WEST END FLOOR REVIEW A floor-by-floor analysis of the West End office market Q4 214
FOURTH QUARTER REVIEW THE QUARTER IN NUMBERS Q ON Q Y ON Y COMMENT 591, totalling 3m sq ft 351 taken-up during Q4, totalling 1.2m sq ft 193 under offer totalling 73,237 sq ft 3,291sq ft average size of floor taken-up 3.1 requirements per floor 115 /sq ft Mayfair / St James s prime rents 3% by 23% by 27% by 39% by 25% by 25% by 3,184 sq ft 2,97 sq ft up on 2.9 up on 1.9 17.5 1 Supply reduced considerably throughout 214 despite the addition of several developments to the market. Occupational demand was very strong during Q4, with increased activity across most sectors and floor size categories. Floors between 1,1 and 2, sq ft in size are driving the number of under offer and interest in floorplates over 1, sq ft in size are driving the volume. The average size of floor taken-up rose during Q4 following the take-up of 19 over 1, sq ft in size, a large proportion of which were in Victoria. It was the significant number of requirements for smaller West End space between 1,1 to 2, sq ft in size which drove totals in Q4. We expect that prime rents will continue to jump in large increments given the supply/ demand imbalance and the high level of occupier interest in prime schemes. Take-up of smaller floorplates has been rapid over the past six months, with transactions concluding very quickly due to intense occupier competition. Paul Pride, Partner www.geraldeve.com
DEMAND SUB-MARKET TAKE-UP Floors 4 35 3 25 2 15 1 5 Q1 213 Q2 213 Q3 213 Q4 213 Q1 214 Q2 214 Q3 214 Q4 214 Mayfair / St James s Fitzrovia / Bloomsbury Soho Covent Garden Marylebone Victoria Source: Gerald Eve TAKE-UP Almost 1.2 million sq ft of occupational space (within 351 individual ) transacted during Q4. This marked a 27% quarterly increase, with letting activity rising across all floor size categories, particularly floorplates between 1,1-2, sq ft in size. Occupiers now have confidence in their businesses and activity rose across the majority of tenant sectors. Whilst there were a handful of marquee lettings, Q4 was a balanced quarter where activity generally increased across the board. This includes the average size of floor taken-up, which increased again in Q4. Whilst it was activity in Victoria, with Informa taking the 2,825 sq ft second floor and Edelman UK taking the 2,33 sq ft first floor at 1-5 Howick Place, which helped drive the take-up of the largest floorplates, the largest floor occupied during Q4 was in Covent Garden as NeueHouse committed to 63,145 sq ft over two at The Adelphi building. KEY TRANSACTIONS Q4 214 Building Market Tenant No. of Size (sq ft) Adelphi Building, 1-11 John Adam Street Covent Garden NeueHouse 2 63,145 1-5 Howick Place Victoria Informa Group 1 2,825 1 Bloomsbury Way Fitzrovia & Bloomsbury Criteo 3 32,2 1-2 Stephen Street Fitzrovia & Bloomsbury Freud 2 25,3 33 Foley Street Fitzrovia & Bloomsbury BBC Worldwide 6 25,62
Q4 214 AVAILABILITY Here we detail our findings on the supply of by each submarket (including space under construction due to be delivered within six months) indicating the number of for each size category as well as their respective quality. SUPPLY 591 3.m sq ft Down quarter on quarter UNDER OFFER 193 73,237 sq ft Up quarter on quarter 5-1, 1,1-2, 2,1-3, 31-5, 5,1-1, 1,1+ 14,388 sq ft 7,317 sq ft 25,899 sq ft 21,661 sq ft EUSTON 9 1 8 MARYLEBONE 34,481 sq ft 178,799 sq ft 2 WARREN STREET MARYLEBONE 2% This sub-market posted a slight increase in the number of on the market at the end of Q4. Only 36 (totalling less than 1, sq ft) were taken-up in Q4, which when combined with the addition of new space under construction such as 41-42 Welbeck Street (due for completion mid-215) resulted in a rise in overall availability. 7 6 4 5 3 5-1, 1,1-2, 2,1-3, 31-5, EDGWARE ROAD BAKER STREET MARYLEBONE Marylebone MARBLE ARCH REGENTS PARK OXFORD CIRCUS BOND STREET GREAT PORTLAND STREET Fitzrovia & Bloomsbury TOTTENHAM COURT ROAD Soho LEICESTER SQUARE 5,1-1, 1,1+ Mayfair & St James s PICCADILLY CIRCUS MAYFAIR 7% 4% of all space in the West End is in Mayfair/St James s. The delivery of new and refurbished throughout 214 increased occupier choice and the submarket was both the strongest in terms of take-up, and, the most cited in requirements during Q4. 236,5 sq ft 81,761 sq ft 8 7 9 MAYFAIR 1 6 4 5 2 3 292,97 sq ft 31,98 sq ft 189,94 sq ft 78,18 sq ft 5-1, HYDE PARK CORNER GREEN PARK VICTORIA Victoria ST JAMES S P 1,1-2, 2,1-3, 31-5, 7,661 sq ft 6,772 sq ft PIMLIC SOHO 24% Proportionately, Soho witnessed the sharpest fall in availability during Q4. Strong levels of take-up have left the region with no new between 5-2, sq ft in size. 5,1-1, 1,1+ 8 7 9 SOHO 1 6 4 5 32,673 sq ft 64,698 sq ft 2 3 27,9 sq ft 48,134 sq ft www.geraldeve.com
5-1, 1,1-2, 2,1-3, KINGS CROSS 31-5, ST PANCRAS 5,1-1, 1,1+ 24,27 sq ft RUSSELL SQUARE HOLBORN CHANCERY LANE 8 7 9 1 FITZROVIA 6 4 5 2 3 36,482 sq ft 43,667 sq ft 157,796 sq ft 29,319 sq ft 15,329 sq ft FITZROVIA 9% Whilst 3% of space is classified as new, there are very few new small and mid-sized in this sub-market. The addition of large at 2 Fitzroy Place and 2 Stephen Street does increase occupier choice of new large floorplates in the market however. 5-1, 1,1-2, Covent Garden TEMPLE CHARING CROSS WESTMINSTER BLACKFRIARS 2,1-3, 31-5, 5,1-1, 1,1+ 8 7 9 COVENT GARDEN 1 6 4 5 2 3 333,253 sq ft 22,958 sq ft 12,222 sq ft 59,871 sq ft 8,465 sq ft 49,77 sq ft COVENT GARDEN 12% 77% of space in this sub-market is categorised as being new or refurbished. The addition of Strand House and King House at the Aldwych Quarter significantly increases the availability of new floorplates between 5,1 and 1, sq ft in size. ARK O 5-1, 1,1-2, 2,1-3, 31-5, 5,1-1, 1,1+ 8 7 9 VICTORIA 1 6 4 5 2,132 sq ft 9,712 sq ft 2 3 12,313 sq ft 23,626 sq ft 97,2 sq ft 11,817 sq ft VICTORIA 9% This is the most under supplied of all our sub-markets. Even though stock in this sub-market in general has much larger floorplates, there are no new or refurbished on the market between 5 and 3, sq ft in size, even accounting for sub-divided. New Refurbished Unrefurbished West End boundary Sub-market boundary Source: Gerald Eve Arrows indicate quarterly movement. Current letting policies may dictate some are not in isolation.
OUTLOOK FLOORS UNDER OFFER BY SUB-MARKET 6 55 Q3 214 Q4 214 5 45 4 35 3 25 The number of and volume of space under offer rose by 25% and 49% respectively in Q4, with almost 7, sq ft of space with solicitors at the end of 214. By sub-market, it was Mayfair / St James s which drove these figures, although it was Fitzrovia & Bloomsbury which recorded the most significant increase, more than doubling the number of under offer to 54. This is illustrative of the current depth of occupier demand as both the most centrally-located and expensive space in Mayfair and, the more economical space in Fitzrovia have experienced increased levels of interest. We expect this broad-based occupier demand to increase further throughout 215. 2 15 1 5 Mayfair/St James s Fitzrovia/Bloomsbury Marylebone Soho Covent Garden Victoria Source: Gerald Eve With this said, the main risk to the West End office market is its dependency on the UK economy and the recovery has been instrumental in generating increasingly positive occupier confidence. The May general election could create a period of uncertainty, perhaps leading to some occupiers deferring relocation decisions, but this is unlikely to materially affect the strong demand / weak supply environment we expect to continue through 215. RENTAL GROWTH OUTLOOK % per year 2 15 Forecast West End Offices All Property 1 5-5 -1-15 -2 Market conditions look set to help foster a continued environment of positive rental growth during 215. As such, we are forecasting IPD rental growth of 9% during 215 and an average 6% per year over the next four years (for all qualities of space) in the West End. Prime rents have grown in large increments during 214 as deals have been agreed and the market quickly readjusted to the levels being set. We expect that competition for prestige office space will continue and we could see standard prime rents in Mayfair / St James s topping 14 or even 15 per sq ft by the end of 215. 25 26 27 28 29 21 211 212 213 214 215 216 217 218 www.geraldeve.com Source: Gerald Eve, IPD
DEFINITIONS Availability Marketed pace which is to move into within six months that may or may not be vacant but which is actively marketed by an appointed agent. We monitor pace in central London at an individual floor level. Each floor is assigned a floor size category and an individual grade for quality. The availability data covered in this report represents buildings within the boundaries outlined in the map in this report. We monitor availability by the number of being marketed as well as the total size. The floor area in sq ft adopted throughout is the net internal area. Floors which are under offer are not included in our availability statistics. Availability is assessed two weeks before the end of the calendar quarter. Newly space Space on the open market including developments which are within six months of completion. This includes units of secondhand space which are undergoing refurbishment. Requirement A declared requirement for office accommodation of a given size range and for a specific geography, which is most likely recorded from an office agents clearing house. If the requirement has a preferred size range, the average size of the requirement is used. Given requirements often include a range of targeted sub-markets, we have included the requirement for each location when analysing individual sub-markets, but, when calculating overall West End requirements, duplicates are removed. Prime headline rents The rent being paid which does not take account of concessions such as rent free periods, in which case it is known as the effective rent. 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 1 year term. We use the best achieved method of recording prime rents. Where there is recent evidence of transactions, then our data is representative of it. In cases where there is no recent evidence, then the rent is recorded on the basis of the best hypothetical transaction which could be achieved as at the end of that quarter. Incentives This refers to the concessions offered by a landlord to a tenant as part of the negotiation process. Incentives usually adopt the form of rent free periods, but can also be in the form of capital contributions or the fit-out of the building. Floor / Floorplate As well as the total volume of space being marketed as, we also monitor the number of which account for this total volume. We monitor whether it is a full floor or part floor which is being marketed, although for our statistics, we treat an individuallymarketed part floor as one floor. If a floor is capable of sub-division to accommodate two suites, but can likewise be occupied together, we use the total floor plate for that floor. Where the physical characteristics of necessitate that they must be occupied together, this is deemed as one floor for this analysis. If the letting policy for the building dictates that all must be taken together, for the purposes of this report each floor is treated individually given the potential for letting policies to change. Floor quality New: Floor in a newly-developed or newly-refurbished building, including sub-let space in new buildings which have not been previously occupied. Refurbished: A floor which has been refurbished but is in a building which is not new or been refurbished. Unrefurbished: Second hand space, usually offered for occupation as is. Under offer Space which a prospective occupier has agreed in principle to occupy but is not yet under any legal or contractual obligation to do so. Take-up Occupational transactions including offices let or sold to an occupier, and developments pre-let or pre-sold to an occupier. Quality of choice This is a subjective measure holistically assessing the appropriateness of current availability to modern office requirements. Whilst our figures may represent a large number of in particular size categories or postcode geographies, the floorplates efficiencies or amenities on offer within this supply may not meet all the expectations of modern office tenants and the quality of choice would be lower.
CONTACTS Gerald Eve s London office team provides specialist advice across the spectrum including agency, investment, lease consultancy, rating, valuation, planning and development and project management. To find out more about us and what we could do for you please visit our website at www.geraldeve.com or contact the following people direct: WEST END Lloyd Davies Head of West End Agency Tel. +44 ()2 7333 6242 Mobile +44 ()7767 311 254 ldavies@geraldeve.com Paul Pride Office Agency Tel. +44 ()2 7333 6249 Mobile +44 ()7584 213455 ppride@geraldeve.com Graham Foster Lease Consultancy Tel. +44 ()2 7653 6832 Mobile +44 ()7774 823663 gfoster@geraldeve.com CITY Simon Prichard Head of City Office Tel. +44 ()2 7653 6827 Mobile +44()7796 93334 sprichard@geraldeve.com Fergus Jagger Office Agency Tel. +44 ()2 7653 6831 Mobile +44 ()7787 558756 fjagger@geraldeve.com Andrew Mears Investment Tel. +44 ()2 7333 638 Mobile +44 ()7767 23381 amears@geraldeve.com PLANNING & DEVELOPMENT Hugh Bullock Head of Planning and Development Tel. +44 ()2 7333 632 Mobile +44 ()7831 172974 hbullock@geraldeve.com Lisa Webb Planning Tel. +44 ()2 7333 6225 Mobile +44 ()7747 6739 lwebb@geraldeve.com Nick Brindley Planning Tel. +44 ()2 7333 6 362 Mobile +44 ()7944 584743 nbrindley@geraldeve.com GERALD EVE S UK OFFICE NETWORK London (West End) 72 Welbeck Street London W1G AY Tel. +44 ()2 7493 3338 London (City) 46 Bow Lane London EC4M 9DL Tel. +44 ()2 7489 89 Birmingham Bank House 8 Cherry Street Birmingham B2 5AL Tel. +44 ()121 616 48 Cardiff 32 Windsor Place Cardiff CF13BZ Tel. +44 ()29 238 844 Glasgow 14 West George Street Glasgow G2 2HG Tel. +44 ()141 221 6397 Leeds 1 York Place Leeds LS1 2DR Tel. +44 ()113 244 78 Manchester No1 Marsden Street Manchester M2 1HW Tel. +44 ()161 83 77 Milton Keynes Avebury House 21-249 Avebury Boulevard Milton Keynes MK9 1AU Tel. +44 ()198 68595 West Malling 35 Kings Hill Avenue West Malling Kent ME19 4DN Tel. +44 ()1732 229423 For more information on any of the facts and figures in this publication, please contact: Steve Sharman Tel. +44 ()2 7333 6271 ssharman @geraldeve.com Disclaimer & copyright This brochure 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. 2/15 www.geraldeve.com