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.

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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

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.

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.