With 2010 take-up above 2009 levels, and several large occupiers hunting for space, the capital’s mood is positive. EGi’s London Offices research team ask if it can continue
The Office for National Statistics recently revealed in its final estimate that the UK economy grew by 1.2% in the second quarter 2010. This represents the fastest pace of growth in nine years and brings the annual rate to 1.7%. The level of take-up in Q3 for central London has followed suit, showing more positive results, despite the fact that summer periods tend to be quieter.
The 3.3m sq ft let in central London represents an increase in take-up of almost 30% on Q2. Q1 still proved difficult to beat, due to the exceptional level of large deals that materialised. We saw several large lettings complete, the largest of which took place at 5 Broadgate, EC2, in the City core, where UBS signed a 700,000 sq ft prelet.
Occupier demand – who are the future movers?
Although many of the large requirements have been satisfied over the past few quarters, several prominent occupiers are yet to begin their search in earnest. BNP Paribas has revived talks to take a major prelet at Argent’s King’s Cross Central, NW1. It was reported two years ago that the French bank had begun tentative discussions to take a 400,000 sq ft HQ, but talks stalled.
The bank has more than 100,000 sq ft of office space in the Square Mile, but King’s Cross Central’s close proximity to Eurostar is no doubt an attraction.
Sainsbury’s is still continuing talks to take space here, while Camden council has signed a memorandum of understanding to take 120,000 sq ft for its HQ at the development.
Another large company on the look-out for space is Bloomberg, which occupies around 300,000 sq ft in the City, mainly in two buildings on Finsbury Square, EC2, where its leases are either expiring or have a break option in 2015.
Earlier this year, it was reported that it could sign a prelet of 500,000 sq ft at The Walbrook, EC4, but that is yet to be confirmed. Perhaps the media company will instead take several smaller spaces, as indicated by the letting of 73,000 sq ft at Park House, EC2, this quarter.
It is also worth mentioning that PricewaterhouseCoopers is considering the viability of a major office requirement in the City. The accountancy giant has a lease expiry in 2015 on its offices at 1 Embankment Place, WC2. Possibilities include launching a search for more than 350,000 sq ft, or re-gearing the lease.
Speculation over whether JP Morgan will opt out of plans to move to the 1.9m sq ft Riverside South development, E14, continues to mount. It is now thought the banking giant could instead choose to remain in the City. The final decision will reportedly be made within the next few months. If this happens, Canary Wharf Group will lose its sole entire building prelet at this development, where construction has stalled.
On a positive note, it has emerged that a restructure of the Financial Services Authority will lead to a 500,000 sq ft HQ requirement in Docklands. This could be good news for CWG, with Riverside South being one of the few available locations in the Docklands providing good quality space.
London investment increases – how much further will the yields shift?
The increase in available investment stock has been coupled with an increase in demand. This has led to an improved level of transactions in the central London office market. CB Richard Ellis’ latest data shows that in Q2 investment reached £1.9bn, with overseas investors remaining active in the market and accounting for 62% of the volume. According to CBRE, German investors continued to be active. UK institutions and property companies continued to show interest and accounted jointly for one-third of the total volume, .
Two of the top investment deals this quarter took place in the City. CWG sold Drapers Gardens, 12 Throgmorton Avenue, EC2, to Evans Randall for £242.5m, reflecting a 5.2% yield. The property is fully let to BlackRock Investment Management. The same purchaser, Evans Randall, disposed of Milton Gate, EC1, to Middle Eastern investor AGC Equity Partners for £164m, reflecting a yield of 6%.
According to CBRE, prime office yields fell in Q2 to 5.5% in the City and 4.25% in the West End. Overall, prime yields have compressed in each market by 125 basis points since the middle of last year. However, one of the most important questions for the market remains to be answered. Will this trend continue or will we see a move in the opposite direction, prior to stepping on a steady path of economic growth?
News on development
The main development story of the quarter was the completion of Minerva’s mixed-use scheme, The St Botolph Building, EC3. The property offers 522,000 sq ft of office space, just over 50% of which is still available.
Elsewhere in the City, site preparations are under way at Land Securities’ Walkie Talkie scheme at 20 Fenchurch Street, EC3. It appears that construction could start at the end of this year. Canary Wharf Group is expected to be announced as LandSecs’ development partner. In addition, LandSec is looking to sell a 25% equity stake in the development, with rumours that it has entered into negotiations with China Investment Corporation.
Overview
Going forward, we are hoping to see a much more positive end to this year than the previous two. Although some economic uncertainty remains, take-up in 2010 so far has already exceeded that for the whole of last year.
Prime rents are rising, both in the City and West End. The general consensus is that the City will experience a shortage of prime office space in the near future. This, combined with improving occupier demand, is expected to result in higher prime rents, an example of which can be seen in the terms agreed with UBS on its prelet at 5 Broadgate, EC2.
When completed, UBS will pay an initial rent of £54.50 per sq ft linked to the RPI annual index. This is up from a prime City rent of £45 per sq ft in Q4 2009. Nevertheless, there is no shortage of secondary property, and so no such rise is expected to occur in the secondary market in the medium term.
What London Offices monitors
Markets
City core EC1A, EC2M, EC2N, EC2R, EC2Y, EC2V, EC2A (only Finsbury Pavement, Finsbury Square, Appold Street and Chiswell Street), EC3, EC4 (excluding EC4A and EC4Y)
City fringe EC1M, EC1N (excluding postcode sector 2), EC1R, EC1V, EC1Y, EC2A (excluding Finsbury Pavement, Finsbury Square, Appold Street and Chiswell Street), E1
Southbank SE1 postcode sectors 0, 1, 2 and 9
Docklands E14
Midtown EC4A and EC4Y, EC1N (postcode sector 2), WC1, WC2 (excluding Leicester Square)
West End W1, SW1, NW1 sectors 2 (Euston Road only), 3, 5 and 6, Leicester Square (WC2) and W2 sectors 1, 2 and 6
Additional markets
South Central Remainder of SE1 and all of SE11
North Central Remainder of NW1 and N1, N7 and E8
West Central Remainder of W2 and all of W6, W8, W14, SW3, SW5, SW6, SW7 and SW10
Data
Building stock Any office building more than 93m2 (1,000 sq ft) in City Core, West End, Midtown, Docklands, City Fringe and Southbank and more than 465m2 (5,000 sq ft) in North Central, West Central and South Central
Availability Any unit more than 93m2 (1,000 sq ft) in buildings subject to the above stock thresholds
Take-up Any unit more than 232m2 (2,500 sq ft) subject to stock thresholds
Planning Any project more than 232m2 (2,500 sq ft) subject to stock thresholds
Definitions
Quarters For data collation reasons, our quarters run from the 1st of the month to the last day of the 3rd month: ie, 1 January to 31 March; 1 April to 30 June; 1 July to 30 September and 1 October to 31 December. For space reasons, some data in this report is given in half-years.
Agency league tables The total space disposed by each agent adds up to more than total take-up. This is because space in joint agency deals has been attributed to all agents involved. The market share is each agent’s share of take-up, not the total of all agents. The tables include all completed deals more than 93m2 (1,000 sq ft) within our boundaries, including prelets and excluding space under offer, lease renewals, restructures, management agreements or investment sales.
Availability rates Total building stock figures divided by vacant space that is actively being marketed. Neither figure includes space under construction or yet to commence construction.
Availability and take-up New/refurb (existing) is a combined total of newly constructed and refurbished space; Premarketing is any space marketed which is yet to commence construction; Secondhand is any space which has previously been occupied; Under Construction is a combined total of refurbishment and redevelopment projects under construction. Space under offer is included. Investment properties are not included.
Average asking prices An average of asking prices by grade of space by market. Only space available on new leases with a quoting rent is collated. Space under offer has been included. Please note that secondhand grade A space is previously occupied units with air-conditioning and one or more of raised floors, underfloor trunking or perimeter trunking.
Investment sales Subject to stock thresholds, a total of space sold as freehold, long leasehold or virtual freehold, both for investment and for owner occupation.
Construction starts with prelets A total of space commencing refurbishment or redevelopment by quarter with a total of that space prelet. This includes space not on the market.
Completed space actively marketed Simply a total of completed refurbishments and redevelopments being actively marketed by quarter. Includes space let but never occupied.
Completions with space available A total of all office space currently under construction by completion date with how much is still available. This includes space not on the market.
Central London letting agents league table – q3 2010
DTZ in pole position as Cushman & Wakefield makes top five
For the first time since the first quarter of 2009, DTZ takes the top spot this quarter. It disposed of 1.16m sq ft and completed 39 transactions. Its position is largely attributable to acting on the largest deal of the quarter at 5 Broadgate, EC2, where 700,000 sq ft was prelet to UBS, joint with second placed Knight Frank, which also took a 28% market share.
CB Richard Ellis and Jones Lang LaSalle both slipped two places this quarter to take third and fourth place respectively. After both achieving a 9% market share, only 4,500 sq ft of disposals separated the two positions. Cushman & Wakefield moved up one place to fifth after completing 32 transactions, while King Sturge slipped two places to sixth after disposing of 245,500 sq ft and taking a 6% market share.
Edward Charles & Partners makes top ten
West End office agent Edward Charles & Partners climbed an impressive six places to seventh this quarter. Its largest transaction, joint with Cushman & Wakefield, was at 242-246 Marylebone Road, NW1, where BNP Paribas took 55,000 sq ft. Savills retained its eighth place position from the last quarter, taking a 5% market share, and Strutt & Parker climbed one place to take ninth. Completing the top-ten and slipping three places from the last quarter, BNP Paribas Real Estate takes 10th place after completing 17 deals totalling 199,500 sq ft.
Agents share by numbers of disposals done – q1, 2&3 2010
This analysis details the top agents by number of disposals done and has been separated out to reveal, where applicable, which office and therefore which market is more active.
It is CB Richard Ellis which tops the table, with a total of 157 deals after being slightly more active in the City, where it completed 54% of its deals. The agent completed 53 more deals than this time last year, and has completed 28 more deals than second placed DTZ which, in contrast, has been more active in the West End.
DTZ’s largest deal in this market, joint with third placed Knight Frank, was at 20 Triton Street, NW1, where 80,000 sq ft was let to Lend lease. King Sturge was also more active in the West End, while Jones Lang LaSalle, Strutt & Parker and Allsop fared better in the City. Savills and GVA completed a fairly even spread of deals between the two markets
Sole office agents Richard Susskind & Co, EA Shaw and Edward Charles & Partners again performed well in their markets, completing 80, 68 and 61 deals respectively, and all making the top-ten. Kinney Green and Pearl & Coutts make the table for the first time, both being more active in the City market.
The City is still leading over the West End in terms of the number of deals completed which are attributable to a specific office – 787 to 655.
