LONDON MARKETS. Analysis of the London office market Winter 2017/18. International Property Consultants

Transcription

1 LONDON MARKETS Analysis of the London office market Winter 217/18 International Property Consultants

2 Q MILLION SQ FT 11 West End Prime Rent (per sq ft) Midtown Prime Rent (per sq ft) City Prime Rent (per sq ft) Availability 11.1 MILLION SQ FT 27% 4.8% 24.2% Q4 217 Availability H2 217 key deals Deutsche Bank 496, sq ft City Dentsu Aegis 312, sq ft King s Cross & Euston WeWork 135,5 sq ft Shoreditch Lloyds 125,4 sq ft City Boston Consulting Group Ltd 123,5 sq ft Fitzrovia Key schemes under construction 7 Farringdon Street 825, sq ft Goldman Sachs/Tishman Speyer 1 Fenchurch Avenue 398, sq ft (67, sq ft available space) Generali Real Estate/Greycoat/CORE Lime Street & 27 Leadenhall Street (The Scalpel) 398, sq ft (262, sq ft available space) WRBC 6-7 St Mary Axe 326, sq ft (166,254 sq ft available space) TH Real Estate Two Southbank Place 282,44 sq ft Braeburn Estates ( JV Canary Wharf Group/Qatari Diar)/Almacantar

3 EXECUTIVE SUMMARY Quarterly take-up by region 4.5 Million sq ft 14 Million sq ft 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 215 Q2 215 Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 East West Midtown Southbank Media & Tech drives London occupier demand While uncertainty reigns across the country, the London office market continues to be active with 12.8 million sq ft of space taken in 217, a 12% increase on the previous year. The changing nature of occupier employment across the capital was reflected by the fact that the media & tech sector was the most active throughout the year, accounting for 28% of total take-up. This included significant deals for Dentsu Aegis in King s Cross & Euston (312, sq ft), NEX group in Shoreditch (112, sq ft), and Spotify in Covent Garden (14, sq ft). Although finance & banking occupiers have started to prepare for life outside of the EU, which will include moving some positions from London to other EU member states, the sector remained active, acquiring 1.5 million sq ft in 217, which represents 17% of annual take-up. An increasing number of occupiers are sub-letting space An increasing number of occupiers are sub-letting space back to the market as they reassess their real estate needs. Whether it s to reduce overall costs, or simply due to a change in business strategy, the volume of tenant space in the market has increased from 19% to 24% of total availability. As a result, we ve seen the volume of unrefurbished space increase over the last 12 months. The finance & banking sector are the most active in releasing space, and currently account for 3% of all tenant space. However despite this rise in tenant space, overall availability has actually fallen with an availability rate of 4.8% recorded in December 217, compared to 5.4% 12 months earlier. This is a result of take-up erosion of existing supply, plus significant volumes of development space being let pre completion. Central London development pipeline Million sq ft Over 5% of development space has been let There is currently 1.2 million sq ft of new office space under construction across central London, with the majority being built in the City. However this level of development is likely to decrease as developers pause to see the full impact of leaving the EU before committing to new schemes. Of the space currently under construction, 51% has already been pre-let. With grade A availability falling by 25% in 217, it is likely that pre-letting activity will continue throughout 218, and could potentially lead to a real shortage of grade A availability for a number of submarkets King s Cross & Euston in particular will feel the supply squeeze. The submarket already has the lowest availability rate in London at 1.5%, and currently all of the 18, sq ft under construction is fully let. Let Available 3

4 THE RISE OF SERVICED OFFICES Traditional leases are in decline. Since 214, the number of leases signed across central London has fallen year on year and this trend looks set to continue in 218. This is a direct result of occupier s desire for short, flexible leases, which allows them to expand and shrink their operations easily. This increasing level of demand for serviced offices led the sector to its most acquisitive year in 217, taking 1.3 million sq ft of space, which represents 1% of total take-up. The number of traditional leases signed in central London Central London vacancy rate by office size Source: CoStar Group % Number of leases (LHS) % change (index 1 = 211) Central London buildings under 25, sq ft Central London all office buildings Although serviced offices have traditionally catered towards start-ups, a number of major occupiers have recently taken large amounts of serviced office space to reduce the risk of wasted space. The volume of tenant space has increased by 5% over the last 12 months, which indicates that occupiers are becoming increasingly aware of shedding their excess real estate space in order to save costs. However with serviced offices, excess space is significantly reduced as offices are taken on a desk-by-desk and shorter term basis. As well as the potential cost saving, serviced offices can also assist in the war for talent. The attractiveness and popularity of the new co-working environment, including the amenities and staff benefits on offer, will directly appeal to the younger workforce, and in particular graduates. So what impact are serviced offices having on the fundamentals of London offices? The vacancy rate for smaller buildings (less than 25, sq ft), fell below 3% at the end of 214, its lowest level in more than 12 years. However, on 28 March 214, WeWork began its aggressive expansion across the capital by signing its first major London lease at Sea Containers. Since then, despite vacancy rates across all Central London offices continuing to trend downwards for a further 18 months, the vacancy rate for smaller buildings increased. From an investment point of view, this void created in the market will impact rental growth and could potentially provide a buying opportunity in the future. However in the near term we are likely to see landlords reduce lease lengths and increase incentives as it will become harder to lease certain units. The current landscape of the London office market is likely to continue to change. In June 217, British Land announced Storey, their own brand of flexible working, with more companies expected to follow suit in 218. With the uncertainty surrounding Brexit set to increase throughout the year, occupier s desire for more flexibility in their lease will increase. There is also the heightened demand coming from the media & tech sector, known for its high number of start-ups, which will lead to a further increase in the number of serviced offices across the capital.

5 OUTLOOK Positive employment growth Central London demand is being supported by positive office-based employment, which is set to increase by 9% over the next 1 years. This is largely being driven by strong growth in the professional services and media & tech sectors. However this could be affected by the ability to attract and retain EU workers after Brexit. Consumer spending squeeze Nominal wage growth is currently around 2.5%, and with inflation at 3% and the potential for interest rates to rise further, consumer spending is being squeezed. However over the course of 218, an easing in overall inflation is expected to emerge and with low unemployment rates, wage growth could begin to gain some added momentum. This should support a steady improvement in retail sales volumes Media and tech sector to drive demand Certain sectors will continue to downsize their real estate needs in order to maximise their office space efficiency, however this will be offset by the continued rise of the Media & Tech sector. Driven by the development of new technologies and the fourth industrial revolution, 11% employment growth is expected over the next 1 years. Serviced offices continue to rise Occupiers with smaller requirements are increasingly acquiring space from serviced offices as they seek greater flexibility. This has been reflected by the decrease in the number of traditional leases signed since 214. Further expansion is anticipated throughout 218 which will cause the void rate for smaller office units to increase across London. Speculative developments to decrease Amid Brexit uncertainty, rising construction costs and a weak exchange rate, developers will likely place certain schemes on hold until a clearer UK outlook is known. This will lead to a reduction in the number of speculative developments starts across central London. High investment demand for London offices The amount of money targeting prime London offices in 217 far outweighed supply, which led to the record sales of the Walkie Talkie and Cheesegrater buildings. Asian investors will continue to dominate the London market throughout 218 as they seek a strong income return at a national discount. entrants from Hong Kong, Malaysia and Singapore will enter the market as well as German property funds. 5

6 LONDON OFFICE RENTS King s Cross & Euston Rent Free 18 months The British Library Scala Regent s Park Fitzrovia Marylebone Rent Free 24 months Paddington Rent Free 21 months Hyde Park The Wallace Collection Selfridges Rent Free 21 months Mayfair & St James s Rent Free 21 months BBC Soho Rent Free 21 months The National Gallery Covent Garden Rent Free 21 months Royal Opera House Lincoln Inn Fiel So Green Park St James s Park London Eye Royal Albert Hall Science Museum V&A Harrods Knightsbridge Rent Free 21 months Buckingham Palace Westminster Cathedral Palace of Westminster Victoria Westminster Abbey Rent Free 24 months

7 Geffrye Museum Sadler s Wells Farringdon & Clerkenwell Rent Free 21 months Shoreditch Rent Free 24 months Midtown City Old Spitalfields Market Brick Lane Market s ds Rent Free 24 months Barbican Centre Rent Free 24 months The Old Truman Brewery Whitechapel Gallery St Paul s Cathedral Bank of England 3 St Mary Axe Mansion House merset House National Theatre Tate Modern Tower of London Southbank Centre Southbank Rent Free 18 months City Hall Tower Bridge London South Bank University Imperial War Museum Ten Southwark year term Park See inside back cover for definitions 7

8 Edgware Road PADDINGTON Paddington Patrick Ryan Mobile +44 () Lancaster Gate Hyde Park % 3.6% 63% Corporate take-up 24, sq ft 84,5 sq ft 3 34 Leasing activity in the second half of the year totalled 96, sq ft, a 25% increase on H The majority of deals came in Q3, and notably Mars s decision to take 31, sq ft at 4 Kingdom Street for its confectionery business. Mars has agreed a ten year lease on the sixth and seventh floors. Sasol also signed a ten year lease for 15, sq ft on the eighth floor of the same building. The two occupiers join Finastra, the computer software firm, which recently took 42, sq ft over three floors. 4 Kingdom Street, which launched in June 217, is now 89% let or under offer at an average rent of 71 per sq ft, a new market high. The remainder of the space is being taken by Storey, British Land s flexible workspace brand, which will take space across the fourth, ground and lower ground floors of the building. British Land has invested nearly 1m in the construction of 4 Kingdom Street and the redevelopment of the public realm at Paddington Central. Although leasing activity picked up in the second half of the year, availability increased and resulted in an availability rate of 1.7%, a third of which is available as a sublease from an existing tenant. There will also be a further 16, sq ft coming to the market, when M&S vacate 2 Merchant Square later in the year. A further 24, sq ft of new space is on the way, with Derwent London s Brunel Building, currently the only building under construction. The development remains available and is due to be delivered at the beginning of 219. pipeline 14 s sq ft 5 s sq ft 6 s sq ft 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 215 Q2 215 Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q

9 Baker Street MARYLEBONE Edgware Road The Wallace Collection Sophie Daw Mobile +44 () Marble Arch % 15.6% 56% Serviced Offices take-up 215,8 sq ft 225,377 sq ft The final quarter of the year saw leasing activity reach 181, sq ft, which far exceeded the five year average and was the largest quarterly volume since 212. Two significant deals were responsible for the increase in take-up, firstly WELPUT, the specialist central London real estate fund, signed WeWork for the entire 4, sq ft North West House, Marylebone Road, on a 2 year lease. The second deal saw a private financial occupier let the entire 21, sq ft of Howard de Walden s new development, Queen Anne Street. Despite the increase in take-up, availability has remained relatively flat throughout 217 with the availability rate moving up slightly from 2.3% in January to 2.4% in December. This is the second lowest availability rate across central London after King s Cross & Euston. There are a number of developments in the pipeline however, and three which are under construction and should complete by the end of H1 218; 1-9 Seymour Street (55, sq ft), 151 Marylebone Road (46, sq ft) and 3 Cavendish Square (2, sq ft). The majority of this space is still available. The upturn in letting activity reflects the occupier demand in the submarket. This is also reinforced by the fact there is currently a further 225, sq ft under offer, which is the largest quarterly volume on record. pipeline 2 s sq ft 4 s sq ft 45 s sq ft 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 215 Q2 215 Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q

10 MAYFAIR & ST JAMES S Hyde Park Oxford Circus Bond Street Piccadilly Circus Hyde Park Corner Green Park Patrick Ryan Mobile +44 () St James s Park % 17.4% 56% Finance & Banking take-up 267, sq ft 399,556 sq ft Following a positive first half of the year, take-up fell below the five year average in both Q3 and Q4 217 with letting activity totalling 315, sq ft in H However there is currently 4, sq ft under offer which suggests that the quiet end to 217 might be a blip rather than a decline in occupier sentiment. A lack of larger deals was mainly responsible for the subdued leasing activity, with only six deals above 1, sq ft recorded in H2 217, the most significant being global alternative investment firm Summit Partners decision to take 13, sq ft at Hanover Square, at 12 per sq ft. Despite the subdued letting activity in H2, availability declined throughout 217 with the availability rate falling from 5.2% at the beginning of the year, to 4.7% in December. Of this available space, 17% is available as a sublease from an existing tenant. Mayfair & St James currently has a number of schemes under construction which will deliver 267, sq ft over the next two years. In 218, 2 St James s Street (5, sq ft) and Dover Street (1, sq ft) will complete by Q3, whilst, Tishman Speyer are also set to deliver several floor in the former Economist Plaza, the only office tower in St James s. Summit Partners move exemplifies the dominance of the Finance and Banking sector within the region, which continued in the second half of the year accounting for 57% of leasing deals, with the professional service sector the second most active with 12%. pipeline 4 s sq ft 12 s sq ft 6 s sq ft 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 215 Q2 215 Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q

11 Hyde Park Green Park KNIGHTSBRIDGE Sloane Square Victoria Rhodri Phillips Mobile +44 () % 7.7% 76% Corporate take-up sq ft 22,912 sq ft volumes totalled 11, sq ft in 217, which is the submarkets lowest annual volume since 213. The slowdown in leasing has largely been a result of limited availability, particularly for new office space, although subdued demand from the finance and banking sector has also contributed in recent quarters. With limited availability, there were only four deals in 217 above 1, sq ft. the largest of which came in the second half of the year when INEOS Industries took 36, sq ft at Britten Street. Two lettings took place at 6 Sloane Avenue, Ralph & Russo Limited agreed to take 16, sq ft, and Babylon Partners took a further 11, sq ft in the final quarter of the year. To help ease the supply strain, Motcomb Estates are refurbishing and leasing 4, sq ft of high quality offices at 27 Knightsbridge, advised by Gerald Eve. pipeline 1 s sq ft 3 s sq ft 9 s sq ft 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 215 Q2 215 Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q

12 Green Park Hyde Park Green Park Hyde Park VICTORIA Victoria Westminster Palace of Westminster St James s Park Rhodri Phillips Mobile +44 () Pimlico % 23.7% 23% Finance & Banking take-up 224,4 sq ft 193,292 sq ft Recent improvements to the region s building stock have helped to transform Victoria into one of London s most dynamic submarkets. This was reflected during the second half of the year where both quarters exceeded the five year average take-up. 441, sq ft of office space was leased during this period, notably energy and commodities company Vitol, which took 5, sq ft at the recently completed Nova South. This was followed by service office provider LEO, which took 32, sq ft of additional space at Nova, and BlueCrest Capital, which took 31, sq ft at Nova North, advised by Gerald Eve. With 193, sq ft currently under offer, demand from occupiers for new space remains fairly healthy in Victoria. Companies from a variety of industries, and from other parts of London, are being lured here, attracted by the new developments that have been delivered. A number of lettings above 2, sq ft have occurred in recent quarters, with firms such as Anadarko Petroleum, Child & Child, and Reply taking significant chunks of office space. The recent letting activity has seen the availability rate fall to 5.3% in December 217 from 6.3% 12 months previously. This is likely to continue to fall as significant chunks of development space currently under construction has already been let. Notably, The Office Group has pre-let the entire Eccleston Place. However there is currently 1, sq ft under refurbishment and available at 64 Victoria Street, likewise a further 55, sq ft at 2-3 Buckingham Green which completes this year. pipeline 35 s sq ft 8 s sq ft 7 s sq ft 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 215 Q2 215 Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q

13 Tottenham Court Road Oxford Circus Soho Square Gardens SOHO Golden Square Sophie Dickens Mobile +44 () Piccadilly Circus Leicester Square % 24.8% 33% Media & Technology take-up 64,7 sq ft 36,179 sq ft Leasing activity was somewhat subdued in Soho throughout 217, and the annual take-up volume only totalled 294, sq ft, 33% down on 216. The market was populated with smaller deals, with only four above 1, sq ft in the second half of the year. The most significant deals were signed at Great Portland Estates recent development, 3 Broadwick Street. Serviced office provider LEO, took 14, sq ft on a ten year lease, whilst the Boston Consulting Group took 15, sq ft, also on a ten year lease. These deals have meant that Soho s largest delivery in 216 is now fully let. The office stock available in the region continued to attract the media & tech sector, which accounted for 37% of deals throughout 217. Significant deals for Skyscanner (24, sq ft) and Snapchat (21, sq ft) at the beginning of the year exemplify this. The finance & banking sector were also active with 17%. Although the number of lettings has been subdued, overall availability has fallen throughout the year and resulted in an availability rate of 3.9% in December 217, down from 5.3% 12 months earlier. Of this available space, 25% is available as a sublease from an existing tenant. However development activity is underway to bring more new available office space to the market. Currently there are four schemes under construction, notably Axtell House (13,2 sq ft), 21 Soho Square (26, sq ft) and 41 Great Pulteney Street (12, sq ft), which will complete this year, and 4 Beak Street (13,5 sq ft) to be delivered in 219. pipeline 16 s sq ft 35 s sq ft 35 s sq ft 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 215 Q2 215 Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q

14 University College London FITZROVIA RIBA Goodge Street Russell Square British Museum Sophie Dickens Mobile +44 () Wigmore Hall Oxford Circus Tottenham Court Road % 26.2% 62% Professional Services take-up 451, sq ft 129,22 sq ft Over 3, sq ft was taken in the second half of the year with a further 13, sq ft currently under offer, confirming that Fitzrovia remains an attractive market for occupiers. Whilst the amenities of Charlotte Street and Oxford Street have always been a draw for occupiers, the improvements made to building stock, as well as the increased infrastructure to Tottenham Court Road, brought on by the development of Crossrail, has led to an upward pressure on prime rents and to some major occupiers choosing to locate in Fitzrovia. The largest deal of H2 217 was signed by Boston Consulting Group, which took a pre-let at Derwent London s development, 8 Charlotte Street. The firm has agreed to take 123, sq ft across 5th to 8th floors on a 15 year lease. In addition, Arup Group committed to take a further 2, sq ft on the 4th floor in the same building, which meant Derwent London has pre-let 96% of the building prior to its 219 completion, highlighting the demand for new space within the submarket. Despite a number of developments due to complete over the next couple of years, only 2% of the office space remains available following a number of pre-lets. Notably, the developments at 161 Oxford Street and Mortimer House, which will complete in 218, are already fully let. This means that only 76, sq ft of available new space will be delivered this year. This high level of leasing activity for both existing, and development space, has led to a steady decline in availability since early 216, resulting in an availability rate of 3.9%. pipeline 45 s sq ft 5 s sq ft 8 s sq ft 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 215 Q2 215 Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q

15 KING S CROSS & EUSTON Mornington Crescent King s Cross Euston % 25.2% Cathal Diamond Mobile +44 () % Media & Technology take-up 18, sq ft 16,988 sq ft 6 55 exceeded 4, sq ft in the second half of 217, which was largely driven by media & tech firm Dentsu Aegis 312, sq ft pre-let at Triton Square, Regent s Place. The announcement of this deal meant that British Land confirmed the redevelopment of 1 Trition Square. The 196m commitment to the redevelopment is in line with the company s focus on campuses, and the pre-let means that 57% of their committed pipeline is now either pre-let or under offer. Dentsu Aegis currently occupy 118, sq ft at 1 Triton Square, and their decision to remain in the area reflects the transformation of the region into one of the most desirable locations in the capital. The demand to be in this location is evidenced by the fact that all of the major schemes to be delivered since 214 are now fully let. The submarket has been able to attract a diverse range of tenants including Google, Hammerson, and Universal Music away from the West End due to its availability of high quality large spaces and ability to compete on rents. However despite a significant number of developments, pre-letting activity has meant that availability has fallen throughout 217, and with a lack of new space currently under construction, only 14, sq ft remains available. This has resulted in an availability rate of only 1.5%, the lowest across central London. The lack of space available will now restrict larger deals being signed in the region until more developments begin construction. Notably throughout 217, 7% of deals were below 5, sq ft. pipeline 35 s sq ft 3 s sq ft 4 s sq ft 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 215 Q2 215 Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q

16 Lincoln s Inn Fields COVENT GARDEN Leicester Square Covent Garden Sophie Daw Mobile +44 () Charing Cross Embankment River Thames % 2.9% 44% Media & Technology take-up 33, sq ft 249,694 sq ft After five consecutive quarters of above average take-up, leasing activity fell short in the final quarter of the year with only 97, sq ft recorded across 1 deals. However this was likely just a blip rather than a drop in occupier sentiment, as currently there is 25, sq ft under offer, which represents the highest volume on record. Before Q4, Covent Garden s leasing market had performed particularly well over recent quarters, with a number of firms committing to relocate to the region from other submarkets, as well as existing firms choosing to remain and expand. Benefitting from its shops, restaurants, and theatres, Covent Garden s office sector continues to attract a diverse mix of tenants, and in particular from the media & tech sector. A notable example came from music streaming company Spotify, which agreed to move its UK headquarters from Soho and took 14, sq ft at The Adelphi, 1-11 John Adam St, the markets largest deal in H Energy drinks firm Red Bull, have also agreed to relocate their London headquarters to Covent Garden by taking 37, sq ft at Seven Dials, a building which has in recent years held the headquarters of Facebook, Expedia and King.com. The robust level of demand combined with a lack of development activity has seen availability gradually fall since the beginning of 216, which has resulted in an availability rate of 2.5%. Brockton Capital s delivery of the Post Building, which should complete in Q3 218, will ease the supply squeeze with currently 137, sq ft still available, after global management consultants McKinsey & Company have already committed to taking 126, sq ft. pipeline 7 s sq ft 6 s sq ft 5 s sq ft 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 215 Q2 215 Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q

17 Euston MIDTOWN Farringdon Rhodri Phillips Mobile +44 () Amy Bryant Mobile +44 () Picadilly Circus Leicester Square Chancery Lane Blackfriars Museum of London % 28.3% 36% Media & Technology take-up 153, sq ft 241,695 sq ft 7 76 Whilst the market has seen a couple of key occupiers leave, notably Freshfields Bruckhaus Deringer, which recently signed a large pre-let at 1 Bishopsgate in the City, and Goldman Sachs which will consolidate into a new headquarters building at 7 Farringdon Street, occupier sentiment remains strong in the market which was reflected in three consecutive quarters of above average take-up. The media & tech sector continues to be a key driver in the market, and this was shown in the largest deal of H2 217 when Verizon agreed to take around 83, sq ft at MidCity Place. Verizon will occupy the fourth and fifth floors, space which was previously occupied by infrastructure services firm AECOM. WeWork also continued their aggressive expansion across the capital and added a further 49, sq ft to their portfolio at The Cursitor Building, 35 Chancery Lane. The US serviced office firm will take the first to fifth floors, which completes the letting of the 66, sq ft development by Aberdeen Standard and Endurance Land. The high volume of leasing activity throughout the year has led to a decrease in availability, with an availability rate of 5.6% at the end of Q However there are three developments which are set to complete in the first half of 218 which will add 153, sq ft to the market; Lazari Investments High Holborn (34, sq ft), Evans Randall Investors 9 Fetter Lane (74, sq ft), and ESAS Holdings Summit House (45, sq ft). All of which are currently available. pipeline 45 s sq ft 16 s sq ft 45 s sq ft 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 215 Q2 215 Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q

18 FARRINGDON & CLERKENWELL Old Street Barbican % 11.4% Fergus Jagger Mobile +44 () % Media & Technology take-up 991,25 sq ft 11,292 sq ft Chancery Lane Farringdon Farringdon & Clerkenwell has enjoyed a renaissance in recent years, with the arrival of tech, creative, and media businesses attracted by its central location, trendy pubs, competitive rents, and refurbished buildings. It has also been boosted by the imminent arrival of Crossrail, and the associated infrastructure improvements made to Farringdon station. This has been reflected in the healthy levels of leasing activity across the region, with take-up reaching 1.6 million sq ft in 217. The most significant deal in H2 217 was for media & tech firm Turner Broadcasting, which signed a 95, sq ft pre-let at Great Portland Estates 16 Old Street development. The media & tech sector dominated the market in terms of lettings, with a number of large deals across the year, including Photobox Group, which took 43, sq ft at Herbel House, following deals for ITV (89, sq ft) and the Disney Corporation (48, sq ft) earlier in the year. A number of large completions in 217 led to a gradual increase in availability, resulting in an availability rate of 5.2%, up from 4.3% at the beginning of the year. This could potentially rise further in 218 with 6, sq ft of new space to complete this year, with the majority still available to let, notably Helical s One Bartholomew Close (213, sq ft). Old Street itself is an area undergoing significant change, with many tenants and developers moving to, and investing in, what is quickly becoming London s digital and tech hub. pipeline 6 s sq ft 12 s sq ft 1, s sq ft 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 215 Q2 215 Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q

19 Farringdon CITY Liverpool Street Cannon Street % 26.7% Steve Johns Mobile +44 () % Finance & Banking take-up 5,532,5 sq ft 1,48,963 sq ft Following a below average start to the year in terms of leasing activity, the City picked up in H2 217 with take-up volumes reaching 2.1 million sq ft, a 27% increase on H1. Despite the uncertainty caused by Brexit, the finance & banking sector has been robust and we ve seen several key deals, boosting confidence since the referendum, such as Wells Fargo (221, sq ft). This was also evidenced in the second half of 217, when Deutsche Bank signed a 496, sq ft pre-let to move their headquarters to Landsec s 21 Moorfields. This was also shown by Lloyds Bank, which acquired the former Nabarro offices at 125 London Wall, totalling 125, sq ft. There is currently around 5.5 million sq ft of new space under construction in the City, however with a number of significant pre-lets signed over the last 12 months, 49% has already been taken. With this trend likely to continue throughout 218, we don t expect much change in the overall availability rate, which is currently at 6.2%. has peaked and demand has been robust, and as a result we believe that rents will remain steady during the year, helped by the low vacancy rate and reducing development pipeline. pipeline 1.6 Million sq ft 6 Million sq ft 4. Million sq ft 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 215 Q2 215 Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q

20 SHOREDITCH Shoreditch High Street Brick Lane Market Old Spitalfields Market Whitechapel Steve Johns Mobile +44 () Liverpool Street % 22.% 7% Serviced Offices take-up 647,75 sq ft 59,933 sq ft Shoreditch has enjoyed a positive 217 in terms of leasing activity, with only Q4 failing to beat the five year average. Overall take-up volumes reached 81, sq ft, a 33% increase on 216. Service office firms continue to be the main driver in the market as they seek to tap into rising demand for flexible workspace in the area, especially from smaller tech firms. WeWork in particular has been active, and accounted for the two largest deals in H2. The US company agreed to take a pre-let of 178, sq ft in total, at Cain International s development, The Stage. The deal will see WeWork occupy five floors in The Hewett building and 13 floors in The Bard building. This transaction means that all of the commercial office space within the scheme, which won t complete until 22, is now fully let. Although Shoreditch has an availability rate of 5.7%, the third highest in central London, there isn t a lot of new development space coming to the market over the next three years. The market has seen significant early leasing activity, and as a result, of the 65, sq ft currently under construction, 86% has already been leased, with only The Epworth (66, sq ft), and 2-3 Whitechapel Road (23, sq ft) available. pipeline 45 s sq ft 6 s sq ft 5 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 Q1 215 Q2 215 Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q

21 Embankment Oxo Tower Tate Modern SOUTHBANK Waterloo London Bridge Elephant and Castle % 3.9% Fergus Jagger Mobile +44 () % Corporate take-up 957,24 sq ft 154,56 sq ft Southbank has now firmly established itself as a popular central London office market appealing to a broad range of occupiers. Many firms have made the business decision to relocate to the region from more expensive locations north of the river, attracted by its growing dynamism. In 217, over 1 million sq ft of office space was taken, with WeWork s 28, sq ft pre-let at Almacantar s Two Southbank Place the most significant. This will be the US serviced office providers largest office in London, and will mean their offices are home to around 15, members. The development will be shared with the headquarters of Shell Petroleum, which will occupy the entire One Southbank Place. This means that of the 615, sq ft of new space to be delivered in 218, only 64, sq ft remains available at HB Reavis 61 Southwark Street. However, some upward movement in vacancy is still expected in 218 when the Financial Times departs for the City and Elizabeth House is vacated ahead of its potential redevelopment the following year. Southbank continues to lure media & tech and the finance & banking sector, which traditionally favoured locations north of the river. Notably, Digital solutions firm GPL UK took 16, sq ft at the recently refurbished 53 Great Suffolk Street in Q2 217, a move that will see the firm leave the City. Also Kings College London became the latest in a long line of West End-based occupiers to commit to the area this year when it took more than 26, sq ft at 5-11 Lavington St, which will house the college s IT department. pipeline 6 s sq ft 7 s sq ft 1, s sq ft 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 215 Q2 215 Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q

22 CENTRAL LONDON INVESTMENT High demand for prime assets across central London pushed transaction volumes to 12.6 billion in 217, a 21% increase on 216. Foreign investors, lured by the fall in sterling, a slight softening in yields, and long-term faith in London, were overwhelmingly responsible for the increase, with investors from Asia leading the way. Lloyd Davies Mobile +44 () In the City, 7.5 billion of office stock was traded in 217, a 47% increase on 216 and the highest volume recorded for three years. The standout transactions were CC Land s 1.2 billion purchase of the Leadenhall Building and LKK s 1.3 billion purchase of 2 Fenchurch Street. The latter transaction represents a record for a single UK asset, surpassing the 1.2 billion paid by the Qatar Investment Authority to acquire the HSBC Tower in Canary Wharf in December 214. In the West End, transaction volumes reached 3.8 billion in 217, with 74% of the deals taking place in the first half of the year. The largest deal was by German investors Deka and WestInvest, which purchased Rathbone Square, the new headquarters of Facebook, for 435 million. This deal did however show some indication that the market is softening for larger transactions as the transaction reflected a 4.25% yield which was 25 basis points higher than the property was under offer for before the referendum in 216. Central London remains one of the most attractively-priced global cities, as well as one of the most liquid. Investors seeking protection against short-term fluctuations readily find solace in the long leases the UK market offers. With a degree of turbulence expected over 217 central London net investment Source: Property Data, Gerald Eve the next five years, we expect demand for these assets to remain high, particularly with the premium it still offers against Gilts and corporate debt. As a result, Asian investors, especially private buyers from Hong Kong, will continue to dominate the market in 218. They will not be alone, with Middle East and further new entrants from Malaysia and Singapore to enter the market, as well as German property funds, which are attracted by London s pricing relative to other cities elsewhere in Western Europe. Whilst office investors will continue to favour these well located, high quality assets despite the uncertainty of the future relationship between the UK and the EU, they will exercise greater caution when it comes to secondary stock, which has been much more subdued in terms of transaction activity in 217. This reflects an aversion to risk in the light of economic fundamentals and concern over the impact of Brexit on both occupier demand and liquidity. Because of this, overall capital value growth is forecast to decline by 1.6% in 218, driven by a combination of weak rental growth, and some yield softening. As a result, the overall total return for 218 is expected to be 1.8%, central London offices weakest return since 29. However, positive capital value growth is expected to return in 219, driven by some yield compression, which will lead to increased total returns, and with an unsatisfied level of historic demand, high quality assets will be in strong demand in the short term. Central London investment performance forecast Sources: MSCI, Gerald Eve Net investment ( billion) % Q1 217 Q2 217 Q3 217 Q Overseas investors UK institutions Quoted Prop Co Private Prop Co Private investors Occupiers Others Capital growth Income return Total return

23 GERALD EVE IN THE MARKET The Ragged School, Farringdon & Clerkenwell We have successfully advised the owners on the freehold sale of this unique development and refurbishment opportunity in the heart of Clerkenwell. 2 North Audley Street, Mayfair We have successfully advised Global Holdings on the leasing of 21, sq ft to Alfred Dunhill. The Harley Building, 77 Cavendish Street, Fitzrovia We have successfully advised a private investor client on the leasing of this 36, sq ft development to IWG Group for a new flagship location for its Spaces co-working concept. Nova North, Victoria We recently acquired 31,3 sq ft in Landsec s landmark development on behalf of BlueCrest Capital. DEFINITIONS Floor 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. Floorplate sizes Small (S) Medium (M) Large (L) 1, to 5, sq ft 5,1 to 1, sq ft 1,1 to 2, sq ft Extra Large (XL) 2,1 sq ft + Current letting policies may dictate some floors are not available in isolation 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 () Graham Foster Partner Tel. +44 () Mobile +44 () Research Alex Dunn Associate Tel. +44() Mobile +44 () Patrick Ryan Partner Tel. +44 () Mobile +44 () 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. 2/18