Knight Frank secured top spot in the overall Q3 London Office Market Analysis league table, disposing of 913,137 sq ft of office space.
While narrowly edging JLL into second place by just over 23,000 sq ft, Knight Frank failed to make it to the top of any of the individual submarket tables and completed fewer deals in Q3 than all but one of the other top five agents.
However, its involvement in two of the biggest deals of the quarter – the 469,000 sq ft prelet to Deutsche Bank at 21 Moorfields, EC2, and the 104,000 sq ft letting to Spotify at The Adelphi, WC2 – helped push it from fourth in Q2 to first in Q3.
Q2’s top agent, Cushman & Wakefield, had to settle for fifth spot this quarter with 634,945 sq ft disposed, despite being Q3’s second-most prolific agent, completing 57 deals.
Savills’ impressive performance in the City Core helped it to fourth place, while Farebrother made a return to the top 10. It finished eighth, with 226,973 sq ft disposed, largely due to its involvement in the 83,157 sq ft Verizon deal at MidCity Place, WC1.
SUBMARKETS
It was a good quarter for the City core, with take-up at 1.1m sq ft – the highest since Q4 2016.
Last quarter’s winner, JLL, was displaced from the top spot as Savills’ and Knight Frank’s involvement in the 469,000 sq ft Deutsche Bank prelet at 21 Moorfields, EC2, lifted them both well clear of the rest.
Savills was number one, with 548,162 sq ft disposed over a total of 12 deals. Knight Frank took second place, with 542,472 sq ft of disposals across 11 deals.
Cushman & Wakefield’s third-place finish came largely as a result of its prolificacy, completing 22 deals – nine more than the City core’s next busiest agent – and disposing of 192,149 sq ft.
Take-up in the City fringe was lower than at any point during the last two years, at just 240,865 sq ft.
SEE ALSO: Nightmare on city fringe?
Colliers International finally regained its City fringe crown with a market share of 48%, toppling Cushman & Wakefield in the process.
It not only disposed of more space than any other agent (149,512 sq ft), but also completed 34 deals – 12 more than second-placed Anton Page, which disposed 75,476 sq ft, giving it the firm’s highest finish in the table in three years.
Cushman & Wakefield had been table topper for both of the last two quarters – disposing 228,003 sq ft in Q2 – but failed to feature in Q3’s top five.
The paltry levels of take-up in the Docklands continued in Q3, with just 12,498 sq ft taken in a submarket that has all but ground to a halt.
Just one, 5,746 sq ft disposal to Threepipe Communications, at 2 Clove Crescent, E14, was enough for Allsop and CBRE to share the spoils, removing Q2’s top agent, Knight Frank, from its modest perch.
You need to go back to pre-2016 to find better take-up figures for the Midtown market, with a healthy 654,782 sq ft disposed during Q3 2017.
Last quarter’s top two Midtown agents swapped positions in Q3.
Despite Cushman & Wakefield’s involvement in the Midtown deal of the quarter – the 104,052 sq ft Spotify deal at The Adelphi, WC2 – it wasn’t quite sufficient on this occasion to beat CBRE, which finished top through sheer weight of deal numbers.
CBRE’s involvement in two deals in particular – a 45,368 sq ft disposal to University College London at Aurora, 90 High Holborn, WC1, and the 38,749 sq ft Verizon deal at MidCity Place, WC1 – contributed to a total of 258,002 sq ft from 16 completed deals, representing a market share of 34%.
Take-up in Q3 of 211,899 sq ft in the Southern fringe was up on the corresponding quarter in 2016, but down considerably on Q2 2017.
However, it is worth noting that the Q2 take-up figure of 468,838 sq ft was skewed by the massive 283,450 sq ft WeWork deal at Southbank Place, SE1.
The most significant deal of Q3 was the 46,220 sq ft JLL deal with The Ministry of Sound, at 79-81 Borough Road, SE1, but it was not enough to secure the top spot.
Union Street Partners just edged it, with 19 completed deals and 91,432 sq ft disposed – a market share of 38%.
A 23,551 sq ft deal to WeWork at Southbank Tower, SE1, was the largest Q3 Southern fringe deal in which Union Street Partners were involved.
Q2’s top agent, Cushman & Wakefield, failed to feature in the top five.
West End take-up of 726,553 sq ft in Q3 was an increase on both the preceding quarter and the corresponding quarter in 2016, though it did not quite reach the heights of Q1 2017.
CBRE was once again both the busiest and the best agent, continuing its stranglehold on the top spot in this particular submarket. It has finished as the top agent in London’s West End for five of the last seven quarters, and has never finished lower than second during that time.
During Q3, 275,209 sq ft of disposals, spread over 19 deals and representing a 33% market share, was enough for CBRE to hold on to its top spot.
It was approximately 60,000 sq ft ahead of second-placed JLL, and disposed almost double the amount achieved by third-placed Cushman & Wakefield.
Cushman & Wakefield’s 149,784 sq ft disposed, over 17 completed deals, put it just ahead of fourth-placed Pilcher Hershman.
And it was no surprise that the West End’s biggest deal of the quarter also saw the involvement of CBRE – along with Pilcher Hershman and JLL – in a 123,500 sq ft disposal to The Boston Consulting Group at 80 Charlotte Street, W1.
INVESTMENT
Continuing overseas investment in London assets drove the highest spend in a quarter so far this year, with total London office investment volumes for Q3 topping £3.9bn.
The figure is up by 14% on the £3.4bn transacted in Q2, and is more three times the amount transacted in the equivalent quarter last year.
The total is also the largest invested in a third quarter for more than three years, and up by 30% on the five-year Q3 average.
Investment transactions continued to be driven by foreign investor activity, with all of the top 10 sales of the quarter to overseas investors.
Figures in Q3 were boosted by the £1.28bn sale of the Walkie Talkie at 20 Fenchurch Street, EC3, to Asian purchaser Lee Kum Kee Health Products Group, which accounted for over a third of the quarter’s total investment spend.
It is the second quarter in a row where the largest deal has taken place in the City core, putting the submarket at the top of the league for investment spend.
Midtown also performed well, with investment up by more than £675m on Q2.
And Docklands finally got its first deal of the year, with the £410m sale of 20 Canada Square, E14, to Hong Kong billionaire Chen Hongtian.
Investment for the year so far totals £10.6bn, just £1.75bn shy of the 2016 total.
As Q4 tends to be the strongest of the year, and with foreign investors continuing to pour money into London, 2017 should exceeded that.
There are a host of trophy assets being marketed, including Verde, SW1, for £500m; 15 Canada Square, E14, for £400m; and 1 Silk Street, EC2, for £400m.
The map below shows the top ten deals of Q3, click on the dots to see price and agent information. The larger the dot, the higher the price.
The three agents involved in the Walkie Talkie transaction occupy the top three places in EG’s London office investment Q3 league table.
CBRE and Eastdil Secured advised the vendors, while Cushman & Wakefield represented the purchaser.
CBRE re-gained its place at the top and was involved in six of the top 10 deals (see map).
It acted on more than £2.3bn of deals, giving it a 27% market share.
There were strong performances across the board, with many agents considerably improving their transaction values from Q2.
JLL secured fourth place with a £700m increase, due to its involvement in four of the top 10 deals.
Knight Frank transacted over £400m more than Q2, and both GM Real Estate and Capital Real Estate saw their investment volumes rise by £200m.
Click here for LOMA Q1 and Q2 coverage
TAKE-UP
Preletting activity bolstered a busy summer quarter for the London office market.
Take-up continued to bounce back in Q3, reaching just over 3.2m sq ft.
That was up by 50% on the same quarter last year – a quarter which saw take-up tumble to a four-year low following the result of the EU referendum.
In what is traditionally a quieter quarter, Q3 was surprisingly the busiest so far this year.
On the back of strong preletting activity, which accounted for more than 1m sq ft (around one third of all space let over the quarter), overall take-up was up by 3% on the five-year quarterly average.
Four of LOMA’s top five largest deals this quarter were prelets, the largest at 21 Moorfields, with Deutsche Bank committing to take 469,000 sq ft with the option of an additional 95,000 sq ft.
At Lendlease’s International Quarter in Stratford, E20, Cancer Research took a 126,960 sq ft prelet and the British Council prelet 85,057 sq ft, while over in the West End, 123,500 sq ft of Derwent London’s 80 Charlotte Street was prelet to The Boston Consulting Group.
With limited larger floor plates across London, and only around 10 existing buildings able to accommodate space requirements of more than 150,000 sq ft, preletting activity appears set to continue to be a popular option in the absence of large occupier vacations.
The amount of space currently under offer also gave strong indication of market recovery and continued demand for space across the city, with 2.1m sq ft under offer – levels not seen since 2015.
“Nightmare on City fringe?”
The City fringe saw take-up and average deal size plummet in Q3.
Take-up dropped to 240,000 sq ft – the lowest square footage in more than five years, and 42% down on the five-year quarterly average – while average deal size plummeted to the lowest ever recorded by EG’s researchers.
Only one deal strayed well beyond 15,000 sq ft – a 30,000 sq ft prelet to Alexander McQueen at 1-15 Aylesbury Street, EC1. Instead, Q3 take-up in the City fringe was largely driven by a mass of smaller deals, with 70% being in the sub-5,000 sq ft region.
The average deal size was a mere 2,367 sq ft, the lowest average deal size for this market since LOMA records began in 2005.
But what does the seemingly frightful quarter mean for the City fringe?
“This is actually more of a positive message than a negative one,” explains Shaun Simons, director of City fringe at Colliers International.
“It goes to show the City fringe is actually performing well and is suffering from a lack of supply rather than a lack of demand.
“Fundamentally, the City fringe doesn’t have the same quantity of stock as neighbouring markets like the West End and the City core, which not only makes the location hugely resilient but is also why take-up figures fluctuate during the year.
“In certain quarters, like this one, the take-up is low due to lack of product; compared with other quarters where there has been more supply and take-up has been phenomenally high.”
This lack of supply will be short lived, with some 1.3m sq ft due to complete over the next three years – almost 95% of which be delivered in 2018. Around 70% is still available, and this could act as a stimulus for driving further preletting activity off the back of growing occupier demand for new spaces in the City fringe.
“This is London’s most successful and progressive market and has been for the past five years,” says Simons. “The district is continuing to evolve and is therefore attracting more conventional operators, while continuing to see continued demand from creative and TMT occupiers.”
The data backs up Simons’ confidence in the submarket.
The TMT sector continued to drive demand in the City fringe and accounted for just shy of 50% of deals in Q3.
Deal volumes remained robust, with 82 deals completing – the second highest number for a quarter in this market since LOMA records began.
There were 10 more deals done to TMT occupiers than this time last year, and more than at the start of this year.
Further evidence for the strength of demand for the City fringe can also been seen by the total amount of space under offer at the end of the quarter, standing at around 455,000 sq ft – the highest amount of space under offer for two years.
Take-up by sector
Deutsche Bank’s prelet of 21 Moorfields boosted the financial sector to the top of sector take-up after a year’s absence.
Financial services accounted for 766,939 sq ft of take-up, some 27% of overall activity this quarter.
While the Deutsche Bank deal accounted for a large portion of the action (just over 60%), there were no other deals within this sector above 100,000 sq ft.
Similarly, only one TMT deal – Spotify’s 104,052 sq ft prelet at The Adelphi – reached the 100,000 sq ft-plus threshold.
Despite this, the sector illustrated that it continues to be a driving force for demand in London, with twice as many deals completing to TMT occupiers, giving it an overall take-up of 601,974 sq ft – just 6% behind financial services.
Availability/Supply
Despite the upward shift in take-up this quarter, Central London availability levels continued to drift further out to the highest point in over four years, rising from 7.2% in Q2 to 7.4%.
The Docklands, which has been dormant on the lettings side so far in 2017 and saw its lowest take-up since Q1 2011, experienced the highest quarterly shift upwards rising to 12.3% – its highest rate since Q1 2005.
Overall, the most notable shift upwards this quarter continued to be the amount of second-hand space on the market, which now stands at 11.7m sq ft, up by 34% on this time last year, as demand for new space and newly refurbished space continues.
While the availability of new and refurbished space increased slightly to 3.6m sq ft in Q3, it was still down by 17% on the start of the year.
Reporting by Hugh Carson, Claire Poole, Victoria Bajela and Dominika Gzegorek
This article was first published on 5 November.
