LONDON MARKETS. Analysis of the London office market Summer International Property Consultants

Transcription

1 LONDON MARKETS Analysis of the London office market Summer 218 International Property Consultants

2 Q MILLION SQ FT 11 West End (per sq ft) Midtown (per sq ft) City (per sq ft) Availability 12.9 MILLION SQ FT 3% 5.2% 23% Q2 218 Availability H1 218 key deals Sumitomo Mitsui Banking Corporation 161, sq ft City Google 122,75 sq ft King s Cross & Euston Bryan Cave Leighton Paisner 12,889 sq ft City Mimecast 113,467 sq ft City Publicis Media 212, sq ft White City Key schemes under construction 22 Bishopsgate 1,275, sq ft (1,275, available space) AXA Real Estate Investment Managers (UK) Ltd 1 Bishopsgate 97,4 sq ft (159, sq ft available space) Brookfield Europe Holding Ltd Five Bank Street 715, sq ft (435, sq ft available space) Canary Wharf Group Plc 1 Liverpool Street 515, sq ft (249, sq ft available space) British Land Company Plc Praed Street 36, sq ft (36, sq ft available space) Sellar Property Group

3 EXECUTIVE SUMMARY Quarterly take-up by region Quarterly availability by quality 5. Million sq ft 14 Million sq ft Q2 215 Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q2 218 Q2 215 Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q2 218 Canary Wharf East West Southbank 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 217. 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, sq ft in King s Cross & Euston, whilst cyber security and data management company, Mimecast, took 114, sq ft in the City. Elsewhere Sony Pictures signed a 77, 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, sq ft as their new headquarters in the City, and Sidley Austin also committing to the City by taking 11, sq ft. 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. pipeline Million sq ft The growth of serviced offices across the capital continued, and in particular Spaces, which took 247, 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 Available Let 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 21 months The Wallace Collection Selfridges Mayfair & St James s Rent Free 21 months BBC Soho Fitzrovia Rent Free 24 months Rent Free 18 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 21 months Buckingham Palace Westminster Cathedral Victoria Rent Free 21 months Palace of Westminster Westminster Abbey Rent Free 18 months Imperial War Museum London South Bank Rent Free 24 months 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 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. Lloyd Davies Mobile +44 () ldavies@geraldeve.com 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 212 to house UBS s global investment banking business. The building, which was completed in 215, 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 65m acquisition of AXA Investment Managers 6, 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 2 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 2 Soho Square, W1, for 117m, to a private European investor. The 66, sq ft Soho office was redeveloped by Aviva in 216 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 9 High Holborn for 2 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 218, brought on by reduced economic certainty. Central London investment volumes Sources: Property Data, Gerald Eve Central London forecasts Sources: MSCI, Gerald Eve 6 billion 8. % Q2 213 Q3 213 Q4 213 Q1 214 Q2 214 Q3 214 Q4 214 Q1 215 Q2 215 Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q City Midtown West End 5 year average Capital growth Income return Total return

7 Edgware Road PADDINGTON Paddington Patrick Ryan Mobile +44 () Lancaster Gate Hyde Park % 37.% 62% Media & Technology take-up 775, sq ft 213, sq ft 3 33 Paddington has enjoyed a strong half year with leasing volumes reaching 159, sq ft, a 66% increase on the last six months of 217. The largest deal came when Sony Pictures signed a 77, sq ft pre-let at Derwent London s Brunel Building. Sony will occupy floors 1 to 13, as well as part of floor 9, on a 15-year lease. The development will complete in Q2 219 and will total 243, sq ft. At Paddington Central, British Land announced that a further 15, sq ft will be taken by its flexible office brand, Storey. Storey is now operational across its London campuses and with 88, 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 1.7% 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 217 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 (22, sq ft) in 22, and Sellar Property s Paddington Square (36, sq ft) in s sq ft 45 s sq ft 6 s sq ft Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q2 218 Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q

8 Baker Street MARYLEBONE Edgware Road The Wallace Collection Rhodri Phillips Mobile +44 () Marble Arch % 22.6% 34% Finance & Banking take-up 95, sq ft 148, sq ft Over 2, sq ft was leased in the first half of 218, with the majority falling in the first quarter. Over this period there were only two deals above 1, sq ft. Namely; serviced office firm I2 Offices, taking 21, sq ft at 33 Cavendish Sq, and Iridium Assets Limited which took 15, sq ft at 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, sq ft) which completed in Q1 218 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, 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, 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 (1, sq ft), which is expected to complete in the first half of 22. The next significant new start is likely to be Baker Street, which willadd a further 258, sq ft of office stock to the market. 2 s sq ft 4 s sq ft 45 s sq ft Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q2 218 Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 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 % 14.9% 44% Serviced Offices take-up 28, sq ft 258, sq ft Following a subdued second half to 217, leasing activity has picked up in 218 with 264, sq ft taken in Q1, and 321, 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, 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 2, 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 1 year lease for 5, sq ft for a rent equivalent to 14. 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, sq ft at Great Portman Estates 18-2 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. 4 s sq ft 12 s sq ft 6 s sq ft Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q2 218 Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q

10 Hyde Park Green Park KNIGHTSBRIDGE Sloane Square Victoria Sophie Daw Mobile +44 () % 18.3% 36% Professional Services take-up 67, sq ft 25, sq ft Office take-up remains subdued in 218 with only 22, 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, sq ft; notable lettings include Volpi Capital which agreed to take 3, sq ft at 27 Sloane Street, and Catalina Holdings also took 3, 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 1 years; Sloane Street (78, sq ft) in 216, and 5 Sloane Avenue (22,5 sq ft) completed in 217, the lack of high quality space will maintain prime rents at 9 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, 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, sq ft of grade A space with the refurbishment of 27 Knightsbridge, which will help ease the supply squeeze for grade A office stock. 1 s sq ft 25 s sq ft 9 s sq ft Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q2 218 Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 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 % 21.3% 26% Associations take-up 169, sq ft 84, sq ft Occupier sentiment remains positive in Victoria as leasing volumes reached 54, sq ft in the first half of the year, a 1% 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, sq ft, including engineering firm Atkins, which took 66, 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 216 and early 217 significantly increased the overall availability in the market, particularly for new high quality space, and as a result, prime rental values declined throughout 217. 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, 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, sq ft office building was home to Westminster City Council until the middle of 217, when the renovation began, and is scheduled to complete in s sq ft 8 s sq ft 7 s sq ft Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q2 218 Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q

12 Tottenham Court Road Oxford Circus Soho Square Gardens SOHO Golden Square Sophie Dickens Mobile +44 () Piccadilly Circus Leicester Square 9. 4.% 25.7% 32% Serviced Offices take-up 38, sq ft 67, sq ft volumes totalled 183, 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 1, sq ft at 1 Dean Street for 9 per sq ft. The serviced office sector were the most active, accounting for 32% of take-up with Fora Space Limited taking 36, 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 218, which agreed to take 9, sq ft at 57 Broadwick Street. A number of development completions towards the end of 217, and at the beginning of 218, brought an additional 1, 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 218. Looking forward, Global Holdings 21 Soho Square will complete in September, delivering 22,5 sq ft of grade A space, whilst Soho Estates Ilona Rose House development on the west side of Charing Cross Road, will deliver 138, sq ft of office space in Q s sq ft 4 s sq ft 35 s sq ft Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q2 218 Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 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 % 26.1% 5% Corporate take-up 332, sq ft 71, sq ft Leasing activity has been largely subdued in Fitzrovia as Q2 218 recorded the third consecutive quarter of below average take-up. Only 165, sq ft has been leased so far in 218, 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 218, 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 37,4 sq ft development at 55 Wells Street, including the letting to marketing company Williams Lea Tag, which acquired 19,3 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%. 8 Charlotte Street is the only building currently under construction, and although that won t complete until 219, it is already 96% let or under offer. Retail occupier 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. 45 s sq ft 5 s sq ft 8 s sq ft Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q2 218 Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q

14 Lincoln s Inn Fields COVENT GARDEN Leicester Square Covent Garden Sophie Daw Mobile +44 () sdaw@geraldeve.com Charing Cross Embankment River Thames % 18.4% 37% Professional Services take-up 33, sq ft 9, sq ft 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. 22, sq ft has been leased in the first half of 218, although this was largely composed of smaller lettings, with only a handful of deals above 1, sq ft. Serviced office provider, Regus, took 31, sq ft across four floors at 6-62 St Martins Lane, paying 47.5 per sq ft. Hogarth Worldwide will pay 69 per sq ft to take 13, sq ft at Shaftesbury House, whilst media & technology firm Twitch took 11, sq ft at 1 Oxford Street. 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, sq ft of new space to the market, although 126, 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 High Holborn (4, sq ft), and AXA and Morgan Capital Partners High Holborn (4, sq ft), have increased the overall availability rate for the submarket to 3.8%. 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. 7 s sq ft 6 s sq ft 5 s sq ft Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q2 218 Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q

15 Euston MIDTOWN Farringdon Museum of London Chancery Lane Amy Bryant Mobile +44 () Picadilly Circus Leicester Square Blackfriars % 2.6% 37% Serviced Offices take-up 84, sq ft 425, sq ft 7 73 Occupiers continue to be drawn to Midtown with Q2 recording its fifth consecutive quarter of above average take-up, with 771, sq ft signed in 218 alone. Serviced office providers were particularly active and accounted for 37% of take-up, notably WeWork which took 131,5 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, sq ft at Bush House. Elsewhere Boult Wade Tennant took 17, 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, 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 217. This is despite a wave of deliveries hitting the market in 218, with all major deliveries pre-let well in advance of completion. As the availability rate has fallen, prime rents have increased to 7 per sq ft in 218, which could force some tenants to consider moving further east, such as AECOM, which moved from Holborn to Aldgate recently. 6 s sq ft 14 s sq ft 12 s sq ft Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q2 218 Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q

16 KING S CROSS & EUSTON Mornington Crescent King s Cross Euston % 31.5% Rhodri Phillips Mobile +44 () rphillips@geraldeve.com 94% Media & Technology take-up 236, sq ft 23, sq ft 6 58 Leasing activity has so far totalled 23, sq ft in 218, 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 218 with significant deals for Google, which signed a 123, sq ft assignment from Look at Handyside Street, and Facebook s giant 611, sq ft pre-let at King s Cross Central development in Q Serviced office firms have also been attracted to the area, in Q1 Be Offices Limited signed a 1,3 sq ft lease at Evergreen House on Euston Road. The office provider has agreed to pay 58 per sq ft on a 1 year lease. for space in the area remains high, and is evidenced by the fact that all of the major schemes to have delivered since 214 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 87, 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. 35 s sq ft 3 s sq ft 4 s sq ft Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q2 218 Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q

17 FARRINGDON & CLERKENWELL Old Street Barbican % 13.1% Amy Bryant Mobile +44 () % Media & Technology take-up 775, sq ft 294, sq ft Chancery Lane Farringdon After a strong 217, where each quarter exceeded the five year average, leasing activity in 218 has been subdued in Farringdon & Clerkenwell, with only 5, 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 218 so far. Notably digital advertising company The Trade Desk, signed for 55, 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, 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 5, 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, 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, sq ft set to be delivered over the next 18 months, 62% of which is currently still available. 6 s sq ft 14 s sq ft 8 s sq ft Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q2 218 Q1 215 Q2 215 Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q

18 SHOREDITCH Shoreditch High Street Brick Lane Market Old Spitalfields Market Whitechapel Fergus Jagger Mobile +44 () Liverpool Street % 22% 51% Media & Technology take-up 433, sq ft 47, sq ft Occupier activity remained robust with 482, sq ft leased during the first half of the year, with a further 47, 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, 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 4, 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, sq ft), and Rocket Investments Atlas Building (82, sq ft), both of which were fully let on completion. Whilst the market currently has a further 438, 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, sq ft to the market by 221 at the earliest. 45 s sq ft 6 s sq ft 5 s sq ft Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q2 218 Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q

19 Farringdon CITY Liverpool Street Cannon Street % 27% Steve Johns Mobile +44 () % Professional Services take-up 4,425, sq ft 1,725, sq ft 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 218, and in particular the legal sector. As well as Bryan Cave Leighton Paisner, which took 121, sq ft of office space at Governors House, Sidley Austin signed for 11, sq ft at 7 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 5% of all financial services firms occupying 1, sq ft or more across central London, while over half of the lettings above 1, sq ft in the last 1 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, sq ft at British Land s 1 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, 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. 1.6 Million sq ft 6 Million sq ft 4. Million sq ft Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q2 218 Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q

20 Embankment Oxo Tower Tate Modern SOUTHBANK Waterloo London Bridge Elephant and Castle % 2.% Fergus Jagger Mobile +44 () % Professional Services take-up 624, sq ft 211, sq ft Following a subdued second half to 217, leasing volumes bounced back in 218 with 576, 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, 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, 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 218, 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, 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. 6 s sq ft 9 s sq ft 1 s sq ft Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q2 218 Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q

21 East India Poplar Blackwall CANARY WHARF Canary Wharf Steve Johns Mobile +44 () South Quay % 36.9% 53% Serviced Offices take-up 1,269, sq ft 567, sq ft 1 25 Office fundamentals in Canary Wharf have weakened recently due to a combination of subdued leasing activity and rising availability. volumes reached 23, 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, sq ft at 15 Water Street on a 2 year lease. However despite the subdued start to the year, leasing volumes could pick up in H2 218, with currently 567, 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 1.7%. Tenant space is currently at 37%, as a number of banks are trying to offload surplus space. The Financial Conduct Authority will vacate 3, 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, sq ft) will complete early next year, with 28, 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. 6 s sq ft 2 s sq ft 16 s sq ft Q3 214 Q4 214 Q1 215 Q2 215 Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q

22 CENTRAL LONDON RENT REVIEWS In 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. Tony Guthrie Mobile +44 () tguthrie@geraldeve.com 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 219 allowing for rental growth over the coming year and adopting the rental levels that existed in Summer 214 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. Summer 213 headline rent Summer 218 headline rent Rent free months Implied net effective rent Predicted uplift Paddington % Marylebone % Mayfair & St James s % Knightsbridge % Victoria % Soho % Fitzrovia % Covent Garden % Midtown % King s Cross & Euston % Farringdon & Clerkenwell % Shoreditch % City % Southbank % Canary Wharf % London Average % Predicted uplifts at future rent reviews Source: Property Data, Gerald Eve % 7 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 Paddington Marylebone Mayfair & St James s Knightsbridge Victoria Soho Fitzrovia Covent Garden Midtown King s Cross & Euston Farringdon & Clerkenwell Shoreditch City Southbank Canary Wharf Summer 218 Summer 219

23 GERALD EVE IN THE MARKET Angel Court, City We have negotiated terms for a new lease on 6, 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, Victoria We have successfully advised Guggenheim Partners in disposing of the 5th floor offices of 11, sq ft to Vivo Energy. Bath and Cayton, Farringdon & Clerkenwell We 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 s Acting 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, sq ft in the tower building under offer. We will be launching an additional 2, sq ft to market during Q4. DEFINITIONS Quality : Floor in a newly-developed or newly-refurbished building, including sub-let space in new buildings which have not been previously occupied. : 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. : Poorer quality space, usually offered for occupation as is. Prime headline rents The 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

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. 8/18