub-sector include Microsoft and Oracle and in telecoms the city is home to major operations for BT & Vodafone. Other top employers of tech talent in London include Accenture, IBM, and Thomson Reuters;

The Thames Valley region is one of the most established technology clusters in Europe. The Thames Valley is dominated by very large organisations which make up more than 62% of employment. Telecoms, IT services and software are the dominant sub-sectors in the cluster with major employers being largely global tech companies including Vodafone, Huawei, Telefonica, Microsoft, Oracle and Hewlett Packard. Oracle, Cisco and Microsoft are major employers of development talent in the Thames Valley region with Visa and Sky also having large operations in the cluster;

Bristol is one of the major regional centres for tech outside of London and the Thames Valley with employment in the sector growing by 25% since 2008. Bristol is a major centre for the telecoms industry with EE, BT, Nokia, Orange and Vodafone all having a presence in the city. Other major employers of tech talent include Lloyds Banking, IBM and Hewlett Packard. Bristol is also home to IT service companies Softcat plc and Civica.

CBRE say that understanding underlying demand conditions using this framework helps inform potential future office transaction strategies.

Metropolis is currently tracking around 150 IT, technology and telecom companies searching for offices across the UK.

 

Future of M25 Offices

Knight Frank have recently published a report on the future of the office market around the M25 motorway.

Key conclusions include:

The South East office market is a major attraction to occupational demand from the technology sector. The tech sector has accounted for, on average, 23% of annual office take-up in the region over the
last five years and has absorbed some 3.8 million sq ft of office transactions. Examples include Farnborough Business Park or the Aerospace Centre, which are driving technology sector take-up levels.

Also, occupiers drawn from other sectors have been transformed by the application of new technology to business processes, often fuelling new property requirements;  Gartner, Future Electronics, VMWare and
Service Now are major players in this field.

Co-working and flexi providers – not yet prominent within the M25 market – place tremendous emphasis on providing real estate and associated services that support the creation of a highly connected,
collaborative community housed within a modern, curated and highly serviced environment and could be a major sector in the future. The serviced and co-working offering is becoming increasingly sophisticated to take advantage of the major corporate occupier presence around Heathrow. This occupational drive toward greater flexibility and amenity is filtering into the business park model where Stockley Park and Bedfont Lakes become more service orientated.

Occupiers want to attract and retain talented staff. They will locate in buildings and locations that support them in this task. They are seeking what ‘talent magnets’; locations that have a buzz, vibrancy and cohesion. New growth areas are appearing in West London with White City, Imperial College and the redevelopment of Television Centre, propelling West London to become a recognised and established London hub;

The knowledge economy is the trump card for the South East of England over other regions and indeed other European location.

Metropolis is tracking around 50 major office requirements in the M25 region.