The City core had a strong end to the year, with 1.1m sq ft let in Q4, an impressive 70% improvement on the previous quarter and the strongest quarterly total since 2010. It took the total let in the whole of 2012 to 3.1m sq ft, still below the average of 3.8m sq ft for the period 2005-2011 but better than 2011, when 2.95m sq ft was let.
One single transaction accounted for 25% of the space let in Q4. This was the letting of 281,000 sq ft in the St Botolph Building, Houndsditch, EC3, to Jardine Lloyd Thompson (JLT). The insurance sector buoyed the City core market once again in Q4. Other substantial lettings in the sector were: 84,000 sq ft prelet to Miller Insurance Services in 70 Mark Lane, EC3, and 60,100 sq ft let to Gallagher Heath in the Walbrook Building, 23-29 Walbrook, EC4. There was more space prelet in 20 Fenchurch Street, EC3, with Ascot Underwriting committing to 29,500 sq ft.
Insurance was not, however, the only sector to generate substantial transactions this quarter. Law firm Nabarro took 125,500 sq ft in Alban Gate, London Wall, EC2, and Hill Dickinson leased 38,800 sq ft in Broadgate Tower, EC2. There was also a significant contribution from the TMT sector, with tech business Mimecast taking 40,400 sq ft in City Point, Ropemaker Street, EC2.
The insurance sector accounted for 35% of the take-up in Q4, as much as the financial and professional sectors put together – they each took 16%. TMT was also significant, with 11% of the total. The dominance of the insurance sector is unsurprising given the scale of the lettings to JLT and Miller. There are more insurance transactions in the pipeline and this sector looks likely to remain a key driver of demand in 2013.
Supply
% +/-
% +/-
% +/-
Supply (sq ft)
Q4 2012
24 months
12 months
3 months
New/refurb existing
1,820,152
-13
-27
-14
Premarketing
3,074,989
-52
-42
-16
Secondhand
4,251,335
2
-16
-4
Under construction
4,117,764
99
29
8
Total
13,264,240
-10
-17
-5
Supply fell by another 5% in Q4, taking it to 13.3m sq ft at the end of 2012. It has been in gradual decline over the past couple of years and is now 10% below its level of two years ago. There is 1.82m sq ft of new and ready-to-occupy space available today, compared with 2.1m sq ft at the end of 2010. Supply is being replenished with new construction but not at a pace that matches take-up.
The largest single new building that remains unlet since completion is Cannon Place, Cannon Street, EC4, which was completed in Q3 2011. All of the other large buildings now have space let or under offer, even if they remain substantially available.
The same is true of several large buildings under construction. 20 Fenchurch Street, EC3, and 122 Leadenhall Street, EC3, both have about half their space let or under offer. The largest unit scheduled for completion in 2013 and still entirely available is 217,100 sq ft in Sixty London, EC1, and the only other building over 200,000 sq ft under construction is Moorgate Exchange, 72 Fore Street, EC2, which is 267,550 sq ft but will not be completed until 2014.
Availability
The availability rate in the City core drifted down to 10.5% by the end of Q4, from 11.3% in Q3 2012. This is the lowest year-end availability rate since 2008, although it was significantly lower then, at 8.5%. Nevertheless, it demonstrates that the choices available to occupiers are diminishing and this will begin to put pressure on rental growth, particularly as the stock of speculative development is being eroded by prelets. The City core is no longer the submarket with the highest availability rate, that is now South Bank.
Asking rents
The average asking rent for newly built space in the City core was £46.25 per sq ft at the end of Q4, virtually unchanged over the quarter. The highest asking rents remain at £57.50 per sq ft, which is the level sought in several high-quality buildings, including The Walbrook, EC2, and Cannon Place, EC4. Rents on tower floors can be as high as £65 or £70 per sq ft.
The EG Consensus survey put grade A City core rents at £57.50 per sq ft with 25 months rent-free.
Construction
There is 4.35m sq ft under construction in the City core plus another 1.25m sq ft in stalled development The Pinnacle, 24 Bishopsgate, EC2. Some 1.6m sq ft has been prelet, leaving 2.75m sq ft of speculative development in progress and being actively marketed, plus The Pinnacle. The largest developments under construction are 122 Leadenhall Street and 20 Fenchurch Street, EC3 – both of which are almost half under offer or prelet – Moorgate Exchange, EC2, (267,500 sq ft) and Sixty London, EC1, (217,100 sq ft).
Some 1.07m sq ft was put under construction during Q4, the majority of which was in Bloomberg Place, Bucklersbury, EC2, which is 880,000 sq ft in total but 500,000 sq ft will be occupied by Bloomberg. The balance of the new construction in Q4 was accounted for by the Royal Bank of Canada Centre, 71 Queen Victoria Street, EC4, which is being refurbished and having a new floor and a new façade added.
Investment
Q4 2012 saw 1.38m sq ft of City core building stock change hands in 18 transactions, taking the total for the year to date to 6.84m sq ft – which exceeds the total for 2011 by 43%. The largest building sold this quarter was the 350,000 sq ft 100 Old Broad Street, EC2, sold by KanAm Grund Kapitalanlagegesellschaft MBH to Invesco Real Estate backed by sovereign wealth fund China Investment Corporation. The price is reported to be £250m, reflecting a yield of around 6%.
The City Corporation sold 20 Finsbury Circus, EC2, for £42.9m to Japanese telecoms company NTT Europe, equating to an initial yield of around 7.9%. The City Corporation will retain the freehold.
St Martin’s Court, 10 Paternoster Row, EC4, was sold by Legal & General to Oxford Properties Group for £110m. The building is 101,400 sq ft and includes CBRE among its occupiers.
5 Aldermanbury Square, EC2, a 259,100 sq ft multi-let building, was sold by Scottish Widows Investment Partnership and TIAA CREF to Deka Immobilien Investment GmbH for £235m, equating to a yield of 5.5%.
Take-up
% +/-
% +/-
% +/-
Take-up (sq ft)
Q4 2012
24 months
12 months
3 months
New/refurb existing
473,570
217
53
260
Premarketing
84,000
-83
n/a
n/a
Secondhand
534,762
2
-8
22
Under construction
53,958
n/a
-72
-31
Total
1,146,290
-3
35
77
The City core had a strong end to the year, with 1.1m sq ft let in Q4, an impressive 70% improvement on the previous quarter and the strongest quarterly total since 2010. It took the total let in the whole of 2012 to 3.1m sq ft, still below the average of 3.8m sq ft for the period 2005-2011 but better than 2011, when 2.95m sq ft was let.
One single transaction accounted for 25% of the space let in Q4. This was the letting of 281,000 sq ft in the St Botolph Building, Houndsditch, EC3, to Jardine Lloyd Thompson (JLT). The insurance sector buoyed the City core market once again in Q4. Other substantial lettings in the sector were: 84,000 sq ft prelet to Miller Insurance Services in 70 Mark Lane, EC3, and 60,100 sq ft let to Gallagher Heath in the Walbrook Building, 23-29 Walbrook, EC4. There was more space prelet in 20 Fenchurch Street, EC3, with Ascot Underwriting committing to 29,500 sq ft.
Insurance was not, however, the only sector to generate substantial transactions this quarter. Law firm Nabarro took 125,500 sq ft in Alban Gate, London Wall, EC2, and Hill Dickinson leased 38,800 sq ft in Broadgate Tower, EC2. There was also a significant contribution from the TMT sector, with tech business Mimecast taking 40,400 sq ft in City Point, Ropemaker Street, EC2.
The largest transaction from an occupier in the financial sector was 34,000 sq ft let to M&G Investments in 90 Upper Thames Street, EC4. Lloyds TSB took 31,500 sq ft in 20 Gresham Street, EC2.
Lettings by sector
The insurance sector accounted for 35% of the take-up in Q4, as much as the financial and professional sectors put together – they each took 16%. TMT was also significant, with 11% of the total. The dominance of the insurance sector is unsurprising given the scale of the lettings to JLT and Miller. There are more insurance transactions in the pipeline and this sector looks likely to remain a key driver of demand in 2013.
Supply
% +/-
% +/-
% +/-
Supply (sq ft)
Q4 2012
24 months
12 months
3 months
New/refurb existing
1,820,152
-13
-27
-14
Premarketing
3,074,989
-52
-42
-16
Secondhand
4,251,335
2
-16
-4
Under construction
4,117,764
99
29
8
Total
13,264,240
-10
-17
-5
Supply fell by another 5% in Q4, taking it to 13.3m sq ft at the end of 2012. It has been in gradual decline over the past couple of years and is now 10% below its level of two years ago. There is 1.82m sq ft of new and ready-to-occupy space available today, compared with 2.1m sq ft at the end of 2010. Supply is being replenished with new construction but not at a pace that matches take-up.
The largest single new building that remains unlet since completion is Cannon Place, Cannon Street, EC4, which was completed in Q3 2011. All of the other large buildings now have space let or under offer, even if they remain substantially available.
The same is true of several large buildings under construction. 20 Fenchurch Street, EC3, and 122 Leadenhall Street, EC3, both have about half their space let or under offer. The largest unit scheduled for completion in 2013 and still entirely available is 217,100 sq ft in Sixty London, EC1, and the only other building over 200,000 sq ft under construction is Moorgate Exchange, 72 Fore Street, EC2, which is 267,550 sq ft but will not be completed until 2014.
Availability
The availability rate in the City core drifted down to 10.5% by the end of Q4, from 11.3% in Q3 2012. This is the lowest year-end availability rate since 2008, although it was significantly lower then, at 8.5%. Nevertheless, it demonstrates that the choices available to occupiers are diminishing and this will begin to put pressure on rental growth, particularly as the stock of speculative development is being eroded by prelets. The City core is no longer the submarket with the highest availability rate, that is now South Bank.
Asking rents
The average asking rent for newly built space in the City core was £46.25 per sq ft at the end of Q4, virtually unchanged over the quarter. The highest asking rents remain at £57.50 per sq ft, which is the level sought in several high-quality buildings, including The Walbrook, EC2, and Cannon Place, EC4. Rents on tower floors can be as high as £65 or £70 per sq ft.
The EG Consensus survey put grade A City core rents at £57.50 per sq ft with 25 months rent-free.
Construction
There is 4.35m sq ft under construction in the City core plus another 1.25m sq ft in stalled development The Pinnacle, 24 Bishopsgate, EC2. Some 1.6m sq ft has been prelet, leaving 2.75m sq ft of speculative development in progress and being actively marketed, plus The Pinnacle. The largest developments under construction are 122 Leadenhall Street and 20 Fenchurch Street, EC3 – both of which are almost half under offer or prelet – Moorgate Exchange, EC2, (267,500 sq ft) and Sixty London, EC1, (217,100 sq ft).
Some 1.07m sq ft was put under construction during Q4, the majority of which was in Bloomberg Place, Bucklersbury, EC2, which is 880,000 sq ft in total but 500,000 sq ft will be occupied by Bloomberg. The balance of the new construction in Q4 was accounted for by the Royal Bank of Canada Centre, 71 Queen Victoria Street, EC4, which is being refurbished and having a new floor and a new façade added.
Investment
Q4 2012 saw 1.38m sq ft of City core building stock change hands in 18 transactions, taking the total for the year to date to 6.84m sq ft – which exceeds the total for 2011 by 43%. The largest building sold this quarter was the 350,000 sq ft 100 Old Broad Street, EC2, sold by KanAm Grund Kapitalanlagegesellschaft MBH to Invesco Real Estate backed by sovereign wealth fund China Investment Corporation. The price is reported to be £250m, reflecting a yield of around 6%.
The City Corporation sold 20 Finsbury Circus, EC2, for £42.9m to Japanese telecoms company NTT Europe, equating to an initial yield of around 7.9%. The City Corporation will retain the freehold.
St Martin’s Court, 10 Paternoster Row, EC4, was sold by Legal & General to Oxford Properties Group for £110m. The building is 101,400 sq ft and includes CBRE among its occupiers.
5 Aldermanbury Square, EC2, a 259,100 sq ft multi-let building, was sold by Scottish Widows Investment Partnership and TIAA CREF to Deka Immobilien Investment GmbH for £235m, equating to a yield of 5.5%.
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