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

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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

London Office Letting Forecast for 2019

Metropolis research suggests that despite the political uncertainty, the number of London office occupiers intending to move in 2019 remains in line with previous years. Confirmed office lettings in Q1 2019 are approaching around 2.5m sq ft, which is just below previous years. There are also a large number of companies awaiting a Brexit outcome before confirming move plans in the rest of the year.

Office market analysts report that Central London leasing activity continued to perform positively in 2018, however there remains fear of occupier inertia as a threat to leasing activity in early 2019 with leasing demand slowing in the early part of the year. JLL anticipate this is likely to be short lived as so much of today’s demand is structural – lease breaks and expiries – and a bounce back is expected in the latter part of the year. Tech employment is forecast to overtake banking and financial services in terms of total numbers employed. The tech sector is expected to take a larger part of London lettings during the next 12 months.

West End take-up is outperforming the 10-year average with the services sector was the most active. Some of the momentum was provided by Facebook’s acquisition of circa 600,000 sq ft in King’s Cross, followed by the business services sector with a share of 30% driven by flexible workspace providers. Flexible space is accounting for 22% of take-up volumes with several new entrants taking space including independent operators as well as British Land’s Storey and Brockton’s FORA.

Pre-letting remains a key driver of the leasing market and on an annual basis, pre-leasing accounted for 36% of take-up. Under offers in the West End are down slightly on the back of strong leasing volumes, but they remain well above the 10-year average, Active demand totalled 4.0 million sq ft and remains above the 10-year average Demand is being driven by business services followed by finance and media.

In the City, office take-up is surpassing the 10-year average with business service the most active, driven by the flexible workspace and insurance sectors. Flexible workspace providers continued
to expand rapidly, however the largest recent transaction to an insurance company was at Twentytwo Bishopsgate, EC2 where Beazley Group have pre-let 50,000 sq ft. WPP plc have pre-let 210,000 sq ft at 1 Southwark Bridge Road, SE1 and McCann have pre-leased 127,000 sq ft at 135 Bishopsgate, EC2.

In the City during 2018, pre-letting was at its highest level since 2000 in terms of volume and at peak levels in terms of proportion of activity (39%). Both space under offer and demand remain ahead of 10-year average levels. Space under offer is 1.4 million sq ft and active demand is 6.3 million sq ft.

In conclusion, trends in 2019 are likely to continue the patterns of 2018, albeit after a slow start in the first half of the year. However, the accumulated weight of demand and the impending pressure of upto a thousand lease expiries due over the next 12 months is likely to keep London lettings healthy.

Central London Office Market in February 2019

Central London office lettings in February 2019 reached just over 950,000 sq ft from 50 mid-large size office transactions (5,000 sq ft+) during the month. The February 2019 figure is in line with the current monthly London average of 1m sq ft.

February was characterised by 11 office deals over 20,000 sq ft, which were led by Bank of Canada’s 250,000 sq ft pre-let at 100 Bishopsgate, EC2, along with large deals to House of Commons at Dartmouth House, SW1; Rothesay Life’s expansion at the Post Building, WC1; plus Challenge Partners at Elizabeth House, York Road in SE1 and TechHub at Fitzroy House, London, EC2.

Finance services topped the table of lettings by sector, compiled by Metropolis, underpinned by the Bank of Canada deal. This was followed by business services led by serviced office lettings. Insurance, professional and media were also well represented.

Office deals ‘under offer’ in central London rose to 3.4m 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 60% of the office floorspace let in February 2019 at 566,000 sq ft. The West End saw 171,000 sq ft of take-up. Midtown contributed 125,000 sq ft of lettings and Docklands 19,000 sq ft. Current London office demand is calculated to be around 3.8m sq ft in the City and 3.1m sq ft in the West End.

The volume of grade A (newly built or refurbished office space) let during the month, reached a healthy 569,000 sq ft sq ft (59% 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

Rise of the Serviced Office Sector

As part of Metropolis’ detailed monitoring of the London office market, it has emerged that the serviced or ‘co-working’ office sector is now the third largest business type taking office space in the capital. Some 2m sq ft was let to serviced office operators in 2017 and over 2.4m sq ft was let to the sector in 2018. There are now over a dozen serviced operators looking for additional sites in London, with more requirements being launched each month. The sector has expanded across Central London and the UK regions with business models from both operators and landlords adapting to changing customer demands.

Over recent years, we there has been a substantial growth in the flexible office market. Providers such as IWG (whose brands include Regus and Spaces) and new entrants from the US including WeWork, now dominate the market. Reports by analysts such as Cushman & Wakefield point to a greater willingness amongst major corporate occupiers to source quite significant amounts of office accommodation from the serviced sector and take advantage of their flexible terms.

Central London has one of the largest and most mature flexible workplace markets and over the last five years has cemented its global reputation for new office occupancy models . Cushman & Wakefield estimates that flexible workplace operators currently occupy around 10.7 million sq ft of space across Central London. This equates to around 4% of the Central London office stock.

In 2012, Clerkenwell, Southbank and Covent Garden were the areas that had the highest proportion of flexible workplace sector but Metropolis lettings data indicates that now Aldgate, City fringe, Shoreditch and Paddington have the highest concentration. The average serviced office centre is estimated at 22,300 sq ft up from 15,000 sq ft in 2016., with 30 centres in excess of 50,000 sq ft in Central London, many operated by WeWork.

Agents report that many larger companies are examining their business models in a bid to encourage creativity by providing a more unstructured and less centrally controlled environment than their traditional business. Recent market activity has included IWG focusing on expanding its Spaces brand while BE group has purchased Headspace to enable dramatic future growth. WeWork have said that it could offer an entire building to a single tenant and manage the custom build-out of the space.  BE Offices provide bespoke space via their BeSpoke division, which is aimed at corporate occupiers.

A BCA report revealed that increasing numbers of operators are seeking densities of 50 sq ft per desk across the UK. WeWork’s new centres are now being planned at 35-45 sq ft per desk Knotel, the newest entrant from the US is planning a similar density.

However some operators are finding difficulty in securing space, with some operators searching in the West End frustrated by a lack of stock. The larger operators will need to seek prelets or purchase buildings, but these are not options for smaller players. Most operators aim to achieve 85% occupancy within 12 months after fit out, which will generate a high level of sales activity, not least for removal companies.

To sum up, the new breed of flexible operator is challenging the traditional business model and the sector is going to remain an important segment of the real estate industry in the future. Take-up by the sector has increased year on year, with 2018 the most active year for the sector, with WeWork responsible for more than half of take up in 2017-18. WeWork and Spaces are also expanding into Manchester, Birmingham, Leeds, Glasgow and Edinburgh and plenty of evidence that other operators are following.

London Office Market – January 2019

Central London office lettings in January 2019 reached just under 1m sq ft from 44 mid-large size office transactions (5,000 sq ft+) during the month. The January 2019 figure is in line with the current monthly London average of 1m sq ft.

January was characterised by 15 office deals over 20,000 sq ft, which were led by the WeWork’s 159,000 sq ft deal at Merchant Square, Paddington, W2, along with large deals to Alvarez & Marsal in London, EC2; Cinven’s large deal at 21 St James’s Square, SW1; plus Foraspace and ETC Venues at Southwark Bridge Road and 133 Houndsditch, EC3 respectively.

Business services topped the table of lettings by sector, compiled by Metropolis, underpinned by the WeWork deal and several other serviced office lettings. This was followed by financial services led by lettings to Cinven and Gartner. Insurance, professional and media were also well represented.

Office deals ‘under offer’ in central London fell slightly to 3.3m 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 42pc of the office floorspace let in January 2019 at 400,000 sq ft. The West End saw 355,000 sq ft of take-up. Midtown contributed 74,000 sq ft of lettings and Docklands 50,000 sq ft. Current London office demand is calculated to be around 3.7m sq ft in the City and 3.1m sq ft in the West End.

The volume of grade A (newly built or refurbished office space) let during the month, reached a healthy 420,000 sq ft sq ft (45% 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 625 ‘live’ London office requirements, 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

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