london markets - gerald eve...occupier sentiment remains positive across central london, with 7...
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LONDONMARKETS
International Property Consultants
Analysis of the London office market Summer 2018
Key schemes under constructionH1 2018 key deals
12.9
3.4MILLION SQ FT
MILLION SQ FT
30%
£110
23%
£68.50
5.2%
£70.00
22 Bishopsgate1,275,000 sq ft (1,275,000 available space)AXA Real Estate Investment Managers (UK) Ltd
Five Bank Street715,000 sq ft (435,000 sq ft available space)Canary Wharf Group Plc
100 Bishopsgate907,400 sq ft (159,000 sq ft available space)Brookfield Europe Holding Ltd
100 Liverpool Street515,000 sq ft (249,000 sq ft available space)British Land Company Plc
128-142 Praed Street360,000 sq ft (360,000 sq ft available space)Sellar Property Group
Sumitomo Mitsui Banking Corporation161,000 sq ftCity
Bryan Cave Leighton Paisner 120,889 sq ftCity
Google122,705 sq ftKing’s Cross & Euston
Mimecast113,467 sq ftCity
Publicis Media212,000 sq ftWhite City
www.geraldeve.com
Tenant Space
Q2 2018 Availability
Grade A Availability
Availability Rate
Q2 2018 Take-up
West End Prime Rent (p
er sq
ft)
City Prime Rent (per sq ft
)
Mid
town Prime Rent (per sq ft)
Occupiers continue to commit to the capital despite economic uncertainty
Occupier sentiment remains positive across central London, with 7 million sq ft taken in the first half of the year, an 11% increase on the same period in 2017. Despite the uncertainty in the economy as the UK moves closer towards Brexit, high leasing activity is expected to continue with a record 3.9 million sq ft currently under offer.
Once again, the media and technology sector were the main drivers of occupier demand, and accounted for 26% of all deals. Notably Google took a further 123,000 sq ft in King’s Cross & Euston, whilst cyber security and data management company, Mimecast, took 114,000 sq ft in the City. Elsewhere Sony Pictures signed a 77,000 sq ft pre-let at Derwent London’s Brunel Building in Paddington.
The high level of leasing activity seen from this sector over recent years is reflective of the changing nature of occupier employment within the capital, with Oxford Economics forecasting positive employment growth in this sector over the next five years.
Professional service firms have also been active, and in particular the legal sector with the recently merged Bryan Cave Leighton Paisner taking 121,000 sq ft as their new headquarters in the City, and Sidley Austin also committing to the City by taking 101,000 sq ft.
The growth of serviced offices across the capital continued, and in particular Spaces, which took 247,000 sq ft across four buildings in the first half of the year. The demand for serviced office space continues to be high, and an increasing vacancy rate for smaller offices in London is a growing concern for traditional landlords, which will need to offer more flexibility and more agreeable terms in order to remain attractive to certain occupiers.
Development completions lead to an increase in availability
Overall availability increased by 5% in the first half of the year, with an availability rate of 5.2% recorded at the end of June.
Whilst the divestment of tenant space continues to be a major part of the market, currently accounting for 23% of total availability, it was the completion of a number of development schemes over the last six months which caused the slight rise. The amount of available new space increased by 15% over this period.
Although there is a further 2.8 million sq ft of new space set to be delivered in the second half of the year, 64% of this has already been let. Also with the strong occupier demand for new, higher quality floorplates, most of the remaining space is likely to be let on completion. Therefore the overall availability rate is unlikely to increase further.
EXECUTIVE SUMMARY
5.0
4.5
4.0
Million sq ft
2.5
2.0
1.5
1.0
0.5
3.5
3.0
0
Q2
2018
Q1
2018
Q4
2017
Q3
2017
Q2
2017
Q1
2017
Q4
2016
Q3
2016
Q2
2016
Q1
2016
Q4
2015
Q3
2015
Q2
2015
7Million sq ft
4
6
5
3
2
1
0
2010
2020
2018
2015
2014
2017
2016
2011
2013
2012
2019
14
10
Million sq ft
6
12
8
0
2
4
Q2
2015
Q3
2015
Q4
2015
Q1
2016
Q2
2016
Q3
2016
Q1
2017
Q2
2017
Q3
2017
Q4
2017
Q4
2016
Q2
2018
Q1
2018
Quarterly take-up by regionSource: Gerald Eve
Development pipeline Source: Gerald Eve
Quarterly availability by quality Source: Gerald Eve
Canary Wharf East West Southbank Five year average
Completed Under Construction Available Under Construction Let
Unrefurbished Refurbished New
3
NationalTheatre
London South Bank University
Tower Bridge
Tower of London
30 St Mary Axe
City Hall
Tate Modern
Whitechapel Gallery
London Stadium
Bank of England
Mansion House
Somerset House
St Paul’sCathedral
Barbican Centre
London Eye
Sadler’s Wells
Geffrye Museum
The Old Truman Brewery
Brick Lane MarketOld Spitalfields Market
Scala
The British Library
The WallaceCollection
BBC
Buckingham Palace
Selfridges
Kensington Palace
Science Museum
Royal Albert Hall
The National Gallery
Royal Opera House
V&A
Harrods
Southbank Centre
Imperial War Museum
The Oval
Westminster Abbey
Westminster Cathedral
Battersea Power Station
Palace of Westminster
Canary Wharf
Regent’s Park
Lincoln’sInn Fields
SouthwarkPark
Tower HamletsCemetery Park
Hyde Park
Green Park
St James’s Park
Victoria Park
LONDON OFFICE RENTS
www.geraldeve.com
Rent Free 24 months
Southbank
£45.00£65.00
Grade A
Grade BRent Free 18 months
Victoria
Rent Free 21 months
£55.00£75.00
Grade A
Grade B
Knightsbridge
Rent Free 21 months
£67.50£90.00
Grade A
Grade B
Mayfair & St James’s
Rent Free 21 months
£87.50£110.00
Grade A
Grade B
Soho
£70.00£90.00
Grade A
Grade BRent Free 18 months
Paddington
Rent Free 21 months
£55.00£72.50
Grade A
Grade B
Marylebone
£65.00£85.00
Grade A
Grade BRent Free 21 months
Fitzrovia
Rent Free 24 months
£60.00£82.50
Grade A
Grade B
Covent Garden
Rent Free 21 months
£65.00£77.50
Grade A
Grade B
Midtown
£55.00£70.00
Grade A
Grade BRent Free 24 months
Fa
rringdon & Clerkenwell
Rent Free 21 months
£55.00£65.00
Grade A
Grade B
King’s Cross & Euston
Rent Free 18 months
£60.00£80.00
Grade A
Grade B
NationalTheatre
London South Bank University
Tower Bridge
Tower of London
30 St Mary Axe
City Hall
Tate Modern
Whitechapel Gallery
London Stadium
Bank of England
Mansion House
Somerset House
St Paul’sCathedral
Barbican Centre
London Eye
Sadler’s Wells
Geffrye Museum
The Old Truman Brewery
Brick Lane MarketOld Spitalfields Market
Scala
The British Library
The WallaceCollection
BBC
Buckingham Palace
Selfridges
Kensington Palace
Science Museum
Royal Albert Hall
The National Gallery
Royal Opera House
V&A
Harrods
Southbank Centre
Imperial War Museum
The Oval
Westminster Abbey
Westminster Cathedral
Battersea Power Station
Palace of Westminster
Canary Wharf
Regent’s Park
Lincoln’sInn Fields
SouthwarkPark
Tower HamletsCemetery Park
Hyde Park
Green Park
St James’s Park
Victoria Park
See inside back cover for definitions
Ten year term
5
City
£60.00£68.50
Grade A
Grade BRent Free 24 months
Shoreditch
Rent Free 24 months
£50.00£70.00
Grade A
Grade B
Canary Wharf
Rent Free 24 months
£37.00£50.00
Grade A
Grade B
The majority of the larger deals fell in the City, where over £3 billion was transacted in Q2 alone. Notably British Land and GIC sold their 5 Broadgate development to a subsidiary of Hong Kong investor, CK Asset Holdings, formerly known as Cheung Kong, for £1bn, which reflects a net initial yield of 3.95%. British Land and its then joint venture partner committed to the development of 5 Broadgate in 2012 to house UBS’s global investment banking business.
The building, which was completed in 2015, generated a total property return of 18% per annum for British Land, and was a significant catalyst for the further development of Broadgate now underway.
Elsewhere, Singaporean listed investor, Ho Bee Land, completed its £650m acquisition of AXA Investment Managers 600,000 sq ft development, Ropemaker Place. Ho Bee, one of Singapore’s most prolific overseas property investors, went under offer in May for a net initial yield of around 4.68%.
Blackstone agreed to sell 20 Old Bailey to a Korean investor, Mirae Asset Daewoo for £341m, securing the City of London asset at a net initial yield of 4%.
Outside of the City, investment activity remains subdued, partly due to limited stock, with only £1.8 billion transacted in the first half of the year. In the West End, Aviva Investors sold 20 Soho Square, W1, for £117m, to a private European investor. The 66,000 sq ft Soho office was redeveloped by Aviva in 2016 and let in its entirety to Palantair Technologies UK for its UK headquarters.
UK investors have also been active, and in Midtown, Labtech Investments acquired 90 High Holborn for £200 million at a yield of 4.6%, with the aim of creating a co-working hub at the building. Likewise, Seaforth Land purchased CAA House, Kingsway, for £165 million at a 4% yield.
However, beyond the headline deals, trading has been fairly quiet. The reduction in the number of transactions partly reflects an aversion to risk in the light of worsening fundamentals and concern over the impact of Brexit on both occupier demand and liquidity. Notably, the average vacancy rate of buildings that have traded over the last 12 months was just 3%, reflecting the current investor preference for prime, well-let buildings. The value add deals that have been prevalent in recent years are still in demand where there is an opportunity for strong income growth, but are now receiving additional scrutiny with an appropriate discount being applied for risk.
This is reflected in our forecasts below, where amid a lack of capital growth, income return will once again be the main driver behind total returns. Our base case continues to be for a general softening of office yields in the latter part of 2018, brought on by reduced economic certainty.
CENTRAL LONDON INVESTMENT
6
5
£ billion
1
2
4
3
0
Q2
2013
Q3
2013
Q4
2013
Q2
2014
Q1
2014
Q3
2014
Q4
2014
Q2
2015
Q1
2015
Q3
2015
Q4
2015
Q2
2016
Q1
2016
Q3
2016
Q4
2016
Q2
2017
Q1
2017
Q1
2018
Q3
2017
Q4
2017
Q2
2018
City Midtown
West End 5 year average
8.0
7.0
6.0
%
2.0
3.0
1.0
5.0
4.0
0
-1.0
-2.0
2017
2022
2018
2019
2020
2021
Capital growth Income return
Total return
Central London investment volumes Sources: Property Data, Gerald Eve
Central London forecastsSources: MSCI, Gerald Eve
ContactLloyd DaviesMobile +44 (0)7767 [email protected]
Prime London offices remain in high demand with investment volumes exceeding £6 billion in the first half of the year. Far Eastern investors continue to be the main driver, drawn to London by the offering of strong income returns and long lease profiles.
www.geraldeve.com
Hyde Park
Edgware Road
Paddington
Lancaster Gate
140000s sq ft
120
0
80
60
100
20
40
Q3
2015
Q4
2015
Q1
2016
Q2
2018
Q4
2016
Q1
2017
Q2
2017
Q3
2017
Q4
2017
Q1
2018
Q3
2016
Q2
2016
600000s sq ft £ per sq ft
300
500
400
200
100
0
80
55
70
60
75
65
50
40
35
45
30
2008
2019
2009
2010
2011
2012
2013
2014
2015
2020
2018
2017
2016
450000s sq ft
200
150
300
250
400
350
100
50
0
Q3
2015
Q2
2018
Q1
2018
Q4
2017
Q3
2017
Q2
2017
Q1
2017
Q4
2016
Q3
2016
Q2
2016
Q1
2016
Q4
2015
DemandQuarterly take-up and five year average
Source: Gerald Eve
SupplyAvailability by grade
DevelopmentDevelopment pipeline and prime rent
Paddington has enjoyed a strong half year with leasing volumes reaching 159,000 sq ft, a 66% increase on the last six months of 2017. The largest deal came when Sony Pictures signed a 77,000 sq ft pre-let at Derwent London’s Brunel Building. Sony will occupy floors 10 to 13, as well as part of floor 9, on a 15-year lease. The development will complete in Q2 2019 and will total 243,000 sq ft.
At Paddington Central, British Land announced that a further 15,000 sq ft will be taken by its flexible office brand, Storey. Storey is now operational across its London campuses and with 88,000 sq ft let or under offer, its occupancy rate is 77%. Specifically at Paddington Central, Storey is fully let to occupiers including international mobile network operator Ice Group, telecommunications infrastructure company BAI Communications UK, and packaging manufacturer KP Group.
The high levels of leasing activity have led to a decrease in overall availability, with the availability rate falling from 10.7% to 5.9% over the last six months.
High vacancy rates in the immediate aftermath of the global financial crisis restricted development in the market, however the success of 4 Kingdom Street, which completed in 2017 and is now fully let, has meant that speculative construction activity is beginning to increase in Paddington. The first scheme to be delivered will be the Brunel Building, followed by British Land’s 5 Kingdom Street (220,000 sq ft) in 2020, and Sellar Property’s Paddington Square (360,000 sq ft) in 2021.
PADDINGTON
£72.50Prime Rent
5.9%Availability Rate
37.0%Tenant Space
3Underground Stations
0Michelin Star Restaurants
33Pubs
62%Media & Technology take-up
775,000 sq ftUnder Construction
213,000 sq ftUnder Offer
ContactPatrick RyanMobile +44 (0)7792 [email protected]
Take-up Five year average
Completed Under construction let Under construction available Prime rent (RHS)
New Refurbished Unrefurbished
7
Source: Gerald Eve
The Wallace Collection
Edgware Road
Baker Street
Marble Arch
DemandQuarterly take-up and five year average
SupplyAvailability by grade
DevelopmentDevelopment pipeline and prime rent
Over 200,000 sq ft was leased in the first half of 2018, with the majority falling in the first quarter. Over this period there were only two deals above 10,000 sq ft. Namely; serviced office firm I2 Offices, taking 21,000 sq ft at 33 Cavendish Sq, and Iridium Assets Limited which took 15,000 sq ft at 22-25 Portman Close.
The demand for high quality space has been evidenced by the speed in which developments have been let, notably Portman Estate’s 1-9 Seymour Street (55,000 sq ft) which completed in Q1 2018 and is fully committed with 3 floors let and 2 floors under offer. This high level of leasing activity is set to continue in the second half of the year, with currently 148,000 sq ft under offer, the majority of which is for new or recently refurbished space.
Although Marylebone’s availability rate remains the second lowest of our submarkets, the delivery of new office space increased the availability rate to 3.3%. There is now currently 379,000 sq ft of space available to let in the market, 28% of which is grade A quality.
Looking ahead, there are a number of buildings in the pipeline in Marylebone. The next scheme to be delivered will be Almacantar’s 1 Marble Arch Place (100,000 sq ft), which is expected to complete in the first half of 2020. The next significant new start is likely to be 19–35 Baker Street, which willadd a further 258,000 sq ft of office stock to the market.
MARYLEBONE
£85.00Prime Rent
3.3%Availability Rate
22.6%Tenant Space
5Underground Stations
4Michelin Star Restaurants
55Pubs
34%Finance & Banking take-up
95,000 sq ftUnder Construction
148,000 sq ftUnder Offer
Take-up Five year average
Completed Under construction let Under construction available Prime rent (RHS)
New Refurbished Unrefurbished
ContactRhodri PhillipsMobile +44 (0)7768 [email protected]
www.geraldeve.com
200000s sq ft
160
140
180
0
100
80
120
40
60
20
Q3
2015
Q4
2015
Q1
2016
Q2
2018
Q1
2018
Q4
2016
Q1
2017
Q2
2017
Q3
2017
Q4
2017
Q3
2016
Q2
2016
450000s sq ft
150
250
300
350
400
200
100
50
0
95
70
80
85
90
75
65
60
2008
2019
2009
2010
2011
2012
2013
2014
2015
2020
2018
2017
2016
£ per sq ft400
300
000s sq ft
100
200
0
Q3
2015
Q2
2018
Q3
2017
Q4
2017
Q1
2018
Q2
2017
Q1
2017
Q4
2016
Q3
2016
Q2
2016
Q1
2016
Q4
2015
MAYFAIR & ST JAMES’S
Hyde Park
Green Park
St James’s Park
Bond StreetOxford Circus
Hyde Park Corner
Piccadilly Circus
DemandQuarterly take-up and five year average
SupplyAvailability by grade
DevelopmentDevelopment pipeline and prime rent
Following a subdued second half to 2017, leasing activity has picked up in 2018 with 264,000 sq ft taken in Q1, and 321,000 sq ft in Q2, both of which exceeded the five year average.
There have been a number of larger deals signed, namely serviced office provider LEO’s decision to take 32,000 sq ft on a 15-year lease at Park House. The building is now fully let with LEO occupying the top two floors, seven and eight, creating a new luxury space to meet customer demand for high quality office space in Mayfair.
Elsewhere, J O Hambro Capital Management took 20,000 sq ft at 1 St James’s Market, whilst Barings Real Estate secured a trio of lettings at their recently refurbished 8 Waterloo Place, which is now fully let. The deals include Apollo Tyres, which agreed a 10 year lease for 5,000 sq ft for a rent equivalent to £104.00 per sq ft.
Despite the increase in letting activity, a number of development completions has seen the overall availability rate increase slightly to 4.9%. However this is expected to fall over the coming quarters as demand for high quality space remains strong, evidenced by KKR pre-letting 57,000 sq ft at Great Portman Estates’ 18-20 Hanover Square.
Additionally the top 3 floors in the tower building within Tishman Speyer’s first phase of the newly delivered Smithson Plaza scheme in St James’s have been placed under offer upon delivery, at record level rents. Gerald Eve are advising Tishman Speyer.
£110.00Prime Rent
4.9%Availability Rate
14.9%Tenant Space
6Underground Stations
24Michelin Star Restaurants
76Pubs
44%Serviced Offices take-up
280,000 sq ftUnder Construction
258,000 sq ftUnder Offer
ContactPatrick RyanMobile +44 (0)7792 [email protected]
Source: Gerald Eve
Take-up Five year average
Completed Under construction let Under construction available Prime rent (RHS)
New Refurbished Unrefurbished
9
400
350
000s sq ft
300
0
200
150
250
50
100
Q3
2015
Q4
2015
Q1
2016
Q2
2018
Q1
2018
Q4
2016
Q1
2017
Q2
2017
Q3
2017
Q4
2017
Q3
2016
Q2
2016
600000s sq ft
300
500
400
200
100
0
2008
2009
2019
2010
2011
2012
2013
2014
2015
2020
2018
2017
2016
130
90
110
120
100
80
70
£ per sq ft1200
000s sq ft
800
1000
600
200
400
0
Q3
2015
Q2
2018
Q1
2018
Q3
2017
Q4
2017
Q2
2017
Q1
2017
Q4
2016
Q3
2016
Q2
2016
Q1
2016
Q4
2015
KNIGHTSBRIDGE
Hyde Park Green Park
Victoria
Sloane Square
100000s sq ft
90
0
70
60
80
40
30
50
20
10
Q3
2015
Q4
2015
Q1
2016
Q2
2018
Q1
2018
Q4
2016
Q1
2017
Q2
2017
Q3
2017
Q4
2017
Q3
2016
Q2
2016
90000s sq ft
30
60
70
80
50
40
20
10
0
2008
2009
2019
2010
2011
2012
2013
2014
2015
2020
2018
2017
2016
95
75
85
90
80
65
70
50
55
60
£ per sq ft250
100
200
150
50
0
000s sq ft
Q3
2015
Q2
2018
Q3
2017
Q4
2017
Q1
2018
Q2
2017
Q1
2017
Q4
2016
Q3
2016
Q2
2016
Q1
2016
Q4
2015
DemandQuarterly take-up and five year average
SupplyAvailability by grade
DevelopmentDevelopment pipeline and prime rent
Office take-up remains subdued in 2018 with only 22,000 sq ft taken in the first half of the year. The market has now had three consecutive quarters below the five year average, largely down to a lack of available high quality stock.
All the deals signed were for less than 6,000 sq ft; notable lettings include Volpi Capital which agreed to take 3,000 sq ft at 207 Sloane Street, and Catalina Holdings also took 3,000 sq ft at Montpelier House on Brompton Road.
Whilst overall availability has increased over the last 12 months, this is largely due to an increase in refurbished and unrefurbished stock following a few tenant defections, whilst there is no prime grade A office space available. With only two schemes delivered
over the last 10 years; 127–135 Sloane Street (78,000 sq ft) in 2016, and 50 Sloane Avenue (22,500 sq ft) completed in 2017, the lack of high quality space will maintain prime rents at £90 per sq ft, despite the weakening demand.
However, new high quality space is on the way; Chelsfield Partners LLP have begun development of The Knightsbridge Estate, which will deliver a much needed 67,000 sq ft of new high quality space to the market, within a wider mixed use scheme. In addition, Motcomb Estates, advised by Gerald Eve, will also deliver 45,000 sq ft of grade A space with the refurbishment of 27 Knightsbridge, which will help ease the supply squeeze for grade A office stock.
£90.00Prime Rent
5.7%Availability Rate
18.3%Tenant Space
2Underground Stations
6Michelin Star Restaurants
32Pubs
36%Professional Services take-up
67,000 sq ftUnder Construction
25,000 sq ftUnder Offer
Source: Gerald Eve
Take-up Five year average
Completed Under construction let Under construction available Prime rent (RHS)
New Refurbished Unrefurbished
ContactSophie DawMobile +44 (0)7880 [email protected]
www.geraldeve.com
Green ParkHyde Park
Palace of Westminster
Victoria
Pimlico
St James’s Park
Hyde Park
Westminster
Green Park
450000s sq ft
350
300
400
0
200
150
250
50
100
Q3
2015
Q4
2015
Q1
2016
Q2
2018
Q1
2018
Q4
2016
Q1
2017
Q2
2017
Q3
2017
Q4
2017
Q3
2016
Q2
2016
700000s sq ft
400
600
500
300
200
100
0
2008
2009
2019
2010
2011
2012
2013
2014
2015
2020
2018
2017
2016
85
75
80
65
70
50
55
60
£ per sq ft800
000s sq ft
500
700
600
400
200
100
300
0
Q3
2015
Q2
2018
Q1
2018
Q4
2017
Q3
2017
Q2
2017
Q1
2017
Q4
2016
Q3
2016
Q2
2016
Q1
2016
Q4
2015
DemandQuarterly take-up and five year average
SupplyAvailability by grade
DevelopmentDevelopment pipeline and prime rent
Occupier sentiment remains positive in Victoria as leasing volumes reached 540,000 sq ft in the first half of the year, a 10% increase on the previous 6 months.
The recent completion of a number of schemes and their surrounding infrastructure has transformed the market into one of London’s most dynamic submarkets, and as a result occupier demand for good quality space is high. This was evidenced by a flurry of lettings at the recently completed Nova North totalling 143,000 sq ft, including engineering firm Atkins, which took 66,000 sq ft. Elsewhere in the market, three floors in the Peak have been let, notably Vivo Energy acquired the fifth floor from Guggenheim Partners, advised by Gerald Eve.
The delivery of several large schemes in late 2016 and early 2017 significantly increased the overall availability in the market, particularly for new high quality space, and as a result, prime rental values declined throughout 2017. However, as the majority of the space has now been absorbed, positive rental growth is expected once again over the next three years.
Following the recent completion of London & Oriental’s Buckingham Green scheme delivering 55,000 sq ft, there are few new development starts expected in the near term, however there are a number of refurbishment projects underway, notably at 64 Victoria Street. The 186,000 sq ft office building was home to Westminster City Council until the middle of 2017, when the renovation began, and is scheduled to complete in 2019.
VICTORIA
£75.00Prime Rent
5.4%Availability Rate
21.3%Tenant Space
5Underground Stations
2Michelin Star Restaurants
76Pubs
26%Associations take-up
169,000 sq ftUnder Construction
84,000 sq ftUnder Offer
ContactRhodri PhillipsMobile +44 (0)7768 [email protected]
Source: Gerald Eve
Take-up Five year average
Completed Under construction let Under construction available Prime rent (RHS)
New Refurbished Unrefurbished
11
SOHO
Soho Square Gardens
Golden Square
Oxford Circus
Tottenham Court Road
Piccadilly Circus Leicester Square
160000s sq ft
0
120
100
140
20
60
40
80
Q3
2015
Q4
2015
Q1
2016
Q2
2018
Q1
2018
Q4
2016
Q1
2017
Q2
2017
Q3
2017
Q4
2017
Q3
2016
Q2
2016
350000s sq ft
200
300
250
150
100
50
0
2008
2009
2019
2010
2011
2012
2013
2014
2015
2020
2018
2017
2016
95
90
75
85
80
65
70
60
£ per sq ft400
000s sq ft
250
350
300
200
100
50
150
0
Q3
2015
Q2
2018
Q1
2018
Q4
2017
Q3
2017
Q2
2017
Q1
2017
Q4
2016
Q3
2016
Q2
2016
Q1
2016
Q4
2015
DemandQuarterly take-up and five year average
SupplyAvailability by grade
DevelopmentDevelopment pipeline and prime rent
Take-up volumes totalled 183,000 sq ft in the first half of the year, with Q2 exceeding the five year average for only the second time in 18 months.
Soho is a long-established entertainment district and home to a cluster of traditional and new media companies, and this sector continues to be active in the market with software company Zuora taking 10,000 sq ft at 1 Dean Street for £90 per sq ft.
The serviced office sector were the most active, accounting for 32% of take-up with Fora Space Limited taking 36,000 sq ft at 33 Broadwick Street.
The construction of Crossrail is enabling regeneration and the delivery of new mixed-use schemes, especially around Tottenham Court Road, while improving retail and restaurant options are helping to lure firms to the Broadwick Street area, notably OakNorth Bank in 2018, which agreed to take 9,000 sq ft at 57 Broadwick Street.
A number of development completions towards the end of 2017, and at the beginning of 2018, brought an additional 100,000 sq ft of new space to the market, leading to an overall increase in availability. However the high leasing activity has reduced this as we’ve moved through 2018.
Looking forward, Global Holdings’ 21 Soho Square will complete in September, delivering 22,500 sq ft of grade A space, whilst Soho Estates’ Ilona Rose House development on the west side of Charing Cross Road, will deliver 138,000 sq ft of office space in Q4 2020.
£90.00Prime Rent
4.0%Availability Rate
25.7%Tenant Space
4Underground Stations
3Michelin Star Restaurants
83Pubs
32%Serviced Offices take-up
38,000 sq ftUnder Construction
67,000 sq ftUnder Offer
ContactSophie DickensMobile +44 (0)7763 [email protected]
Source: Gerald Eve
Take-up Five year average
Completed Under construction let Under construction available Prime rent (RHS)
New Refurbished Unrefurbished
www.geraldeve.com
RIBA
British Museum
University College London
Great OrmondStreet Hospital
Wigmore Hall
Russell Square
Goodge Street
Holborn
Tottenham Court RoadOxford Circus
450000s sq ft
350
400
300
250
0
200
150
100
50
Q3
2015
Q4
2015
Q1
2016
Q2
2018
Q1
2018
Q4
2016
Q1
2017
Q2
2017
Q3
2017
Q4
2017
Q3
2016
Q2
2016
800000s sq ft
700
600
500
300
400
200
100
0
2008
2009
2019
2010
2011
2012
2013
2014
2015
2020
2018
90
75
85
80
65
70
50
55
60
2017
2016
£ per sq ft500
000s sq ft
400
300
100
200
0
Q3
2015
Q2
2018
Q1
2018
Q4
2017
Q3
2017
Q2
2017
Q1
2017
Q4
2016
Q3
2016
Q2
2016
Q1
2016
Q4
2015
DemandQuarterly take-up and five year average
SupplyAvailability by grade
DevelopmentDevelopment pipeline and prime rent
Leasing activity has been largely subdued in Fitzrovia as Q2 2018 recorded the third consecutive quarter of below average take-up. Only 165,000 sq ft has been leased so far in 2018, with a lack of good quality space restricting larger deals.
However, occupier sentiment remains strong in the market, and the arrival of Crossrail at Tottenham Court Road from the end of 2018, in addition to the retail improvements at the eastern end of Oxford Street, will help to increase occupier demand for new space.
This demand was exemplified by Great Portland Estates announcement that it has fully let all of its 37,400 sq ft development at 55 Wells Street, including the letting to marketing company Williams Lea Tag, which acquired 19,300 sq ft.
With a limited pipeline, the lack of new space will continue to restrict larger deals and the availability rate has fallen to 3.8%. 80 Charlotte Street is the only building currently under construction, and although that won’t complete until 2019, it is already 96% let or under offer. Retail occupier New Look, were expected to vacate space at 45 Mortimer Street, but cancelled its move to King’s Cross in January, thus reducing availability further.
This lack of availability, particularly of high quality stock, will keep an upward pressure and lead to positive rental value growth over the next three years.
FITZROVIA
£82.50Prime Rent
3.8%Availability Rate
26.1%Tenant Space
5Underground Stations
5Michelin Star Restaurants
59Pubs
50%Corporate take-up
332,000 sq ftUnder Construction
71,000 sq ftUnder Offer
Source: Gerald Eve
Take-up Five year average
Completed Under construction let Under construction available Prime rent (RHS)
ContactRhodri PhillipsMobile +44 (0)7768 [email protected]
New Refurbished Unrefurbished
13
COVENT GARDEN
Lincoln’sInn Fields
River Thames
Leicester Square
Charing Cross
Covent Garden
Embankment
700000s sq ft
500
600
400
300
0
100
200
Q3
2015
Q4
2015
Q1
2016
Q2
2018
Q1
2018
Q4
2016
Q1
2017
Q2
2017
Q3
2017
Q4
2017
Q3
2016
Q2
2016
500
450
000s sq ft
300
400
85
55
65
45
50
75
80
60
70
40
350
250
200
150
100
0
2008
2009
2019
2010
2011
2012
2013
2014
2015
2020
2018
2017
2016
£ per sq ft600
000s sq ft
200
400
500
300
100
0
Q3
2015
Q2
2018
Q1
2018
Q4
2017
Q3
2017
Q2
2017
Q1
2017
Q4
2016
Q3
2016
Q2
2016
Q1
2016
Q4
2015
DemandQuarterly take-up and five year average
SupplyAvailability by grade
DevelopmentDevelopment pipeline and prime rent
Take-up levels have been relatively subdued in Covent Garden, and in Q2, the volume of leasing was below the five year average for the third consecutive quarter.
220,000 sq ft has been leased in the first half of 2018, although this was largely composed of smaller lettings, with only a handful of deals above 10,000 sq ft. Serviced office provider, Regus, took 31,000 sq ft across four floors at 60-62 St Martins Lane, paying £47.50 per sq ft. Hogarth Worldwide will pay £69 per sq ft to take 13,000 sq ft at Shaftesbury House, whilst media & technology firm Twitch took 11,000 sq ft at 1 New Oxford Street.
Despite the recent drop in letting volumes, Covent Garden has been one of London’s best performing submarkets since the EU referendum, with several significant deals taking place here amid strong demand from firms in the creative sector.
It is also the destination of one of the largest speculative developments, with the Post Building set to complete later this year. Brockton Capital’s scheme will bring 263,000 sq ft of new space to the market, although 126,000 sq ft has already been pre-let by US management consulting firm McKinsey & Company.
The near completion of the Post Building, alongside the deliveries of Lazari Investments’ 262-267 High Holborn (40,000 sq ft), and AXA and Morgan Capital Partners’ 182-184 High Holborn (40,000 sq ft), have increased the overall availability rate for the submarket to 3.8%.
£77.50Prime Rent
3.8%Availability Rate
18.4%Tenant Space
6Underground Stations
1Michelin Star Restaurants
79Pubs
37%Professional Services take-up
303,000 sq ftUnder Construction
90,000 sq ftUnder Offer
ContactSophie DawMobile +44 (0)7880 [email protected]
Source: Gerald Eve
Take-up Five year average
Completed Under construction let Under construction available Prime rent (RHS)
New Refurbished Unrefurbished
www.geraldeve.com
MIDTOWNMuseum of London
Leicester Square
King’s Cross
Farringdon
Blackfriars
Euston
Picadilly Circus
Chancery Lane
1200
1000
000s sq ft
800
600
400
200
0
2008
2009
2019
2010
2011
2012
2013
2014
2015
2020
75
55
65
45
50
60
70
40
£ per sq ft
2018
2017
2016
DemandQuarterly take-up and five year average
SupplyAvailability by grade
DevelopmentDevelopment pipeline and prime rent
Occupiers continue to be drawn to Midtown with Q2 recording its fifth consecutive quarter of above average take-up, with 771,000 sq ft signed in 2018 alone.
Serviced office providers were particularly active and accounted for 37% of take-up, notably WeWork which took 131,500 sq ft at Aviation House, Kingsway. The media and technology sector were also active in the first half of the year. with media agency, the7stars, taking 23,000 sq ft at Bush House. Elsewhere Boult Wade Tennant took 17,000 sq ft at 8 Salsbury Square.
The second half of the year is likely to be equally strong in terms of lettings, with currently 425,000 sq ft under offer across the market. The recent high level of leasing activity, where over 1.3 million sq ft of office space has been taken over the last 12 months, has led to a sharp decrease in the availability rate to 4.2%, down from 5.6% in December 2017. This is despite a wave of deliveries hitting the market in 2018, with all major deliveries pre-let well in advance of completion.
As the availability rate has fallen, prime rents have increased to £70 per sq ft in 2018, which could force some tenants to consider moving further east, such as AECOM, which moved from Holborn to Aldgate recently.
£70.00Prime Rent
4.2%Availability Rate
20.6%Tenant Space
7Underground Stations
0Michelin Star Restaurants
73Pubs
37%Serviced Offices take-up
84,000 sq ftUnder Construction
425,000 sq ftUnder Offer
ContactAmy BryantMobile +44 (0)7551 [email protected]
600000s sq ft
0
400
300
500
200
100
Q3
2015
Q4
2015
Q1
2016
Q2
2018
Q4
2016
Q1
2017
Q2
2017
Q3
2017
Q4
2017
Q1
2018
Q3
2016
Q2
2016
1400000s sq ft
1000
1200
800
400
200
600
0
Q3
2015
Q2
2018
Q1
2018
Q4
2017
Q3
2017
Q2
2017
Q1
2017
Q4
2016
Q3
2016
Q2
2016
Q1
2016
Q4
2015
Source: Gerald Eve
Take-up Five year average
Completed Under construction let Under construction available Prime rent (RHS)
New Refurbished Unrefurbished
15
Mornington Crescent
King’s Cross
Euston
350000s sq ft
300
0
Q3
2015
Q4
2015
Q1
2016
Q2
2018
Q1
2018
Q4
2016
Q1
2017
Q2
2017
Q3
2017
Q4
2017
Q3
2016
Q2
2016
200
150
250
100
50
400
350
000s sq ft
200
300
250
150
100
0
2008
2009
2019
2010
2011
2012
2013
2014
2015
2020
2018
2017
2016
85
55
65
45
50
75
80
60
70
40
£ per sq ft300
000s sq ft
150
250
200
100
50
0
Q3
2015
Q2
2018
Q1
2018
Q4
2017
Q3
2017
Q2
2017
Q1
2017
Q4
2016
Q3
2016
Q2
2016
Q1
2016
Q4
2015
DemandQuarterly take-up and five year average
SupplyAvailability by grade
DevelopmentDevelopment pipeline and prime rent
Leasing activity has so far totalled 203,000 sq ft in 2018, with the majority of deals falling in the first quarter of the year.
Through recent developments and infrastructure improvements, the market has been transformed into one of the most desirable areas in the capital. Whilst King’s Cross & Euston has always attracted a diverse range of tenants, media and technology firms continue to dominate the market. This again has been evidenced in 2018 with significant deals for Google, which signed a 123,000 sq ft assignment from NewLook at Handyside Street, and Facebook’s giant 611,000 sq ft pre-let at King’s Cross Central development in Q3 2018.
Serviced office firms have also been attracted to the area, in Q1 Be Offices Limited signed a 10,300 sq ft lease at Evergreen House on Euston Road. The office provider has agreed to pay £58 per sq ft on a 10 year lease.
Demand for space in the area remains high, and is evidenced by the fact that all of the major schemes to have delivered since 2014 have been fully let, keeping the availability rate as low as 2.7%. The availability rate is likely to remain at a relatively low level over the next few years, as the only significant buildings that are either currently under construction or expected to start are fully pre-let or under offer. Notably, the largest development in the submarket’s history, Google’s 870,000 sq ft Landscraper project, has been entirely taken by the media and technology firm.
As a result to the lack of available space, prime rents are expected to continue to grow over the next three years as occupier competition for the best space intensifies.
KING’S CROSS & EUSTON
£80.00Prime Rent
2.7%Availability Rate
31.5%Tenant Space
6Underground Stations
0Michelin Star Restaurants
58Pubs
94%Media & Technology take-up
236,000 sq ftUnder Construction
230,000 sq ftUnder Offer
Source: Gerald Eve
Take-up Five year average
Completed Under construction let Under construction available Prime rent (RHS)
ContactRhodri PhillipsMobile +44 (0)7768 [email protected]
New Refurbished Unrefurbished
www.geraldeve.com
Farringdon
Chancery Lane
Barbican
Old Street
800000s sq ft
600
400
200
0
2008
2009
2019
2010
2011
2012
2013
2014
2015
2020
2018
2017
2016
70
55
65
45
30
35
40
25
50
60
20
£ per sq ft
DemandQuarterly take-up and five year average
SupplyAvailability by grade
DevelopmentDevelopment pipeline and prime rent
After a strong 2017, where each quarter exceeded the five year average, leasing activity in 2018 has been subdued in Farringdon & Clerkenwell, with only 500,000 sq ft taken in the first half of the year.
The media and technology sector continues to be the main driver of occupier demand and accounted for 43% of leasing activity in 2018 so far. Notably digital advertising company The Trade Desk, signed for 55,000 sq ft at Ashby Capital and Helical Bar’s One Bartholomew development. The Trade Desk have taken the top three floors, including the tenth-floor terrace at the 12-storey, 215,000 sq ft office, which will complete in the second half of the year.
Serviced offices continued to expand in the market with office provider, Spaces taking 50,000 sq ft in the same building. A number of development completions in the first half of the year, including Helical Bar’s The Bower, and Great Portland Estates’ Spectrum, delivered 387,000 sq ft of new office space to the market. Although 63% of this space was already let on completion, the overall availability and in particular new high quality space, increased over the last six months, and recorded an availability rate of 6.3%, up from 4.2% 12 months ago.
The availability rate is likely to increase further, with currently 775,000 sq ft set to be delivered over the next 18 months, 62% of which is currently still available.
FARRINGDON & CLERKENWELL
£65.00Prime Rent
6.3%Availability Rate
13.1%Tenant Space
5Underground Stations
2Michelin Star Restaurants
116Pubs
43%Media & Technology take-up
775,000 sq ftUnder Construction
294,000 sq ftUnder Offer
600000s sq ft
0
500
400
300
200
100
Q3
2015
Q4
2015
Q1
2016
Q2
2018
Q4
2016
Q1
2017
Q2
2017
Q3
2017
Q4
2017
Q1
2018
Q3
2016
Q2
2016
1400
1200
1000
80
000s sq ft
60
50
40
20
0
Q1
2015
Q4
2017
Q3
2017
Q2
2017
Q1
2017
Q4
2016
Q3
2016
Q2
2016
Q1
2016
Q4
2015
Q3
2015
Q2
2015
Source: Gerald Eve
ContactAmy BryantMobile +44 (0)7551 [email protected]
Take-up Five year average
Completed Under construction let Under construction available Prime rent (RHS)
New Refurbished Unrefurbished
17
SHOREDITCH Brick Lane Market
Old Spitalfields Market
Shoreditch High Street
Liverpool Street
Whitechapel
500
450
000s sq ft
300
400
350
250
200
150
100
50
0
2008
2009
2019
2010
2011
2012
2013
2014
2015
2020
2018
2017
2016
80
50
30
40
60
70
20
£ per sq ft
DemandQuarterly take-up and five year average
SupplyAvailability by grade
DevelopmentDevelopment pipeline and prime rent
Occupier activity remained robust with 482,000 sq ft leased during the first half of the year, with a further 47,000 sq ft currently under offer.
The media and tech sector continued to be drawn to the region, and accounted for 51% of activity. Notably Made.com took 22,000 sq ft at 5-7 Singer Street, paying £55 per sq ft. The largest deal of the year so far occurred when serviced office provider, Spaces took 40,000 sq ft at Epworth House.
The volume of leasing activity seen in the first half of the year has resulted in a 16% drop in overall availability, most of which is unrefurbished space, leaving the market with an availability rate of 3.2%, one of the lowest across central London.
This fall in availability came despite the delivery of four developments, including M&G’s London Fruit & Wool Exchange (275,000 sq ft), and Rocket Investments’ Atlas Building (82,000 sq ft), both of which were fully let on completion.
Whilst the market currently has a further 438,000 sq ft under construction, 46% of this space has also been leased, with the rest likely to be taken by the time of delivery. As a result, the availability rate is unlikely to increase over the next 18 months and lead to an increase in prime rents.
British Land have recently received planning consent for the development at Blossom Street, Spitalfields, which plans to deliver a much-needed 347,000 sq ft to the market by 2021 at the earliest.
£70.00Prime Rent
3.2%Availability Rate
22%Tenant Space
4Underground Stations
3Michelin Star Restaurants
66Pubs
51%Media & Technology take-up
433,000 sq ftUnder Construction
47,000 sq ftUnder Offer
450000s sq ft
0
300
350
200
250
400
100
150
50
Q3
2015
Q4
2015
Q1
2016
Q2
2016
Q3
2016
Q4
2016
Q1
2017
Q2
2018
Q4
2017
Q1
2018
Q3
2017
Q2
2017
600
500
400
000s sq ft
200
300
100
0
Q3
2015
Q2
2018
Q3
2017
Q4
2017
Q1
2018
Q2
2017
Q1
2017
Q4
2016
Q3
2016
Q2
2016
Q1
2016
Q4
2015
Source: Gerald Eve
Take-up Five year average
Completed Under construction let Under construction available Prime rent (RHS)
New Refurbished Unrefurbished
www.geraldeve.com
ContactFergus JaggerMobile +44 (0)7787 [email protected]
CITYLiverpool Street
Cannon Street
Farringdon
4.0
3.5
Million sq ft
2.0
3.0
2.5
1.5
1.0
0.5
0
2008
2009
2019
2010
2011
2012
2013
2014
2015
2020
2018
2017
2016
75
55
65
45
50
60
70
40
£ per sq ft
DemandQuarterly take-up and five year average
SupplyAvailability by grade
DevelopmentDevelopment pipeline and prime rent
Occupier sentiment continues to be positive in the City, with over 2.2 million sq ft taken during the first half of the year.
Professional service firms have been the most active in 2018, and in particular the legal sector. As well as Bryan Cave Leighton Paisner, which took 121,000 sq ft of office space at Governors House, Sidley Austin signed for 101,000 sq ft at 70 St Mary’s Axe. Bryan Cave Leighton Paisner, agreed to take the space at Governors House to use as their new headquarters, following their merger at the beginning of the year.
Although the City has done well in diversifying its tenant base in recent years, Brexit remains a risk with financial services still a big driver of demand. The City is home to 50% of all financial services firms occupying 10,000 sq ft or more across central London, while over half of the lettings above 100,000 sq ft in the last 10 years were by firms in this sector.
The importance of the finance and banking sector to the market was highlighted when Sumitomo Mitsui Banking Corporation agreed to lease 161,000 sq ft at British Land’s 100 Liverpool Street redevelopment at Broadgate. This letting is the most recent in a series of commitments from a range of occupiers at Broadgate, including cyber security and data management company Mimecast, which is taking 79,000 sq ft at 1 Finsbury Avenue.
Despite a number of development completions over the last 18 months, the demand for new high quality space has led to a flurry of pre-letting activity, and as a result the impact on overall availability has been limited. In fact, the availability rate has fallen to 5.5%, down from 6.2% at the end of December.
£68.50Prime Rent
5.5%Availability Rate
27%Tenant Space
14Underground Stations
4Michelin Star Restaurants
179Pubs
29%Professional Services take-up
4,425,000 sq ftUnder Construction
1,725,000 sq ftUnder Offer
1.6Million sq ft
0
1.2
0.8
1.4
0.6
0.4
0.2
Q3
2015
Q4
2015
Q1
2016
Q2
2018
Q1
2018
Q4
2017
Q4
2016
Q1
2017
Q2
2017
Q3
2017
Q3
2016
Q2
2016
6
4
2
Million sq ft
5
3
1
0
Q3
2015
Q2
2018
Q3
2017
Q4
2017
Q1
2018
Q2
2017
Q1
2017
Q4
2016
Q3
2016
Q2
2016
Q1
2016
Q4
2015
Source: Gerald Eve
Take-up Five year average
Completed Under construction let Under construction available Prime rent (RHS)
New Refurbished Unrefurbished
19
ContactSteve JohnsMobile +44 (0)7833 [email protected]
www.geraldeve.com
Waterloo
London Bridge
Embankment
Elephant and Castle
Tate Modern
Oxo Tower
1000000s sq ft
600
800
400
200
0
2008
2009
2019
2010
2011
2012
2013
2014
2015
2020
2018
2017
70
45
55
35
40
65
50
60
30
2016
£ per sq ft
DemandQuarterly take-up and five year average
SupplyAvailability by grade
DevelopmentDevelopment pipeline and prime rent
Following a subdued second half to 2017, leasing volumes bounced back in 2018 with 576,000 sq ft taken over the last six months.
Professional services were the most active occupiers in acquiring space, and property company CBRE signed the largest deal, pre-letting 79,000 sq ft at HB Reavis’ Cooper & Southwark development.
Elsewhere in the market, Civica took space at Hermes Investment Management and Canada Pension Plan Investment Board’s (CPPIB) South Bank Central. Civica will take 15,000 sq ft of office space on the eighth floor of South Bank Central’s Vivo building on a 15-year lease.
The overall availability rate increased to 4.1% in Q2 2018, and could increase further with a number of scheme completions are expected over the next 18 months including the redevelopment of the Shell Centre.
The development of both One and Two Southbank Place, which will total more than 582,000 sq ft, will also complete, although both are fully let, the first to Shell International and the latter to WeWork.
Over the long term, the regeneration efforts and transport improvements in the market are likely to boost the appeal of areas like Elephant and Castle, Battersea, and Vauxhall, which could provide competition.
SOUTHBANK
£65.00Prime Rent
4.1%Availability Rate
20.0%Tenant Space
7Underground Stations
1Michelin Star Restaurants
129Pubs
62%Professional Services take-up
624,000 sq ftUnder Construction
211,000 sq ftUnder Offer
600000s sq ft
0
500
400
300
200
100
Q3
2015
Q4
2015
Q1
2016
Q2
2018
Q1
2018
Q4
2016
Q1
2017
Q2
2017
Q3
2017
Q4
2017
Q3
2016
Q2
2016
900
800
700
600
000s sq ft
400
500
300
100
200
0
Q3
2015
Q2
2018
Q1
2018
Q4
2017
Q3
2017
Q2
2017
Q1
2017
Q4
2016
Q3
2016
Q2
2016
Q1
2016
Q4
2015
Source: Gerald Eve
Take-up Five year average
Completed Under construction let Under construction available Prime rent (RHS)
New Refurbished Unrefurbished
ContactFergus JaggerMobile +44 (0)7787 [email protected]
21
Canary Wharf
Blackwall
South Quay
Poplar
East India
CANARY WHARF
1600
1400
000s sq ft
800
1200
1000
600
400
200
0
2008
2009
2019
2010
2011
2012
2013
2014
2015
2020
2018
2017
2016
55
45
35
40
50
30
£ per sq ft
DemandQuarterly take-up and five year average
SupplyAvailability by grade
DevelopmentDevelopment pipeline and prime rent
Office fundamentals in Canary Wharf have weakened recently due to a combination of subdued leasing activity and rising availability.
Take-up volumes reached 203,000 sq ft in the first half of the year, with both quarters falling well below the five year average. Serviced office provider, The Office Group, secured the largest letting of the year so far, taking 45,000 sq ft at 15 Water Street on a 20 year lease. However despite the subdued start to the year, leasing volumes could pick up in H2 2018, with currently 567,000 sq ft under offer.
A combination of weak demand, and also a release of secondhand space back to the market, has led to an increase in the overall availability rate to 10.7%. Tenant space is currently at 37%, as a number of banks are trying to offload surplus space. The Financial Conduct Authority will vacate 300,000 sq ft at 25 North Colonnade later this year in a move to Stratford.
The uncertainty surrounding Brexit remains a key threat to the market, due to the dominance of the finance & banking sector in the market. Some of the banks have signalled their intent to relocate jobs and sublease at least some space, while the European Banking Authority and the European Medicines Agency will move to Paris and Amsterdam respectively.
Despite the weakening fundamentals, development activity has increased. Five Bank Street (715,000 sq ft) will complete early next year, with 280,000 sq ft pre-let to Société Générale already. Canary Wharf Group’s mixed-use scheme at Wood Wharf, is also under construction, which will target the media & technology sector, in an attempt to diversify occupier employment in the market.
£50.00Prime Rent
10.7%Availability Rate
36.9%Tenant Space
1Underground Stations
0Michelin Star Restaurants
25Pubs
53%Serviced Offices take-up
1,269,000 sq ftUnder Construction
567,000 sq ftUnder Offer
600000s sq ft
500
0
300
400
200
100
Q3
2014
Q4
2014
Q1
2015
Q2
2015
Q3
2015
Q4
2015
Q1
2016
Q2
2017
Q4
2016
Q1
2017
Q3
2016
Q2
2016
2000
1500
1000
000s sq ft
500
750
250
1750
1250
0
Q3
2015
Q2
2018
Q1
2018
Q4
2017
Q3
2017
Q2
2017
Q1
2017
Q4
2016
Q3
2016
Q2
2016
Q1
2016
Q4
2015
Source: Gerald Eve
Take-up Five year average
Completed Under construction let Under construction available Prime rent (RHS)
New Refurbished Unrefurbished
ContactSteve JohnsMobile +44 (0)7833 [email protected]
Rent reviews are of course not just about where rental levels are today but rather how today’s rents compare with those set (usually) five years earlier. Further, the relationship between these rents has to allow for the impact of rent free periods.
The table opposite shows, based on the general tone of rents reported in this guide, average increases in rents that can be expected today at rent review for grade A offices.
Also shown are the average increases that might be expected in Summer 2019 allowing for rental growth over the coming year and adopting the rental levels that existed in Summer 2014 as the base line from which projected increases have been calculated.
As can be seen, the areas where material increases are most likely to be found are away from the primary cores: around the edge of the traditional City core where the ‘tech’ industries have had such a material impact, and the locations outside the West End core which have benefited from occupiers seeking good quality buildings but at more affordable rents.
This analysis looks at situations where the transaction five years ago was a letting of a grade A office. Where it was a rent review, these increases are likely to be greater as the passing rent will be a net effective rent (so an ‘average’ allowing for the headline rent and rent free) but the building will be older which will moderate the increase.
The trends we are seeing in rent review practices, as the scale of uplifts generally reduces, is of rent reviews becoming more hard fought with an increasing number being referred to arbitration or equivalent. In multi-let buildings landlords are seeing the benefit from being tactical in trying to create evidence to set a precedent; generally pro-active asset management is again becoming more important if rents are to be grown. There are also factors driving rents today which were less prevalent five years ago: floors at the top of a building or with terraces are today often seeing a pronounced difference in rents from other floors in the building and where these circumstances exist this may offer opportunity at rent review.
Sum
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Sum
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Impl
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Pre
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Paddington £57.50 £72.50 21 £61.60 7%
Marylebone £82.50 £85.00 21 £72.30 0%
Mayfair & St James’s £105.00 £110.00 21 £93.50 0%
Knightsbridge £72.50 £90.00 21 £76.50 6%
Victoria £70.00 £75.00 21 £63.80 0%
Soho £75.00 £90.00 18 £78.80 5%
Fitzrovia £67.00 £82.50 24 £68.10 2%
Covent Garden £61.50 £77.50 21 £65.90 7%
Midtown £55.00 £70.00 24 £57.80 5%
King’s Cross & Euston £55.00 £80.00 18 £70.00 27%
Farringdon & Clerkenwell £42.50 £65.00 21 £55.30 30%
Shoreditch £35.00 £70.00 24 £57.80 65%
City £55.00 £68.50 24 £56.50 3%
Southbank £47.50 £65.00 18 £56.90 20%
Canary Wharf £37.50 £50.00 24 £41.30 10%
London Average £61.23 £76.73 21 £65.07 12%
CENTRAL LONDON RENT REVIEWSIn the current environment, rent reviews are becoming much more hard fought. We predict the greatest rental uplift in markets away from the primary London core markets, in locations where occupiers, notably media and technology occupiers, have sought-out good quality space at more affordable rents.
ContactTony GuthrieMobile +44 (0)7717 225 [email protected]
70
50
60
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10
20
40
30
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Summer 2018 Summer 2019
Predicted uplifts at future rent reviewsSource: Property Data, Gerald Eve
www.geraldeve.com
GERALD EVE IN THE MARKET
DEFINITIONS
Angel Court, CityWe have negotiated terms for a new lease on 60,000 sq ft in the former JP Morgan tower at 1 Angel Court EC2 which has been substantially rebuilt by Mitsui Fudosan and Stanhope.
The Peak, 5 Wilton Road, VictoriaWe have successfully advised Guggenheim Partners in disposing of the 5th floor offices of 11,000 sq ft to Vivo Energy.
Bath and Cayton, Farringdon & ClerkenwellWe have successfully completed the sale of Bath & Cayton, EC1 (7-9 Bath Street & 4-12 Cayton Street) on behalf of City, University of London.
Smithson Plaza, 25 St James’s Street, St James’sActing on behalf of Tishman Speyer, we recently launched the 1st phase of the extensively refurbished Smithson Plaza and have promptly placed the top 3 floors of 11,000 sq ft in the tower building under offer. We will be launching an additional 20,000 sq ft to market during Q4.
Quality
New: Floor in a newly-developed or newly-refurbished building, including sub-let space in new buildings which have not been previously occupied. Refurbished: A floor which has been comprehensively refurbished and is of good specification, floorplate efficiency and image, but is in a building which is not new or been comprehensively refurbished. Unrefurbished: Poorer quality space, usually offered for occupation ‘as is’.
Prime headline rentsThe rent being paid which does not take account of concessions such as rent free periods. The references to both headline rents and incentives in this report are a reflection of the best office space in that submarket which is taken on an assumed ten year term.
Tenant space
Reference to ‘tenant space’ includes office space that is actively marketed and is available either as a sub-let or an assignment of an existing lease. ‘Grey space’ that is not actively marketed is not covered in this report.
23
Agency & Investment
Lloyd DaviesPartnerTel. +44 (0)20 7333 6242 Mobile +44 (0)7767 311254 [email protected]
Fergus JaggerPartnerTel. +44 (0)20 7653 6831Mobile +44 (0)7787 558756 [email protected]
Steve JohnsPartnerTel. +44 (0)20 7653 6858 Mobile +44 (0)7833 401249 [email protected]
Rhodri Phillips PartnerTel. +44 (0)20 3486 3451 Mobile +44 (0)7768 615296 [email protected]
Patrick RyanPartnerTel. +44 (0)20 7333 6368 Mobile +44 (0)7792 078397 [email protected]
Lease Consultancy
Tony GuthriePartnerTel. +44 (0)20 3486 3456 Mobile +44 (0)7717 225 600 [email protected]
Graham FosterPartnerTel. +44 (0)20 7653 6832Mobile +44 (0)7774 [email protected]
Research
Alex DunnAssociateTel. +44(0)203 486 3495Mobile +44 (0)7917 [email protected]
Disclaimer & copyright
London Markets is a short summary and is not intended to be definitive advice. No responsibility can be accepted for loss or damage caused by reliance on it.
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The reproduction of the whole or part of this publication is strictly prohibited without permission from Gerald Eve LLP.
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