Central London Office Market in March 2019

Central London office lettings in March 2019 reached nearly 850,000 sq ft from 48 mid-large size office transactions (5,000 sq ft+) during the month. The March 2019 figure is just below the current monthly London average of 1m sq ft.

March was characterised by 14 office deals over 20,000 sq ft, which were led by Sony Music’s 120,000 deal at Kings Cross Central, N1 along with large deals to Milbank Tweed at 100 Liverpool Street, EC2; Glencore at Hanover Square, W1; WeWork at Dixon House in EC3; plus Peel Hunt at 100 Liverpool Street, EC2 and Merian Global also in EC2.

Media topped the table of lettings by sector, compiled by Metropolis, underpinned by the Sony Music. This was followed by professional services led by law firm Milbank Tweedy. Business services, especially Spaces and WeWork, finance and mining sectors were also well represented.

Office deals ‘under offer’ in central London rose to 3.5m 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 46% of the office floorspace let in March 2019 at 390,000 sq ft. The West End saw 218,000 sq ft of take-up. Midtown contributed 160,000 sq ft of lettings and Southbank 72,000 sq ft. Current London office demand is calculated to be around 3.9m 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 a healthy 400,000 sq ft sq ft (47% 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 620 ‘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, paul@metroinfo.co.uk

Law firms intensify demand

A recent report by property consultant CBRE underlines recent Metropolis research on the law sector in London.

The report highlights law firms efforts to use their space more efficiently as well as using lease events to rebuild IT networks and change working methods. The report also estimates there are currently 24 medium/large office requirements by law firms in central London (Metropolis is currently tracking 28 searches over 10,000 sq ft in London), including DLA Piper, Withers and Ashurst.

Nearly 800,000 sq ft of central London office space was let to law firms in 2014 (a similar level to 2013) including: Mishcon De Reya taking 116,000 sq ft at Africa House, Kingsway; HowardKennedyFsi’s 54,600 sq ft letting at 1 London Bridge; Ropes & Gray’s 45,000 sq ft pre-let at One New Ludgate; DWF’s 43,000 sq ft deal at 20 Fenchurch Street. In addition, Boodle Hatfield took 23,000 sq ft at 240 Blackfriars, and Radcliffe’s le Brasseur agreed a deal to take 29,000 sq ft at 85 Fleet Street.

In addition, a wave of law mergers has led to a number of firms bringing two previously separate operations together under one roof. There are currently over a dozen mergers at various stages and some recent examples include Locke Lord and fellow US law firm Edwards Wildman; Morgan Lewis and Bingham McCutcheon, as well as Charles Russell and Speechly Bircham.

Looking ahead, a number of firms are saying they plan to re-gear leases at impending renewal including Simpson Thatcher & Bartlett, Dechert, Watson Farley & Williams, and Kirkland & Ellis. There has been a gradual trend to dispose of surplus space in recent years. However, there is nearly 5m sq ft of lease expiries and break options, amongst law firms, approaching in the next five years, so activity looks likely to be brisk and deliberations often start early. CBRE’s survey work indicates that discussions may begin four or five years ahead of any lease event, with the broadest possible consultation among the firm’s partners and lawyers.

Metropolis forecasts that with the combination of lease expiries, expansions, mergers and new market entrants; law sector office moves could reach an average of nearly 1m sq ft per annum in central London over the next few years.

London occupier wheel turning..

A recent report by City of London office agent Ingleby Trice highlighted the trend of London office occupiers withdrawing space from the market for their own occupation.

During the last five years, many firms looked to sub-let office space that they deemed to be surplus to requirements. This added considerably to the volume of office space available in central London. In some cases this was due to relocation, but in most cases because the tenants were shrinking their office workforce.

There are now signs that the wheel is beginning to turn the other way. In recent months Prudential (30,000 sq ft), Barclays (20,000 sq ft), Dealogic (28,000 sq ft) and Willis Insurance (35,000 sq ft) have all withdrawn space from marketing because of re-occupation requirements.

Metropolis’ research team have also spoken to over a dozen large firms which have decided to expand in-situ over summer 2013, choosing to take extra floors rather than wholesale relocation. Many more are mulling this option for 2014.

The trend is important for those in the refurbishment sector, as space previously on the market, can be neglected and at the time of a decision to re-occupy may need extensive remedial work to bring it back up to corporate standard.

Metropolis expect this phase of the market to last up to two years and could result in a substantial volume of space, currently vacant, being re-occupied.