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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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.

City of London Boost

An October 2016 City of London office market survey by property adviser Ingleby Trice recorded 39,183 sq m (421,760 sq ft) of take-up in the core area: “a healthy rise of 35% over September and a material 76% rise over the 6 monthly average of 22,233 sq m (239,311 sq ft)”

The surveyor says say that October’s City take up was the highest since April and the highest since the June referendum. October’s take up was also this year’s second highest at just over twice the total in October 2015 and includes:

  • 8 Finsbury Circus, EC2 – 17,460 sq ft on 7th floor – placed under offer to an incoming tenant (see Metropolis database for further details).
  • River Building, Cannon Bridge, EC4 – 51,500 sq ft at Riverside 1 – placed under offer to Deliveroo who is moving from the West End. The refurbishment is due to complete in Q1 2017.
  • Cannon Place, 78 Cannon Street, EC4 – 83,937 sq ft on pt 7th & 6th floors to an as yet undisclosed occupier.
  • 99 Gresham Street, EC2 – 17,250 sq. ft on G & 1st floors – placed under offer to a, so far, mystery tenant.
  • The Scalpel, 52 Lime Street, EC3 – 46,983 sq ft on 2nd to 4th floors – placed under offer to an insurance tenant (see Metropolis for further details). The scheme is a new Grade A office tower development due to complete in Q4 2017;
  • 15 Bishopsgate, EC2 – 62,884 sq ft in the entire building – placed under offer. The office development due to complete in June 2017.

October’s City of London fringe take up of 43,194 sq m (464,940 sq ft) represents a significant 31% rise over September and was this year’s highest . Deals included:

  • C Space, 37-45 City Road, EC1 – 15,391 sq. ft on pt 3rd & 4th floors to NeuLion;
  • White Collar Factory, 100 City Road, EC1 – 25,360 sq ft on 14th & 15th floors – placed under offer to an incoming tenant (see Metropolis for further details);
  • 1&2 Paris Gardens, SE1 – 62,425 sq ft on LG, G & 1st to 4th floors under offer to a serviced office tenant;
  • The Blue Fin Building, 110 Southwark Street, SE1 – 65,000 sq ft on 6th & pt 7th floors placed under offer to a banking tenant (see Metropolis for further details);
  • Southbank Central, Vivo, Stamford Street, SE1 – 72,080 sq. ft on 1st to 3rd floors – placed under offer to an incoming tenant (see Metropolis for further details).

Details of these deals and many other impending London moves are to be found on http://www.metroinfo.co.uk

Central London April 2014 lettings

Central London office lettings in April 2014 reached just over 850,000 sq ft in 55 medium/large deals. This total was slightly behind the average for the first 3 months of the year and was mainly due to the lack of any large deals over 100,000 sq ft. The balance is likely to be restored in May after a number of pre-lets.

The City again led the way with over 440,000 sq ft of deals in more than half the transactions. Midtown, encompassing Kings Cross, is the second busiest area with nearly 180,000 sq ft of deals, while the West End remains subdued.

The largest office deals on the Metropolis datebase during the month included: the Office Group’s 69,000 sq ft letting of Henry Wood House, 3 Langham Street, London, W1 and law firm DWF taking 43,000 sq ft at 20 Fenchurch Street, London, EC3. However active requirements listed on Metropolis, in the West End, now total over 1.3m sq ft and there are three large properties under offer to occupiers.