WEST END FLOOR REVIEW A floor-by-floor analysis of the West End office market Q3 214
THIRD QUARTER REVIEW THE QUARTER IN NUMBERS Q ON Q SUPPLY OF FLOORS IN THE WEST END 277 taken-up during Q3, totalling 881,914 sq ft 7.4% by 16 195,547 sq ft 14 3,184 sq ft average floor size taken-up 3,761 sq ft 12 1 8 82,488 sq ft 192,959 sq ft 426,646 sq ft 8,159 sq ft 1,14,682 sq ft 69, totalling 2.7m sq ft 2.9% by 6 4 2 1,756 recorded requirements 2.9 requirements per floor 17% up on 2.5 5 1,5 1,1 2, Floor size category (sq ft) 2,1 3, 3,1 5, 5,1 1, 1,1+ 154 under offer during Q3, totalling 472,234 sq ft 25% by Supply rose marginally in Q3 due to the addition of several large development schemes to current availability which are due for completion within six months, however the number of remains very low The Aldwych Quarter in Covent Garden, Ampersand in Soho and 2 Fitzroy Place in Fitzrovia/Bloomsbury are the large developments which have entered our supply figures this quarter Whilst the number of under offer fell 25% as several large deals completed, take-up was strong and the number of requirements in the market remains high. There is now almost three requirements chasing each floor Prime rents rise in large increments as Covent Garden and Victoria rents hit 75 per sq ft www.geraldeve.com
DEMAND SUB-MARKET TAKE-UP BY NUMBER OF FLOORS AND PRIME HEADLINE RENTS (Q3 214) Mayfair/St James (185,673 sq ft) 76 Marylebone (72,539 sq ft) 35 Covent Garden (158,147 sq ft) 26 9 psf 75 psf 17.5 psf Soho (49,953 sq ft) 42 92.5 psf Fitzrovia/Bloomsbury (216,267 sq ft) 76 Victoria (199,335 sq ft) 22 67 psf 75. psf Source: Gerald Eve The number of taken-up rose by 7.4% to 277 but the overall volume of space transacted fell marginally to 881,914 sq ft during Q3. The average floorplate size taken-up during Q3 therefore fell to 3,184 sq ft as occupiers committed to a larger number of smaller. Victoria was home to some of the largest deals of the quarter given the acquisition by Dong Energy of five totalling 81,71 sq ft at 1-5 Howick Place, and, Jupiter Asset Management s letting of three totalling 56, sq ft at the Zig Zag building. Parliamentary Estates also let ten totalling 9,596 sq ft at 39 Victoria Street, although this falls outside our Victoria boundary. Several buildings (such as the 11-floor Halo Building in WC1) were let in their entirety in Fitzrovia/Bloomsbury in Q3, which made it one of the most active sub-markets in the West End. The completion of several large deals meant that both the volume of space and the number of under offer reduced during Q3 to 472,234 sq ft within 154. 6% of the under offer are new or refurbished however, confirming the strong levels of demand for higher quality space. The profile of the space under offer together with the consistent increase in the number of recorded requirements for office space suggests continued strong demand for the remainder of 214. Following some high profile transactions such as the letting of the 27,83 sq ft third floor at 1 Strand in Covent Garden (the largest floor taken during the quarter) to Braemar Shipping we have moved up prime rents in Covent Garden to 75 per sq ft. We have also moved up Victoria prime rents to 75 to reflect both deals agreed and the supply/demand imbalance in the sub-market.
Q3 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 69 2.7 million sq ft Up on Q2 UNDER OFFER 154 472,234 sq ft Down on Q2 5-1, 1,1-2, 2,1-3, 31-5, 5,1-1, 1,1+ 1,153 sq ft 37,862 sq ft 18,642 sq ft 22,356 sq ft 1,439 sq ft EUSTON 9 1 8 MARYLEBONE 133,18 sq ft 2 WARREN STREET MARYLEBONE 3% Availability showed a significant reduction during the quarter. There is now very little new space on the market, although large new at Marble Arch House and 1 Portman Square were added during Q3. Refurbished pace on Wimpole Street was also added, but on balance, supply fell by 3%. 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 19% The delivery of several refurbished to the market in Mayfair during the quarter resulted in an overall increase in supply. In particular, the addition of new at 69 and 2 Grosvenor Street, 28 Savile Row and British Columbia House in St James s offset what was a strong quarter of letting activity. 99,73 sq ft 8 7 9 29,844 sq ft MAYFAIR 1 6 4 5 2 3 271,168 sq ft 32,746 sq ft 34,346 sq ft 72,955 sq ft 5-1, HYDE PARK CORNER GREEN PARK VICTORIA Victoria ST JAMES S P 1,1-2, 2,1-3, 31-5, 1,118 sq ft 15,586 sq ft 9,112 sq ft PIMLIC SOHO Addition of at 12 Golden Square, 33 Glasshouse Street and the Ampersand building on Wardour Street has added some much-need good quality large floor plates to supply in Q3. 12% 5,1-1, 1,1+ 8 7 9 SOHO 1 6 4 5 76,692 sq ft 2 3 77,676 sq ft 57,57 sq ft www.geraldeve.com
ST PANCRAS KINGS CROSS 5-1, 1,1-2, 2,1-3, 31-5, 5,1-1, 1,1+ RUSSELL SQUARE CHANCERY LANE 8 7 9 1 FITZROVIA 6 4 5 132,33 sq ft 2 3 138,378 sq ft 6,189 sq ft 47,9 sq ft 38,2 sq ft 16,716 sq ft FITZROVIA 9% There has been a large amount of churn activity in this sub-market during Q3. Despite strong take-up, the return of several refurbished to the market on balance meant that supply showed a marginal rise during the quarter. HOLBORN 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 24,169 sq ft 193,851 sq ft 8,197 sq ft 13,15 sq ft 27,551 sq ft 84,953 sq ft COVENT GARDEN 9% The addition of over 4 totalling over 25, sq ft at the Aldwych Quarter has significantly added to supply during Q3. This has materially changed the supply profile of the sub-market, which now has an above average number of new large. ARK O 5-1, 1,1-2, 2,1-3, 31-5, 5,1-1, 1,1+ 8 7 9 VICTORIA 4, sq ft 1 6 4 5 2 3 3,678 sq ft 1,325 sq ft 165,862 sq ft 81,224 sq ft 12,965 sq ft VICTORIA 4% Large lettings at Howick Place and Millbank Tower significantly reduced supply in Victoria during Q3 and there are currently just over 4 in the sub-market. With practical completion expected in Q2 next year, the addition of at the Zig Zag building will go some way to fill the supply gap, although Jupiter Asset Management s letting of 56, sq ft at the end of Q3 takes occupancy of the building to 28%. 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.
REQUIREMENTS AND SUPPLY RECORDED REQUIREMENTS requirements 1,8 1,6 1,4 Source: Gerald Eve 1,1+ 5,1-1, 3,1-5, 2,1-3, 1,1-2, 5-1, 1, 8 6 4 The number of requirements for office space in the West End has grown almost every quarter since 213. The number of requirements in the market recorded in Q3 214 was up 17% on the quarter, driven by requirements for smaller office less than 3, sq ft in size. There has been a noticeable increase in requirements for space between 2,1-3, sq ft in size, particularly space in Fitzrovia and Bloomsbury. 2 Q1 213 Q2 213 Q3 213 Q4 213 Q1 214 Q2 214 Q3 214 Where identifiable, at individual occupying sector level, several media, finance, technology and hedge fund occupiers registered their interest for West End office space in Q3. The average size of requirements rose to over 4,8 sq ft during the quarter as occupiers continue to gain more confidence in their business models. ACTIVE REQUIREMENTS PER AVAILABLE FLOOR BY FLOORSIZE CATEGORY requirements per floor 5. 4. 3. Source: Gerald Eve HOT FLOORPLATES Mid-sized continue to attract proportionately the most interest relative to supply. There remains considerable interest in between 2,1-3, sq ft in size relative to the availability of such space. Whether due to small to medium-sized companies wishing to expand into larger premises to accommodate for growth or new entrants to the market looking for corporate space, this is a floorplate size category which has increased prospects for rental growth. 2. 1. Requirements Q3 214 Q2 214 Total 193 481 358 317 266 141 1756 23 426 262 281 22 128 152 WARM FLOORPLATES The number of requirements for the largest floorplates rose during Q3, but did not manage to keep pace with the addition of several large to current supply. Whilst requirements are not a definitive measure of demand, they are a barometer of market sentiment. We believe that companies will continue to test the market in anticipation of future lease events and with an eye on the strong prospects for rental growth, will want to secure accommodation sooner rather than later. We expect this to be the case across all floor size categories. Floor size category (sq ft) 5-1, 1,1-2, 2,1-3, 3,1-5, 5,1-1, 1,1+ Q3 214 Q2 214 www.geraldeve.com
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. 1/14 www.geraldeve.com