LONDON MARKETS. Analysis of the London office market Winter 2018/

Transcription

1 LONDON MARKETS Analysis of the London office market Winter 218/219 International Property Consultants

2 LET 4.5 million sq ft 11 per sq ft 7. per sq ft 68.5 per sq ft Q4 18 West End Midtown City 12.7 million sq ft 31% 5.% 22% Q4 18 Availability Availability Availability Rate Tenant Space H2 218 key deals Facebook 592, sq ft King s Cross & Euston WeWork 159, sq ft Paddington Jane Street Europe Ltd 145, sq ft City McCann Worldgroup 138, sq ft City BGC Partners 13, sq ft Canary Wharf Key schemes under construction 22 Bishopsgate 1,275, sq ft (85% available) AXA IM Real Assets / Lipton Rogers s 1 Bishopsgate 94, sq ft (11% available) Brookfield Europe Holding Ltd KGX1 King s Boulevard 87, sq ft (fully let) Google HQ, 5 Bank Street 69, sq ft (62% available) Canary Wharf Group Plc 1 Liverpool Street 435, sq ft (63% available) British Land / GIC

3 KEY THEMES AND OUTLOOK Central London 12-month rolling take-up 218 take-up by business sector Million sq ft 17% Serviced Offices 6% Associations 11% Corporate % Retail 19% Professional Services 13% Finance & Banking 3% Insurance Q4 215 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q2 218 Q3 218 Q % Media & Tech Canary Wharf East West Southbank LET Occupier sentiment continues to be strong Despite the uncertainty and political fallout surrounding Brexit, London occupiers have been more acquisitive than at any point over the last decade. 8.8 million sq ft was leased across London in the second half of the year, a 25% increase on H1. Leasing activity was particularly strong in Q4, with 4.5 million sq ft taken, the highest quarterly volume recorded since before the global financial crisis. Flight to quality increases second hand availability The ability to recruit and retain the best talent has led to occupiers targeting higher quality office space. Throughout 218, 51% of lettings were for new, grade A space, compared to the five year average of 39%. As a result, there is a lack of available grade A space, prompting an increase in pre-letting activity, but also a 24% increase in second hand availability. Media & Technology driving demand Media & Technology occupiers have once again been the main driver of occupier demand, and accounted for 28% of lettings over the last 12 months. The increasing level of demand from this sector reflects the changing nature of occupier employment, which looks set to continue despite the Government s proposed new Digital Services Tax. Increasing focus on fintech The finance & banking sector accounted for 13% of lettings in 218, with the majority of activity continuing to be located in the East, with 52% of deals signed in the City. The demand from this sector has overwhelmingly been driven by lease events in the past, however the fintech sector is increasingly becoming an area of focus for financial service firms across London. Serviced office expansion to continue Serviced offices had their most acquisitive year in 218, and accounted for 17% of central London lettings. Serviced office lettings increased by 19% over the last 12 months, demonstrating the sector s growing confidence in the market s fundamentals. Currently serviced offices occupy around 4% of London office stock, and we expect this to double over the next decade. WeWork added an extra 6, sq ft last year, which makes them the second largest occupier of space in London, behind the government. Transport and infrastructure help drive rents Improved transport and infrastructure has already had an impact on a number of our London submarkets in recent years, notably rental values in Fitzrovia, Paddington and Farringdon & Clerkenwell. We expect this to continue with the construction around HS2 at Euston, but also when the benefits are seen from Crossrail, further rental growth is anticipated. 3

4 LONDON OFFICE RENTS King s Cross & Euston Rent Free 18 months Scala Paddington Rent Free 21 months Hyde Park Regent s Park Marylebone Rent Free 24 months The Wallace Collection Selfridges Mayfair & St James s Rent Free 24 months BBC Soho Fitzrovia Rent Free 24 months Rent Free 21 months The British Library The National Gallery Covent Garden Rent Free 21 months Royal Opera House Lincoln s Inn Fields Somerset House National Theatre Southbank Centre Farringdon & Clerkenwell Rent Free 21 months Midtown Rent Free 24 months Sadler s Wells St Paul s Cathedral Tate Moder Green Park St James s Park London Eye Southbank Royal Albert Hall Science Museum V&A Harrods Knightsbridge Rent Free 24 months Buckingham Palace Westminster Cathedral Victoria Rent Free 24 months Palace of Westminster Westminster Abbey Rent Free 18 months Imperial War Museum London South Bank The Oval Battersea Power Station

5 London Victoria Park Geffrye Museum Shoreditch Rent Free 24 months Old Spitalfields Market Brick Lane Market Tower Hamlets Cemetery Park The Old Truman Brewery Barbican Centre City Bank of England Mansion House St Mary Axe Rent Free 24 months Whitechapel Gallery Canary Wharf n Tower of London Rent Free 24 months City Hall Tower Bridge Canary Wharf University Southwark Park Ten year term See inside back cover for definitions 5

6 CENTRAL LONDON INVESTMENT Investor demand for prime office buildings pushed transaction volumes to 13 billion in 218, the capital s highest volume in four years. Overseas investors, lured by the fall in sterling, a slight softening in yields, and long-term faith in London, were overwhelmingly responsible for this pattern. The largest transactions over the last 12 months have taken place in the City. Notably in the second half of the year, the National Pension Service of Korea (NPS) agreed to buy Plumtree Court, the new London headquarters of US investment bank Goldman Sachs, for 1.16bn, reflecting a net initial yield of 4%. This followed GIC s and British Land s sale of 5 Broadgate to CK Asset Holdings, for 1bn earlier in the year. Prime, long-let assets such as these, continue to be the focus of investor attention. Overseas investors were also active in the West End with DEKA Immobilien s purchase of 1 Bressenden Place for 46m in September, reflecting a NIY of 4.6%. However, beyond the headline deals, trading has been fairly quiet, particularly in the final quarter of the year, due to a combination of low stock volumes, worsening fundamentals and concern over the impact of Brexit on both occupier demand and liquidity. The valueadd deals that are still in demand, where there is an opportunity for strong income growth, but further yield compression is unlikely. As a result, 219 total investment volumes are expected to be slightly lower than the last couple of years. Market uncertainty will remain high and transactions will slow as Brexit approaches and investors hold off on decision making, as we saw in 216, until the political and economic environment becomes clearer. With an easing of demand over the next couple of years, London office performance will continue to be driven by income return, which we forecast will be 3.9% a year on average over the next five years. By the end of 22, capital values will have fallen by 2%, due to a combination of yield softening, and also a lack of strong positive rental growth. However this is expected to reverse from 221 leading to a greater total return performance. Despite the reduced investment performance forecasts over the next two years, central London offices will remain attractive due to the strong performance of the occupier market, as well as attractive looking yields and bond spreads compared to what is on offer in other European cities. Lloyd Davies Mobile +44 () ldavies@geraldeve.com Central London annual investment volumes Sources: Property Data, Gerald Eve Central London forecasts Sources: MSCI, Gerald Eve European office prime net initial yield and bond spreads Sources: Property Data, MSCI, Gerald Eve 16 billion 8. % 5. % London Dublin Lyon Barcelona Milan Stockholm Madrid Dusseldorf Frankfurt/M Amsterdam Munich Hamburg Paris Berlin Q1 Q2 Q3 Q4 Income return Capital growth Total return Prime office net initial yield Spread over 1 year bonds

7 Edgware Road PADDINGTON Paddington Patrick Ryan Mobile +44 () Lancaster Gate Hyde Park % 26.2% 49% Serviced Offices take-up 46,5 sq ft 187,26 sq ft 3 33 Paddington enjoyed its most successful year in 218, with takeup volumes reaching 54, sq ft, the highest annual volume of activity for the submarket on record. The majority of leasing activity occurred in the second half of the year, with both quarters exceeding the five year average. Serviced offices were the most active in H2 218, and accounted for 49% of all deals, which was largely driven by WeWork s sublet of 159, sq ft across seven floors at 5 Merchant Square from M&S. Another notable deal was the Premier League signing a 39, sq ft pre-let at Derwent s Brunel Building. This was in addition to Hellman and Friedman which took 2,5 sq ft across the top two floors meaning the property is now 64% pre-let. The 243, sq ft office scheme occupies a prime location, and is set to complete in H There were also a couple of lettings at the recently refurbished, The Point, highlighting the demand for grade A office space in the submarket. The Press Association took 17, sq ft across the third and part of the ninth floor, whilst A2 Dominion let 12, sq ft on the remaining part of the ninth. activity is increasing in Paddington, with three schemes currently under construction. The first to deliver will be the Brunel Building, followed by 5 Kingdom Street in 221, and Paddington Square. Paddington Square is the largest development with 355, sq ft of office space likely to be delivered in 222. The high level of leasing activity over the last 12 months has led to a significant decrease in the availability rate, which has led to a rise in prime rents to 77.5 per sq ft. Whilst Paddington has always benefitted from excellent transport links to Heathrow and the Thames Valley, the near arrival of Crossrail will increase the submarket s connectivity further, and could encourage more firms to relocate here. As a result, we expect to see more positive rental growth over the next few years. pipeline and prime rent 3 s sq ft 45 s sq ft 6 s sq ft Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q2 218 Q3 218 Q4 218 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q2 218 Q3 218 Q

8 Baker Street MARYLEBONE Edgware Road The Wallace Collection Portman Square Cavendish Square Rhodri Phillips Mobile +44 () Marble Arch % 24.8% 42% Professional Services take-up 13, sq ft 21,183 sq ft Whilst Marylebone is characterised by 18th century buildings and Cavendish and Portman Squares, recent development activity has helped boost demand. As a result, 475, sq ft was let during 218, the submarkets highest annual leasing volume since 212. Professional service firms were the most active business sector in H2 218, and accounted for 42% of all deals. This included CBRE s decision to sign a 43, sq ft pre-let expansion at Henrietta House. This is expected to complete in 22. Availability continues to be low and on a net basis, Marylebone has actually lost space over the past five years, with the amount of space demolished or converted to other uses outweighing the amount of space added through construction. As a result, the overall availability rate remains one of the lowest across central London at 2.8%. With a lack of good quality available space, new schemes are in high demand, highlighted by the development of 1 9 Seymour Street (55, sq ft), which completed in April 218 and became fully let within a few months. In the pipeline, there are two buildings under construction; the largest is Almacantar s 1 Marble Arch Place (1, sq ft), which is expected to deliver in the first half of 22; whilst Regent House, George Street (56, sq ft) is also set to complete next year. The competition for this new space, will help keep rents elevated over the next 12 months. pipeline and prime rent 3 s sq ft 4 s sq ft 45 s sq ft Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q2 218 Q3 218 Q4 218 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q2 218 Q3 218 Q

9 MAYFAIR & ST JAMES S Oxford Circus Bond Street Piccadilly Circus Hyde Park Corner Hyde Park Green Park Patrick Ryan Mobile +44 () pryan@geraldeve.com St James s Park % 8.3% 38% Finance & Banking take-up 231, sq ft 152,153 sq ft Leasing activity remained strong throughout 218, with over 1.1 million sq ft taken, and with each quarter exceeding the five year average. This was the largest annual volume of space leased since 27 and demonstrates that high occupier demand for Mayfair & St James s remains. This level of leasing activity looks set to continue in 219 with over 15, sq ft of space currently under offer. The finance and banking sector was the most active in the second half of the year, and accounted for 38% of the deals. Notably Houlihan Lokey took 44, sq ft at 1 Curzon Street. Having grown their business through a number of acquisitions, the Los Angeles-based firm signed a lease on the third and fourth floors and expects to move in during the first quarter of 219. Elsewhere, investment managers Lansdowne Partners signed an 18, sq ft pre-let at 25 Berkeley Square, which is currently being refurbished by Lazari, and Cerberus Capital Management took 21, sq ft across the first four floors at 5 Saville Row. Due to tight planning restrictions, new office developments rarely add significant amounts of new space in the submarket. However the construction of 18 2 Hanover Square, which started on site as part of the Crossrail project, will deliver 163, sq ft of new high quality space next year, 65% of which is currently available. The completion of this scheme, along with other projects such as 65 Davies Street (65, sq ft) will add some much needed grade A office space to the locality and could lead to an increase in prime rents as occupiers compete. pipeline and prime rent 4 s sq ft 16 s sq ft 6 s sq ft Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q2 218 Q3 218 Q4 218 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q2 218 Q3 218 Q

10 Hyde Park Green Park KNIGHTSBRIDGE Sloane Square Victoria Sophie O Sullivan Mobile +44 () sosullivan@geraldeve.com % 32.2% 52% Professional Services take-up 67, sq ft 8,771 sq ft Leasing activity remained subdued throughout 218 with take-up volumes totalling only 64, sq ft, a 45% decrease on 217. The professional service sector was the most active in the second half of the year, and accounted for 52% of all lettings. Notably real estate investment firm, Round Hill Capital took 11,4 sq ft at 1 Knightsbridge on an assignment. Elsewhere, Exor Investments took 4, sq ft at 28 Headfort Place, whilst CapitalRise Finance Ltd and YX Capital Partners took space at 18 Coulson Street and 21 Knightsbridge respectively. Availability remains low in the market and with only two schemes delivered over the last 1 years; Sloane Street (78, sq ft) in 216, and 5 Sloane Avenue (22,5 sq ft) completed in 217, there is limited grade A space available. 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, 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 3, sq ft of grade A space with the refurbishment of 27 Knightsbridge, which will help ease the supply squeeze for grade A office stock. Despite the lack of recent leasing activity, Knightsbridge s low availability and its prestigious location means properties here can still command high rents. pipeline and prime rent 1 s sq ft 25 s sq ft 9 s sq ft Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q2 218 Q3 218 Q4 218 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q2 218 Q3 218 Q

11 Green Park Hyde Park Green Park Hyde Park VICTORIA Victoria Westminster Palace of Westminster St James s Park Rhodri Phillips Mobile +44 () rphillips@geraldeve.com Pimlico % 25.1% 64% Serviced Offices take-up 169, sq ft 116,689 sq ft Following a slow down during the summer months, leasing activity picked up at the end of the year, with 262, sq ft taken in Q4. However, despite this increase in demand, a sharp rise in tenant space has resulted in an availability rate of 7%, the second highest across central London. However this should begin to recede as more firms relocate to Victoria, with currently 117, sq ft under offer. Firms from a variety of industries, across central London, are moving to Victoria, attracted by the new developments that have been delivered, and improved infrastructure. In particular, the market is attracting demand from serviced office firms looking to bring start-ups into the area, and in H2 218, serviced offices were the most active sector accounting for 64% of deals, with Regus IWG s 8,5 sq ft at 25 Wilton Road, the most significant. Despite the recent drop in demand, prime rental growth is expected to continue over the next few years as near-term fundamentals will be supported by a lack of further new construction. Following the recent completion of London & Oriental s Buckingham Green scheme (55, sq ft), and Quadrum s 21 Dartmouth Street in Q1 219 (53, sq ft), there are few new development starts expected in the near term. However there are a number of refurbishment projects coming through, notably 64 Victoria Street, which will deliver 1, sq ft in Q pipeline and prime rent 45 s sq ft 1 s sq ft 7 s sq ft Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q2 218 Q3 218 Q4 218 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q2 218 Q3 218 Q

12 Tottenham Court Road Oxford Circus Soho Square Gardens SOHO Golden Square Sophie O Sullivan Mobile +44 () sosullivan@geraldeve.com Piccadilly Circus Leicester Square % 31.3% 33% Media & Technology take-up 163,25 sq ft 88,629 sq ft Occupier sentiment in Soho continues to be positive with leasing activity exceeding the five year average in both the final two quarters of 218. Across the year, 371, sq ft was leased, which represents a 25% increase on 217. Occupier demand has held up better in Soho than in other parts of central London since the referendum, supported by the market s enduring popularity with firms from the media and technology sector. In H2 218, this sector accounted for 33% of total take-up, including Mubi UK leasing 9, sq ft at 7 burgh Street; and Total Media taking 8, sq ft at 7-12 Noel Street. Elsewhere, WeWork continued to take space, adding 21,3 sq ft at 21 Soho Square in Q4. Continued infrastructure improvements and more upmarket retail and leisure options, particularly along the eastern end of Oxford Street, where Crossrail will arrive, have also helped keep the market attractive to occupiers. However despite this, the market has recently lost some occupiers to other parts of London, notably; Framestore, COS and Turner Broadcasting have left the submarket for Midtown and the City, respectively, while Sony Pictures agreed a deal to move to Paddington in April 218. As a result the availability rate for the market has increased slightly. Currently there is only one notable scheme under construction, Soho Estates Ilona Rose House, which will deliver 163, sq ft in 22. However following recent development successes such as 3 Broadwick Street, and 1 Dean Street, it is expected that most, if not all of this scheme will be let before completion. The next significant scheme in the pipeline is Derwent London s Soho Place, which will bring 29, sq ft of new space to the market in 222. With strong demand for this new, high quality space, we expect to see a gradual increase in prime headline rents over the next few years, keeping Soho as one of the most expensive office locations in London. pipeline and prime rent 16 s sq ft 4 s sq ft 35 s sq ft Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q2 218 Q3 218 Q4 218 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q2 218 Q3 218 Q

13 University College London FITZROVIA RIBA Goodge Street Russell Square British Museum Rhodri Phillips Mobile +44 () Wigmore Hall Oxford Circus Tottenham Court Road % 2.4% 25% Serviced Offices take-up 412, sq ft 57,61 sq ft Despite a slow start to 218, amplified by the lack of availability, leasing activity picked up in the final two quarters of the year where 267, sq ft was leased, a 61% increase on the first half of the year. During this period, serviced office firms were the most active and accounted for 25% of all deals. Notably Knotel took 23, sq ft at 11 Cavendish Street. The York serviced office provider, has taken the fourth floor of the building, on a new 1-year lease. In addition, WELPUT announced that the British Olympic Association (BOA) and the British Paralympic Association (BPA) have taken 11, sq ft on a 1-year lease, taking the building to full occupancy. Whilst the overall availability rate has fallen to 3.1% in Fitzrovia, the increased presence of serviced office firms has led to a rise in availability for smaller units, as firms looking for less space are migrating towards serviced offices instead of traditional leases. However the local amenities plus the benefits of Crossrail at Tottenham Court Road, mean that demand for new, larger lot sizes remains strong. This is demonstrated by 8 Charlotte Street, one of the largest developments in the West End, which is now fully let despite being 12 months from completion. With only Great Portman Estates One man Street (8, sq ft) in the pipeline, and the refurbishment of 3 Cleveland Street (39, sq ft), as well as retailer Look s decision to cancel its move to King s Cross, thus retaining its head office at 45 Mortimer Street, overall availability is expected to fall further over the next 12 months leading to a rise in the prime headline rent to 85 per sq ft. pipeline and prime rent 25 s sq ft 5 s sq ft 8 s sq ft Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q2 218 Q3 218 Q4 218 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q2 218 Q3 218 Q

14 Lincoln s Inn Fields COVENT GARDEN Leicester Square Covent Garden Sophie O Sullivan Mobile +44 () sosullivan@geraldeve.com Charing Cross Embankment River Thames % 16.7% 4% Professional Services take-up 59, sq ft 135,323 sq ft Since the EU referendum in June 216, Covent Garden has been one of London s best performing submarkets with several significant lettings taking place amid strong demand from firms in the media and technology sector. However, during 218 leasing activity eased off, with only 479, sq ft leased across the year, 47% less than in 217. Professional service firms were the most active during the second half of the year representing 4% of lettings. This included law firm Harbottle & Lewis, taking 3, sq ft at 7 Savoy Court. However, whilst larger, newer buildings have recorded strong demand recently, the availability of smaller buildings has been rising since mid-216. One possible cause could be the increasing presence of serviced office firms in the submarket, which has lured smaller firms that might previously have signed traditional leases elsewhere (a trend which is replicated across much of London). The likes of WeWork and Regus have both taken sizeable spaces in Covent Garden recently, WeWork leased 131,5 sq ft at Kingsway and Regus took 31, SF at 6 62 St Martin s Lane in 218. The largest deal over this period was signed by Rothsay Life. The insurance firm signed a 49, sq ft pre-let at The Post Building, a move would triple its London footprint as they currently occupy 14, sq ft at the Leadenhall Building. The Post Building, which is one of Covent Garden s largest speculative developments, completes in Q1 219, and is now 7% let, highlighting the market s draw for new high quality space. Elsewhere, Google took an extra 2, sq ft at Central St Giles in Q4. pipeline and prime rent 35 s sq ft 8 s sq ft 5 s sq ft Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q2 218 Q3 218 Q4 218 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q2 218 Q3 218 Q

15 Euston MIDTOWN Russel Square Farringdon Holborn Museum of London Chancery Lane Amy Bryant Mobile +44 () Picadilly Circus Leicester Square Blackfriars % 13.3% 25% Serviced Offices take-up 12, sq ft 261,648 sq ft 7 76 Leasing activity continued to be strong in Midtown throughout 218, with each quarter exceeding the five year average and over 1.6 million sq ft of space taken. This is a 54% increase on 217. The largest deal in the second half of the year was signed by Deloitte Digital, which is returning to Athene Place in 22, having signed terms for 1, sq ft. Athene Place was acquired by Henderson Park and Endurance Land and Deloitte, which previously occupied the entire building, will relocate its digital side of the business to the building. Whilst Midtown has traditionally been associated with the legal profession, in recent years a more diverse range of occupiers has been attracted to the submarket. Over the last six months a number of serviced offices have signed deals, including The Office Group (4, sq ft), and Office Space In Town (38, sq ft) at Summit House and 22 Tudor Street respectively. Elsewhere Gartner (53, sq ft), and The Health Foundation (26, sq ft), took space at 8 Salisbury Square. The combination of strong demand and a slowdown in new deliveries has resulted in a fall in the availability rate to 3.7% from 5.6% 12 months ago. There is currently 12, sq ft under construction across three schemes, namely AXA s One Smart Place, Mayfair Capital s 16-2 Red Lion Street, and Lenta s Thanet House, 231 Strand. pipeline and prime rent 6 s sq ft 14 s sq ft 12 s sq ft Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q2 218 Q3 218 Q4 218 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q2 218 Q3 218 Q

16 KING S CROSS & EUSTON Mornington Crescent King s Cross Euston % 44.7% Rhodri Phillips Mobile +44 () rphillips@geraldeve.com 96% Media & Technology take-up 383, sq ft 3,19 sq ft 6 6 Leasing volumes fell just short of 1 million sq ft across 218, which is King s Cross & Euston s best year since 214 in terms of take-up. This was largely a result of Facebook s 592, sq ft pre-let across three buildings around Canal Reach. This was London s second-largest office letting in the past decade and further builds on the market s reputation as a destination for creatively-led businesses along with Google, Universal Music, and media multinational Havas. Facebook are expected to occupy its new space on completion in 221. The high demand for new, high quality space in this market has led to a flurry of pre-letting activity, and all new deliveries have performed extremely well. Such robust demand has meant that the overall availability rate remains the lowest across all of the central London markets despite the volume of new deliveries in the region. Whilst there is high demand for new, grade A space, the market has seen an increase of tenant space released back to the market, which has increased the availability rate slightly. However, despite a number of upcoming refurbishments; including Wellcome Trust s 21 Euston Road (61, sq ft); and Lazari s Stephenson House (147, sq ft); the availability rate is likely to remain at relatively low levels over the next few years, as the majority of schemes currently under construction or expected to start imminently are either fully pre-let or under offer. As a result, we expect to see further prime rental growth over the next few years. pipeline and prime rent 8 s sq ft 3 s sq ft 4 s sq ft Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q2 218 Q3 218 Q4 218 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q2 218 Q3 218 Q

17 FARRINGDON & CLERKENWELL Old Street Barbican % 12.6% Amy Bryant Mobile +44 () % Media & Technology take-up 547,292 sq ft 182,85 sq ft Chancery Lane Farringdon Farringdon & Clerkenwell enjoyed a strong second half of the year with take-up volumes reaching 1.3 million sq ft. The submarket s growing appeal to creative firms, combined with the upcoming arrival of Crossrail at Farringdon station, and a host of recent refurbishments, is a real draw to occupiers in search of larger lot sizes. The media and technology sector was the main driver of leasing activity and accounted for 45% of all deals. Notably Ticketmaster took 63, sq ft at St John Street, Live Nation took 59, sq ft at the Farmiloe Building, 34 St John Street, The Trade Desk took 54, sq ft at 1 Bartholomew Close, and social media company LinkedIn took 5, sq ft at The Ray, 119 Farringdon Road. Following the LinkedIn deal, The Ray was fully let on completion, highlighting the high demand for new space in the market. This is also the case for 17 Charterhouse Street (16, sq ft), which will be delivered in 22 but already fully pre-let by Anglo American. The high level of leasing activity, as well as the demolition of a couple of large, empty buildings, namely 15 Holborn and 17 Charterhouse Street, has reduced the overall availability rate to 3.1%. This is likely to remain low in the near term, with Crossrail s imminent arrival likely to lure more firms to this increasingly popular part of London. pipeline and prime rent 9 s sq ft 14 s sq ft 1 s sq ft Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q2 218 Q3 218 Q4 218 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q2 218 Q3 218 Q

18 SHOREDITCH Shoreditch High Street Brick Lane Market Old Spitalfields Market Whitechapel Fergus Jagger Mobile +44 () Liverpool Street % 3.2% 52% Media & Technology take-up 433, sq ft 4,617 sq ft Shoreditch ended the year positively with leasing activity reaching 251, sq ft, exceeding the five year average. This raised the annual take-up volume to over 88, sq ft, a 1% increase on 217. Media and technology occupiers were the most active in the second half of the year and accounted for 52% of all deals. Notably there were two deals at 1 Leman Street; firstly Exponential-E Ltd took 65, sq ft across six floors; and Forward 3D Ltd took 25, sq ft. Elsewhere in the market, serviced offices continued to increase their presence with Fora taking 37, sq ft at Folgate Street. The robust levels of demand have led to a fall in availability across the year, from 5.7% to 3.6% in December 218. During this period there was 445, sq ft of development completions, however 8% of this space was let on completion so the amount of new space released to the market was limited. Currently there is 438, sq of new space under construction which will be delivered over the next two years. Notably Great Portland Estates Cityside House will complete later this year, will add 75, sq ft of new space to the market. In 22, Cain International s The Hewett (7, sq ft), and The Bard (137, sq ft), will be delivered although these are now fully let. pipeline and prime rent 35 s sq ft 6 s sq ft 5 s sq ft Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q2 218 Q3 218 Q4 218 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q2 218 Q3 218 Q

19 Farringdon CITY Liverpool Street Cannon Street % 22.5% Steve Johns Mobile +44 () % Finance & Banking take-up 4,1, sq ft 844,69 sq ft The City has performed well over the last 12 months with leasing activity totalling 4.7 million sq ft, a 24% increase on 217. Net absorption has been stronger here than in most London submarkets, with high pre-letting activity preventing a spike in the overall availability rate despite significant development activity. Notably Hiscox, Beazley and AXA agreed the first pre-lets at 22 Bishopsgate, the City s largest scheme under construction, and in Q4 McCann Worldgroup announced plans to relocate 11 of its agencies to a single site by taking 138, sq ft at 135 Bishopsgate. Encouragingly, firms are also moving here from other submarkets, boosting net absorption. A combination of robust rental growth, and high pre-letting activity, has led to increased developer confidence and a high volume of construction starts since 215. Indeed, 219 is set to be a big year for deliveries, with over 1.4 million sq ft of office space set to complete over the next 12 months, more than any other submarket. Overall there is currently 4.1 million sq ft under construction across 13 schemes, with 31 % of the space already leased. In 219, the largest scheme to complete will be 1 Bishopsgate (914, sq ft), although due to an increasing demand for high quality office space, only 11% of this space remains available. Other notable schemes which will deliver this year include 135 Bishopsgate (62% available), 51 Eastcheap (1% available), and Premier Place (1% available). 22 Bishopsgate (1.275 million sq ft) will deliver in 22, with 85% of space currently available. pipeline and prime rent 1.6 Million sq ft 6 Million sq ft 4. Million sq ft Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q2 218 Q3 218 Q4 218 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q2 218 Q3 218 Q

20 Embankment Oxo Tower Tate Modern SOUTHBANK Waterloo London Bridge Elephant and Castle % 14.1% Fergus Jagger Mobile +44 () % Serviced Offices take-up 341,8 sq ft 11,395 sq ft Southbank leasing activity reached 1.1 million sq ft in 218 with Q4 exceeding the five year average. Serviced offices continued to increase their presence in the region and accounted for 33% of take-up over the last six months. Notably WeWork agreed to lease eight floors at Kennedy Wilson s Friars Bridge Court, totalling just over 85, sq ft. Elsewhere media and technology company, Cloudflare took 34, sq ft on the 6th floor on Westminster Bridge Road. The recent rise in lettings has led to an overall decrease in the availability rate, which has fallen to 3% from 4.1% over the last 6 months. With limited available space in the development pipeline, a substantial rise in availability is not likely in the near term, and therefore prime rents should remain flat. The majority of development activity under construction is surrounding the redevelopment of the Shell Centre. Vertical construction completed on the 273, sq ft One Southbank Place in August 218, and the 29, sq ft Two Southbank should complete at the beginning of 22. One Southbank Place will hold the headquarters for Shell International s downstream business once fit out is complete later this year. Two Southbank has been leased in its entirety to WeWork in a 2-year deal. The two buildings are part of Braeburn Estates 1.5-million sq ft redevelopment of 5.5 acres adjacent to London Waterloo station. pipeline and prime rent 6 s sq ft 9 s sq ft 1 Million sq ft Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q2 218 Q3 218 Q4 218 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q2 218 Q3 218 Q

21 East India Poplar Blackwall CANARY WHARF Canary Wharf Steve Johns Mobile +44 () South Quay % 32.5% 49% Professional Services take-up 1,29,14 sq ft 196,687 sq ft 1 33 Canary Wharf s office market has weakened over the past couple of years, following a strong , when firms such as Deutsche Bank, KPMG, EY and the Government Property Unit (GPU) moved staff here from other parts of London. While there have been some successes in 218, such as The Office Group taking a combined 126, sq ft at 1 Canada Square and 15 Water Street, Wood Wharf, and BGC Partners taking 13, sq ft at 5 Churchill Place, overall leasing activity has slowed and net absorption has turned negative. Space has also been released to the market at 15 Westferry Circus and 5 Canada Square. The delivery of new schemes such as One Bank Street, could also lead availability to rise further over the next couple of years. Canary Wharf will however be supported to an extent, due to having; a broader tenant base than in the past; lower rents than other central London submarkets; and by Crossrail s arrival boosting connectivity and making the area more attractive to occupiers. Construction activity has picked up in Docklands recently, with the completion of the 69, sq ft HQ, 5 Bank Street development scheduled to complete in 219. The Canary Wharf Group is also pressing ahead with the preparations for the second phase of its huge mixed-use scheme at Wood Wharf in 219, which is set to include more than 3, sq ft offices that are largely aimed at the media & technology sector. pipeline and prime rent 6 s sq ft 25 s sq ft 16 Million sq ft Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q2 218 Q3 218 Q4 218 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q2 218 Q3 218 Q

22 CENTRAL LONDON RENT REVIEWS There is little if any rental growth currently being seen across central London and five years ago, when passing rents were set, rents were rising sharply. It is therefore perhaps no surprise to see that our statistical analysis identifies that in many areas rent reviews are unlikely to see material uplifts. However, this isn t the experience we are seeing in the market: why? 1. The effect of rent free periods The right hand column in the map looks at the uplifts that would occur if there were no rent free periods being granted. As can be seen, the uplifts become material in every area of central London. On buildings let on leases of longer than 1 years, the effect on a rent review of rent free periods is much reduced on the second rent review. So older buildings (let on longer leases) may well see larger increases at rent review than newer properties. 2. The effect of fitting-out periods. When a rent free period is analysed, in most cases the time required to fit out the property is deducted from the rent free period. That fit out period is longer for larger properties than it is for smaller ones. Generally total rent free periods for large buildings don t increase (if at all) in line with the additional time to fit out. So larger buildings can see greater increases at rent review than smaller ones. In conclusion, it s counter intuitive, but the properties where the largest uplifts are likely to be seen are larger demises facing their second or later rent review in the lease. Legal update An ever increasing number of rent reviews go to a third party settlement. Because it s commonplace, the formality of this process is easily overlooked. Perhaps it is timely therefore to be reminded that once agreed, a statement of agreed facts is binding and generally can t be undone (see Great Dunmow Estates v Crest Nicholson). Mayfair & St James's December 213 headline rent December 218 headline rent December 218 Rent free months Implied net effective rent Predicted uplift Uplift if effect of rent free periods disregarded % 5% Soho % 6% Victoria % 7% Covent Garden % 19% Paddington % 35% Knightsbridge % 6% King's Cross & Euston % 33% Fitzrovia % 23% Marylebone % 3% Midtown % 27% City % 19% Farringdon & Clerkenwell % 65% Shoreditch % 75% Canary Wharf % 33% Southbank % 37% London Average % 26% 7% 6% 3% 2% 1% % Kings Cross & Euston 2% 6% 5% 4% 3% 2% 5% 4% 3% 2% 1% Tony Guthrie Mobile +44 () tguthrie@geraldeve.com 3% 2% 1% % Paddington 1% % Marylebone 2% 1% % Fitzrovia 1% 1% 1% % Midtown 1% % Farringdon & Clerkenwell 1% % Shoreditch 3% 2% 1% Soho % % Mayfair & St James % Covent Garden 3% 2% 1% % City 1% % Canary Wharf 1% % Knightsbridge 1% % Southbank % Victoria Predicted uplift Uplift if effect of rent free periods disregarded

23 GERALD EVE IN THE MARKET We have been involved in some 45of the highest profile sales and lettings agreed in London over the last 12 months, both for the landlord and the tenant. Geffrye Museum Victoria Park Regent s Park The Wallace Collection Selfridges BBC The British Library Royal Opera House Scala Lincoln s Inn Fields Somerset House Sadler s Wells 6 St Paul s Cathedral 3 41 Barbican Centre Bank of England 4948 Mansion House St Mary Axe Old Spitalfields Market Brick Lane Market The Old Truman Brewery Whitechapel Gallery The National Gallery Kensington Palace Royal Albert Hall Science Museum Hyde Park Harrods 12 Green Park Buckingham Palace 18 St James s Park Palace of Westminster Westminster Abbey London Eye National Theatre Southbank Centre 5 Tate Modern Tower of London City Hall 34 Tower Bridge London South Bank University V&A 15 4 Westminster Cathedral Imperial War Museum Southwark Park Landlord / vendor 24 Tenant / purchaser 1 Euston House 2 3 St Mary Axe 3 Bath & Cayton, 7-9 Bath Street & 4-12 Cayton Street 4 14 Devonshire Square (x2 deals) 5 15 Waterloo Road St John Street Bedford Square 8 37 Bedford Square 9 Whittington House, 29 Alfred Place 1 Lynton House, 7-12 Tavistock Square (x2 deals) Cheapside Piccadilly (x4 deals) Baker Street Welbeck Street 15 The Peak, 5 Wilton Road 16 2 North Audley Street (x2 deals) Battersea Power Station High Holborn (x2 deals) 18 Smithson Tower, 25 St James's Street (x2 deals) 19 1 Gray's Inn Road Gray's Inn Road (sale) Grosvenor Street Euston Road North Row 25 55,56 & 57 Eccleston Square 26 4 Moorgate 27 Angel Court, 1 Angel Court 28 5 Aldermanbury Square 29 The Oval 1 Crown Place Bishopsgate Hatton Garden 32 Bureau, 9 Fetter Lane 33 Floor East, Chancery House, Chancery Lane Tanner Street 35 Palace House, 3 Cathedral Street 36 1 Aldermanbury Square 37 Podium Building, 1 Eversholt St Euston Rd Slingsby Place 4 The Peak, 5 Wilton Road Old Street 42 1 Eastbourne Terrace Stratford Place 44 Talbert House, 52 Borough High Street Arlington Road, NW Drury Lane Boston Place Abchurch Lane 49 The Walbrook Building, 25 Walbrook Euston House Stenprop, advised by Gerald Eve, has sold Euston House, NW1 to a joint venture between French-listed Eurazeo and London-based Arax Properties for 95 million. The price reflects a net initial yield of 4.64%. Situated opposite Euston station, the 113, sq ft multi let office building is home to occupiers including Siemens, Learning Tree and i2 Offices. The landmark building was originally the home of London, Midland and Scottish Railways. Lloyd Davies, partner at Gerald Eve who oversaw the sale, said: Launched in September 218, Gerald Eve coordinated interest from 86 parties. The campaign sale concludes Stenprop s transition out of their London offices to focus on multi-let industrial. Euston continues to be an area of focus for the Gerald Eve team and one we believe will continue to outperform the market in the coming years. 23

24 LONDON OFFICES Agency & Investment Lloyd Davies Partner Tel. +44 () Mobile +44 () Fergus Jagger Partner Tel. +44 () Mobile +44 () Steve Johns Partner Tel. +44 () Mobile +44 () Rhodri Phillips Partner Tel. +44 () Mobile +44 () Lease Consultancy Tony Guthrie Partner Tel. +44 () Mobile +44 () tguthrie@geraldeve.com Graham Foster Partner Tel. +44 () Mobile +44 () gfoster@geraldeve.com Research Alex Dunn Associate Tel. +44() Mobile +44 () adunn@geraldeve.com Patrick Ryan Partner Tel. +44 () Mobile +44 () pryan@geraldeve.com 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. All rights reserved The reproduction of the whole or part of this publication is strictly prohibited without permission from Gerald Eve LLP. 1/19