Opportunities in Serviced Offices

Colliers International has published a new report on the serviced or flexible workspace sector. Colliers outline how the workplace solutions providers have been hoovering up office space in London at a faster rate than any other sector apart from tech and media.

Flexible office providers have accounted for 18% of take-up across London during 2017 date. Central London is now home to over 7.8 million sq ft of flexible workspace from 4.5 million sq ft in 2009. This is a rise of 73% in eight years, although flexible workspace space currently only represents 4% of total London office stock.

2017 is set to deliver up to 15,000 desks by year end. Serviced office lettings appeared to have peaked at 1.4 million sq ft in 2015, however, 2017 is set to see that figure eclipsed with 1.2 million already let and a further 750,000 sq ft under offer.

WeWork has taken over 1.25 million sq ft of office space within the past 12 months. Blackstone and British Land have both begun in-house flexibile solution without leasing space to major providers like WeWork or Regus.

Paddington and City fringe, have seen increasing vacancy rates below 5,000 sq ft, and Victoria and parts of Midtown have seen void periods double in 2017. The City core has held up, but also seen activity from providers such as WeWork, Prospect Business Centres, i2, Regus and LEO.

Metropolis has researched nearly 20 specific requirements for medium/large London serviced offices in recent months. These new searches come on top of 25 recent transactions for space. Opportunities exist for agents recruiting occupiers for the large new flexible work centres, for fit-out contractors refurbishing usually previously vacant space, for furniture providers and removal firms handling the myriad moves to the new buildings.

Colliers say the need for short leases and flexible space, particularly since the Brexit vote, is driving demand for increasing volumes of flexible workspace space. Although, flexible workspace only represents 4% of London office stock, it looks set to become an important slice of the market, not just in London, but increasingly in regional cities too.

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Central London Lettings – July 2017

Central London office lettings in July 2017 sustained a healthy 820,000 sq ft of deals from 48 mid-large size transactions (5,000 sq ft+) during the month. The July figure is close to the current monthly average of just under 1m sq ft .

July was characterised by 14 office deals over 20,000 sq ft, which included Spotify’s 104,000 sq ft deal at the Adelphi Building, WC2: law firm Withers pre-let 60,000 sq ft at 20 Old Bailey, EC4; Yahoo/AOL took 43,000 sq ft at Mid City Place, WC1 and HSBC pre-let 36,000 sq ft at 7 Cork Street in W1.

IT and tech services topped the table of lettings by sector, underpinned by the Spotify and Yahoo deals. This was followed by professional services with large deals involving Withers and Bazalgette Tunnel. Financial services also performed well, helped by the lettings to HSBC and Redington. Office deals ‘under offer’ in central London held steady at 3.4m sq ft and pending deal volumes are healthy in nearly all sub-markets.

By area, the City accounted for 31pc of the office floorspace let in July at 250,000 sq ft. The West End saw 177,000 sq ft of take-up. Midtown contributed 300,000 sq ft of lettings. Current London office demand is calculated to be around 3.2m 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 480,000 sq ft (58% 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 3m sq ft due to sign in the next few months.

Cityoffices and Metropolis have just released releasing their 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

London Lettings – February 2017

Central London office lettings in February 2017 recorded 905,000 sq ft of deals from 54 mid-large size transactions (5,000 sq ft+) during the month.

The February figure represents a big rise on the 567,000 sq ft of lettings in January, to a more normal level of market activity.

February was characterised by 9 office deals over 20,000 sq ft, which included the Expedia’s 136,000 expansion at the Angel Building in London, EC1; Arup pre-let 133,000 sq ft at Derwent London’s  under construction 80 Charlotte Street, London, W1 scheme, which is due to complete around June 2019 and Office Group took 70,000 sq ft at 84 Eccleston Square, London, SW1.  Pre-lets have accounted for over 35% of 2017’s take-up to date.

Tech and IT services topped the table of lettings by sector, underpinned by the Expedia deal, this was followed by property services with large deals involving Arup and Kier Property. Business services also performed well helped by the letting to the Office Group. Office deals under offer in central London stayed at 2.1m sq ft, including a large pending deal at 28 Chancery Lane, WC2.

By area, the City accounted for a modest 21pc of the office floorspace let in February – a fallback even from the 34pc in January. The West End saw an exceptional 450,000 sq ft of take-up. Midtown contributed 220,000 sq ft of lettings more than the City. Current London office demand is calculated to be around 3.5m sq ft in the City and 3.2m sq ft in the West End.

The volume of grade A (newly built or refurbished office space) let during the month reached an impressive 500,000 sq ft (55% of the monthly total), as transactions for new space maintained their recent strong showing.

Metropolis has just released its eagerly awaited London Fit-Out report for 2017. Details from Andy King at andy@metroinfo.co.uk

Best quarter for Aberdeen

Recent research from CBRE reveals that in the third quarter of 2016, office lettings in Aberdeen reached 66,174 sq ft. This total made it the best performing quarter in Aberdeen so far this year.

The cumulative Aberdeen take-up volume for the first nine months of 2016 was 152,683 sq ft, below average levels for the end of the third quarter. The low oil price continues to impact on office demand although a recent increase in crude prices to $51, is signalling a possibly better year ahead.

The largest Aberdeen letting to take place in Q3 saw serviced office operator Citibase acquire a 22,000 sq ft west end office building at 9 Queens Road. Within the city centre, another floor of nearly 6,000 sq ft has been let to HM Ministry of Justice at AB1, Orega, the serviced office provider, has signed to take 26,000 sq ft on the 1st and 2nd floors at the under construction, 9-storey ‘Silver Fin’ office scheme in Aberdeen.

Metropolis is tracking around a dozen office searches and potential searches in Aberdeen.

Total office space available at the end of the third quarter reached a new high of 2.45m sq ft, which is a year-on-year increase of 45% from Q3 2015. Muse’s 170,000 sq ft Marischal Square development is also under construction and will complete in Q2 2017.

Prime office headline rents in Aberdeen are unchanged at £32 per sq ft, with an absence of recent prime transactions to challenge the current level.

South East Offices Focus

BNP Paribas report that the South East office market has continued to enjoy a solid, if unspectacular year to date. Around 2.2m sq ft of office deals have transacted across the South East office market, outside central London, down 6.5% year-on-year to end August 2016. Take-up in the first half of 2016 totalled 1.32 million sq ft. This was around 450,000 sq ft lower than the second half of 2015, although only 8.7% below the five half yearly average.

The largest deals include HMRC’s decision to take 183,000 sq ft at Ruskin Square scheme in Croydon, Ocado signing for 137,000 sq ft at Hatfield Business Park, Neilsons took 45,000 sq ft at Oxford Business Park, Superdrug (53,100 sq ft) at Pinnacle House, Croydon and Black & Veatch (21,950 sq ft) at Red Central, Redhill. The majority of requirements are still being triggered by lease events, although Thales’s consolidation at Green Park, Reading and Blackberry’s relocation to Maidenhead, are due to corporate restructuring.

Along the M4, total take-up fell by 30% in Q2 to 349,100 sq ft. The largest transaction along the M4 during Q2 was the 85,000 sq ft taken by technology firm Amadeus at Heathrow Business Park. Alnylam took 21,000 sq ft at Braywick Gate, Maidenhead, while 20,400 sq ft was let to pharmaceutical firm Mallinckrodt at Lotus Park in Staines.

The majority of demand is in the sub 20,000 sq ft size band. There are, however, a number of larger (50,000 sq ft+) active requirements in the market, such as: Future Electronics, L’Oreal, Medidata and FM Global. Some of which are expected to sign in the second half of 2016.

Metropolis is currently tracking around 120 companies looking for office space in the South East region

Current demand is largely being driven by lease breaks and expiries as opposed to occupier expansion. Looking ahead, The South East will continue to benefit from its broad occupier base. It is not overly reliant on
the finance and banking sector.

More frequent movers after Brexit ?

Comment this week from the CEO of Citibase suggests that the market uncertainty triggered by Brexit will lead to even shorter leases, than the current 6-7 year average. Citibase say that the trend towards flexible working is growing, with businesses needing the ability to cope with unpredictable events such as Brexit.

If large numbers of foreign businesses move out of the UK it could lead to an increase in the supply of secondary office space. This would mean many landlords would look to make space income generating even if it meant accepting short leases.

Metropolis’ direct weekly research with hundreds of office tenants suggests increasing numbers looking for and being offered, short term leases of three years or less. In recent weeks Metropolis has reported on short term office lease agreements by companies such as insurer Manulife; retailer Monica Vinader; software group SanDisk; law firm Carbon Law and media group Ominicom. May more future requirements involve searches for flexible space on leases not exceeding five years.

Small businesses continue look to shed inflexible long-term leases in favour of flexible offices.

Citibase point out that long-term leases were dying out well before Brexit, but believe that the process will be hastened by the uncertainty of current market conditions.

If the average lease length falls even further, this implies that office moves will become even more frequent and could become a fact of life every five years for many firms.

Law sector expanding outside London

A recent report by property consultant CBRE analyses trends in the legal sector of the office market outside London.

The main points of the survey are:

82% of law firms are seeing increase in fee income (70% in 2014) and 10% of regional office take-up in the last 3 years can be attributed to law firms;

The pressure of competition within the legal sector by new firms such as Riverview Law, Axiom, Obelisk and Keystone Law is leading many firms to review their property occupation, especially in the UK regions;

Recent new office openings have included Latham & Watkins and Freshfields in Manchester, Hogan Lovells in Birmingham, Belfast has attracted Allen & Overy, Herbert Smith, Eversheds and Baker & McKenzie. Legal services firm Axiom has also announced plans to double its Belfast workforce;

Bristol firms occupy the most total legal office space, Manchester has the widest representation of firms in the Top 100; Bristol, Birmingham and Manchester all have over 750,000 sq ft of office space occupied by law firms.

Recently, Manchester and Leeds have seen notably strong letting activity. Manchester saw a 100,000 sq ft deal to Slater and Gordon and 45,000 sq ft for DLA Piper. In Leeds 51,500 sq ft was taken by Addleshaw Goddard, 33,000 sq ft by Squire Patton Boggs and 24,800 sq ft by DAC Beachcroft;

Generally firms in Glasgow and Edinburgh are occupying space at a higher density than counterparts in other UK cities;

‘Nearshoring’ of back office functions from London has led to new regional offices for Trowers & Hamlins, Clyde & Co with Edinburgh based Simpson & Marwick and Slater & Gordon with Chester based Walker Smith Way;

Law firms summarise their ideal space as space which is ‘high tech, high spec, high density’. The survey concludes that law firms are seeking more ‘light, bright, technologically enabled, open plan, collaborative and modern workspace’. Law firms are developing an approach to real estate which aligns it with technology and their approach to workplace design;

Metropolis is currently monitoring 40 law firm office identified requirements outside London, with a further 40 at an earlier stage.