ONDON FOOR REVIEW A floor-by-floor analysis of the ondon office market Q1 217 International Property Consultants
FIRT QUARTER REVIEW Q on Q Y on Y Comment Take-up 2.7m sq ft taken-up during Q1, over 523 floors +7% by sq ft +14% by floors -1% by sq ft +5% by floors EC2 was the most active sub-market in ondon during Q1 There were 9 lettings above 5, sq ft Professional service firms were the most dominant occupier sector, representing 3% of leasing activity Under Offer 2.1m sq ft under offer at the end of Q1, within 438 floors +15% by sq ft +4% by floors +27% by sq ft +1% by floors pace under offer increased for the third consecutive quarter in the West 1.3 million sq ft under offer in the East upply 9.7m sq ft available in ondon, across 1,714 floors -7% by sq ft -1% by floors +46% by sq ft +65% by floors Availability rate fell for the third consecutive quarter to 5.1% New developments have increased the quality of choice on offer to occupiers 21% of all available space on the market is tenant space West 11 per sq ft ayfair/t James s prime rent 11 per sq ft 125 per sq ft Prime headline rents remain flat in the West On average across submarkets in the West, 2 months rent free are available for a ten year term East 7 per sq ft City prime rent 7 per sq ft 7. per sq ft Prime rental levels maintained in the East On average, 21 months rent free on a ten year term in the City Front Cover Illustration Acting on behalf of UK Real Estate, Gerald Eve s ondon office leasing team secured a 1 year commitment from VEVO, who will occupy the 16, sq ft ighthouse building as their new ondon HQ.
ONDON NAPHOT Quarterly take-up Quarterly availability 4. illion sq ft 12 illion sq ft 3.5 1 3. 2.5 8 2. 6 1.5 4 1..5 2. Q2 214 Q3 214 Q4 214 Q1 215 Q2 215 Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 1.2 1..8.6.4.2 illion sq ft Q2 17 Q3 17 Q4 17 Q1 18 Q2 18 Q3 18 Q4 18 Q1 19 Q2 19 Q3 19 Q4 19 Q1 2 Q2 2 Q2 214 Q3 214 Q4 214 Q1 215 Q2 215 Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 West East 5 year average West East Pre-letting activity creates a strong start to 217 A surge of pre-letting activity in the capital boosted take-up volumes to reach 2.7 million sq ft in Q1, its highest level in 12 months and 3% above the five year average. With a number of large buildings currently under construction, occupier s desire for new space will act as a confidence boost to developers. agic Circle firm Freshfields Bruckhaus Deringer signed the largest deal of the quarter, a 25, sq ft pre-let to occupy floors 2-32 at Brookfield Property s 1 Bishopsgate, which is due to complete next year. Other pre-lets include management consultants, ckinsey, which pre-let 97, sq ft at 21-31 New Oxford treet; retailer CO, H& s luxury brand, which pre-let 61, sq ft at 1-19 New Oxford treet, and Arup Group, which signed a 134, sq ft pre-let on the first to third floors as well as part of the ground and lower ground floor at Derwent ondon s 8 Charlotte treet. Availability begins to fall Occupiers are struggling to find the right space to suit their needs prompting many to turn to upcoming developments to solve their real estate requirements. Despite a number of development completions, strong letting activity has led to a decline in the availability rate to 5.1%. In the West, availability remains particularly low around King s Cross and arylebone with availability rates at 2.2% and 2.3% respectively. uch of the remaining stock in these markets suffers from a lack of quality, with only an average of 28% either new or recently refurbished. In the East, availability is at its most restricted in EC1, with availability rates falling from 5.3% to 4.3% in Q1. However, the majority of available stock is of good quality with only 25% currently unrefurbished. Development supply pipeline East 1.4 million sq ft to be delivered before Q4 Demand for new space remains high as evidenced by occupiers favouring pre-lets over existing availability. In the East, where availability rates have fallen for the third consecutive quarter to 5.1%, a further 1.4 million sq ft will be delivered in the next six months across 26 developments and 161 floors, which will go some way to meet the demand for new space. Over the next four years, 7.2 million sq ft will be constructed in the East, with almost half being built in EC2. 22 Bishopsgate, 1 Bishopsgate and 21 oorfields are examples of some of the larger buildings in the pipeline which combined account for 1.6 million sq ft over 89 floors between them. 3
Q1 217 AVAIABIITY WET Here we detail our findings on the supply of floors by each submarket, indicating the number of available floors for each size category as well as their respective quality. This includes space under construction which is due to be delivered to the market within 6 months. upply 3.4 million sq ft / 718 floors -13% on Q4 Availability Rate 3.8% down on 4.4% in Q4 13% Tenant space (as % of total availability) arylebone 33,22 sq ft 128,773 sq ft 64,791 sq ft 26,2 sq ft arylebone arylebone Baker treet Regents Park Euston quare Warren treet Great Portland treet Goodge treet 5 1 15 2 Availability Rate 2.3% Availability fell 2% in Q1 which maintains arylebone as one of the most restricted submarkets, particularly for floorplates above 1, sq ft. Proportionately, arylebone offers the highest percentage of tenant space in the market at 27%, although the majority of the space available is unrefurbished. arble Arch oho Availability Rate 3.7% Oxford Circus Bond treet oho 19,696 sq ft 4,618 sq ft 32,762 sq ft 137,431 sq ft ayfair & t James s Availability Rate 5.2% Green Park 5 1 15 2 67% of available stock in oho is either new or recently refurbished. This quality continues to attract occupiers and as a result, availability fell 3% in Q1, greater than any other submarket. As a result, rental levels remain strong. ayfair & t James's 16,81 sq ft 48,229 sq ft 211,259 sq ft 25,422 sq ft Victoria Victoria 5 1 15 2 Availability Rate 5.8% Despite a 12% decline in availability in Q1, there is a good supply of space across all size bands in the market. Demand for new space within the submarket remains strong with almost 3, sq ft currently under offer. It is arguable that the recent rental recalibration has brought occupiers back into the market. www.geraldeve.com
King s Cross & Euston Availability Rate 2.2% King s Cross & Euston 11,548 sq ft 22,446 sq ft 59,42 sq ft 93,86 sq ft 5 1 15 2 Euston Fitzrovia & Bloomsbury Availability Rate 3.5% King s Cross t Pancras Russell quare King s Cross and Euston remains one of the most sought after submarkets which is reflected in the fall in availability rate to 2.2%, the lowest in ondon. Finding quality office space is becoming increasingly more difficult for occupiers, with only 35% of the space either new or recently refurbished. Fitzrovia & Bloomsbury 73,57 sq ft 213,555 sq ft 34,96 sq ft 311,51 sq ft 5 1 15 2 Tottenham Court Road Covent Garden Availability Rate 3.% Covent Garden Availability fell by 23% in Q1 resulting in a vacancy rate of 3.5%. The majority of space available is of good quality, with 65% of the office space either new or recently refurbished. This is attracting interest from occupiers with currently 18, sq ft under offer, influenced by reduced availability in King s Cross and Euston and some displacement of H2 affected occupiers. eicester quare Temple Covent Garden Piccadilly Circus Charing Cross Embankment 3,547 sq ft 18,629 sq ft 99,13 sq ft 163,373 sq ft 5 1 15 2 Floorplate izes mall () edium () 5 sq ft to 2, sq ft 2,1 sq ft to 6, sq ft A rise in availability, particularly for medium sized assets, resulted in an increase in availability rate to 3% in Q1. Whilst this is below the average in the West, the stock on offer to occupiers is of good quality with 73% either new or recently refurbished. Pimlico arge () 6,1 sq ft to 1, sq ft Extra arge () 1,1 sq ft + Type New Refurbished Unrefurbished Current letting policies may dictate some floors are not available in isolation Victoria 12,376 sq ft 75,921 sq ft 11,61 sq ft 58,362 sq ft 5 1 15 2 The volume of available space fell 6% in Q1 resulting in an availability rate of 5.8%. Victoria continues to be dominated by the availability of good quality stock, with 84% of the available space either new or recently refurbished. Only 4% of this is tenant space, a significantly lower proportion than the other submarkets. 5
UPPY AND DEAND WET Availability by sub-market illion sq ft 4.5 4. 3.5 3. 2.5 2. 1.5 1..5 Under offers by sub-market illion sq ft 1.2 1..8.6.4.2. Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Covent Garden Fitzrovia/Bloomsbury King s Cross and Euston arylebone ayfair & t James s oho Victoria Availability falls 13% Availability declined 13% in Q1, its first fall in 18 months. Despite the rise in available stock over the last couple of years, availability remains at a low level, particularly in the King s Cross and arylebone submarkets which have an availability rate of 2.2% and 2.3% respectively. Covent Garden Fitzrovia/Bloomsbury King s Cross and Euston arylebone ayfair & t James s oho Victoria 8, sq ft under offer Occupier demand for new space continues to be strong with almost 8, sq ft currently under offer, 42% higher than 12 months ago. The demand for space is strongest in oho, where 28% of its available space is now under offer, closely followed by arylebone at 24%. Q1 217 take-up by occupier sector Quarterly take-up and 5 year average 17% erviced Offices 1% Retail 1% Associations 7% Corporate 22% Finance & Banking illion sq ft 1.6 1.4 1.2 1..8.6 31% Professional ervices 4% Insurance.4.2 17% edia & Technology Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Take-up 5 Year Average Professional services the most active sector Professional services were the most active in Q1 accounting for 31% of overall take-up. However this was largely driven by Arup Group s 133,6 sq ft pre-let at 8 Charlotte treet, which will complete in the second half of 219. Finance and banking firms were also active, accounting for 22% across 31 transactions. 33% increase in average letting Occupier sentiment remains positive at the start of the year as take-up volumes reached 96, sq ft in Q1, a slight increase on Q4, although still below the 5 year average of 1.3 million sq ft. Whilst take-up levels remain similar to Q4, the average size of each letting has increased by 33% to 5, sq ft. www.geraldeve.com
UPPY AND DEAND EAT Availability by sub-market illion sq ft 7 6 5 4 3 2 1 Under offers by sub-market illion sq ft 2. 1.8 1.6 1.4 1.2 1..8.6.4.2. Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 EC1 EC2 EC3 EC4 Holborn EC1 EC2 EC3 EC4 Holborn Availability begins to fall A flurry of transactions in Q1 resulted in a fall in availability for the first time since 215. Development completions in EC2 and EC3 will deliver 742, sq ft over the next six months, which has increased the vacancy rates in both of these submarkets. However, this was offset by availability decline in EC1, EC4 and Holborn. Quality attracting occupiers Occupier confidence in the market is growing, evidenced by the current volume of space under offer which reached 1.3 million sq ft in Q1. Good quality space in EC2 continues to draw occupiers attention with 64% of available space either new or recently developed. ikewise in EC3, where the second most amount of space is under offer, has 63% of new or refurbished stock available. Q1 217 take-up by occupier sector Take-up by sub-market and 5 year average 5% erviced Offices 2% Retail 5% Associations 7% Corporate 3% Insurance 3% Finance & Banking illion sq ft 3. 2.5 2. 1.5 1. 3% Professional ervices 27% edia & Technology.5 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 EC1 EC2 EC3 EC4 Holborn 5 Year Average Professional ervices continue to commit in the East Professional services were the main driver behind leasing activity in Q1. Apart from the exceptional deal to Freshfields Bruckhaus Deringer, the rest of the market was made up by local market churn, with the average size deal sub 5, sq ft. edia and technology companies also continued to grow their presence, with 29 deals signed for an average floor size of 11,5 sq ft. Five significant deals drive take-up volume Take-up in the East increased for the third consecutive quarter to 1.8 million sq ft, 9% above the five year average and its highest volume since eptember 215. ignificantly, there were five deals above 5, sq ft, including Freshfields Bruckhaus Deringer s 25, sq ft letting in EC2, the most active submarket of the quarter. 7
Q1 217 AVAIABIITY EAT Here we detail our findings on the supply of floors by each submarket, indicating the number of available floors for each size category as well as their respective quality. This includes space under construction which is due to be delivered to the market within 6 months. upply 6.4 million sq ft / 996 floors down -3% on Q4 Availability Rate 6.4% down on 6.5% in Q4 Angel 25% Tenant space (as % of total availability) EC1 347,117 sq ft 24,592 sq ft 17,742 sq ft 25, sq ft EC1 Availability Rate 4.3% 5 1 15 2 A high volume of leasing activity, where 45, sq ft was taken, resulted in a 19% fall in availability in Q1. The availability rate is now at 4.3%, the lowest of all submarkets. The demand for space in the region from a number of business sectors is evidenced by a further 235, sq ft currently under offer. Holborn Availability Rate 5.6% Farringdon Barbican Holborn Chancery ane 125,537 sq ft 116,954 sq ft 74,236 sq ft 133,12 sq ft Holborn EC4 Availability Rate 5.2% t Pauls City Thameslink 5 1 15 2 ansion The majority of space on offer is space either being sublet or assigned from an existing tenant. At 61%, this is a significantly higher proportion than the other submarkets in the East. Blackfriars EC4 272,65 sq ft 264,872 sq ft 423,77 sq ft 187,444 sq ft 5 1 15 2 Although overall availability fell 6% in Q1, there remains a good level of available stock across all size bands. Availability rates are at 5.2% with the majority (79%) being either new or recently refurbished. www.geraldeve.com
EC2 Old treet EC2 Availability Rate 5.9% 43,546 sq ft 285,514 sq ft 785,28 sq ft 46,679 sq ft 5 1 15 2 Despite a number of significant lettings in Q1, availability in the submarket rose by 12% resulting in an availability rate of 5.9%. Occupier demand for space in the submarket is strong, with 381, sq ft currently under offer, more than any other submarket. oorgate EC3 Bank iverpool treet Aldgate 441,496 sq ft 334,115 sq ft 825,62 sq ft 465,837 sq ft House Fenchurch treet 5 1 15 2 Cannon treet onument EC3 Tower Hill Availability Rate 1.9% The expected completion of five developments in Q3 this year, adding an additional 3, sq ft of space to the market caused overall availability to increase by 15% in Q1. The majority of space is of good quality with 63% either newly built or recently refurbished. Floorplate izes mall () edium () arge () 1, sq ft to 5, sq ft 5,1 sq ft to 1, sq ft 1,1 sq ft to 2, sq ft Extra arge () 2,1 sq ft + Type New Refurbished Unrefurbished Current letting policies may dictate some floors are not available in isolation 9
TENANT PACE Central ondon availability by lease type 79% New lease 21% ub-let or assignment ondon remains one of the most expensive cities in the world to rent office space. With prime rents at 11 per sq ft in the West and 7 per sq ft in the East, cost mitigation of real estate is high on the corporate agenda. However leaving an expensive real estate location for a postcode with a lower rental rate is not always the answer, due to moving costs, disruption to business and concerns over the ability to recruit and retain talent. Occupiers are therefore trying to find new ways to use their space as efficiently as possible, including the leasing of existing space. Greater sub-letting activity in the East Of the available office space in central ondon in Q1, 21% is available from an existing tenant rather than a new lease direct from the landlord. The majority of which is in the East, where 24% of the available space is via sublease compared to 13% in the West. ost notably occupiers in Holborn are divesting space, with 61% of the available space being from an existing occupier. By contrast in the West, arylebone has the highest proportion at 27%. ub-let available space by business type 35 3 25 % West East ize bands of sub-let or assigned floors 8 7 6 % West East 2 15 1 5 Associations Corporate Finance & Banking Insurance edia & Technology Professional ervices Retail erviced Offices 5 4 3 2 1-5, sq ft 5,1-1, sq ft arger floorplates sub-let in the East The West is dominated by smaller (sub 5, sq ft) floorplates which make up 74% of the available sub-let space. In the East however, although 57% of sub-let space is also small, there is notably more opportunities for floorplates above 1, sq ft and 2, sq ft. 1,1-2, sq ft 2,+ sq ft ub-letting tenants more diverse in the West ub-letting activity in the East is largely being driven by the financial and insurance sectors which account for 54% of the available space, with relocation and expansion plans being put on hold due to the uncertainty around Brexit. Notably Deutsche Bank is looking to offload 98, sq ft across five floors at 1 Appold treet in EC2. Insurance company wiss Re are seeking to use their office space more efficiently with the introduction of agile working. This means that a lot of their staff no longer have an assigned desk and, as a result, the company are sub-letting 86, sq ft across five floors at 3 t ary Axe. In the West, the type of occupiers looking to offload space is more diversified. Whilst financial and professional service firms are active, there is a large portion of space coming from media and technology firms as well as some corporate, retail and services offices. Not all sub-letting activity is due to downsizing. In the case of professional service firm Rathbones, they are subletting 3, sq ft at One Curzon treet in ayfair, as they move to their new offices in the City s Finsbury Circus. The relocation was prompted by their need to expand from its current 44, sq ft of floor space to around 75, sq ft but at a lower rental level. www.geraldeve.com
DEFINITION ondon offices Reference to ondon offices in this report refers to floors over 1, sq ft the East (comprising the postcodes EC1, EC2, EC3, EC4 and Holborn) and floors over 5 sq ft in the West as depicted on the map (comprising West End submarkets oho, Covent Garden, ayfair & t James s, Victoria, arylebone and Fitzrovia & Bloomsbury). 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 1 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. 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 comprehensively refurbished and is of good specification, floorplate efficiency and image, but is in a building which is not new or been comprehensively refurbished. Unrefurbished: Poorer quality space, usually offered for occupation as is. GERAD EVE IN THE ARKET 5 loane Avenue Gerald Eve has been instructed to let 22,3 sq ft of grade A office space at 5 loane Avenue, a brand new office and retail development in the Royal Borough of Kensington and Chelsea. 1 Angel ane Gerald Eve has been instructed to sub-let 5, sq ft at 1 Angel ane. The building is Nomura s European 54, sq ft landmark HQ overlooking the River Thames and we recently settled the rent review on their behalf. 41 Devonshire Place Gerald Eve has been instructed by the Royal Philatelic ociety ondon to market their freehold interest in 41 Devonshire Place, subject to a short term leaseback arrangement. The Grade II listed Georgian building comprises 8,412 sq ft of mixed use accommodation in the heart of arylebone, and has served as the home of the RP since 1925. The Walbrook Building Gerald Eve has been instructed by Arthur J Gallagher (UK) imited to sub-let the 1st floor totalling 34,551 sq ft at The Walbrook Building. Designed by Foster and s, The Walbrook Building is an iconic office building located in the heart of the City of ondon. 11
GERAD EVE IN THE ARKET Our specialists have been involved in several high profile transactions during the quarter. Please contact them directly for more information. tephen Peers ondon Offices Fergus Jagger ondon Offices Investment Team of the Year Property Award Winner Gerald Eve is marketing The Harley Building, a 36, sq ft new development designed by quire and s. The building occupies a prominent island site on the corner of New Cavendish treet and Hallam treet, just to the east of Portland Place. On behalf of wiss Re, Gerald Eve is marketing 86, sq ft of newly refurbished space at 3 t ary Axe. The iconic building benefits from exceptional transport links. For further information please go to www.3sma.com. Gerald Eve was awarded Investment Team of the Year at the 217 Property Awards. The award follows a significant year, during which the company built on previous successes and incorporated new arrivals to establish itself as one of the market s most prominent players. obile +44 ()7771 6757 obile +44 ()7787 558756 Contacts ondon Agency & Investment tephen Peers Tel. +44 ()2 3486 345 obile +44 ()7771 6757 speers@geraldeve.com loyd Davies Tel. +44 ()2 7333 6242 obile +44 ()7767 311254 ldavies@geraldeve.com Fergus Jagger Tel. +44 ()2 7653 6831 obile +44 ()7787 558756 fjagger@geraldeve.com teve Johns Tel. +44 ()2 7653 6858 obile +44 ()7833 41249 sjohns@geraldeve.com ondon ease Consultancy Graham Foster Tel. +44 ()2 7653 6832 obile +44 ()7774 823663 gfoster@geraldeve.com Tony Guthrie Tel. +44 ()2 3486 3456 obile +44 ()7585 96695 tguthrie@geraldeve.com ondon Planning & Development isa Webb Tel. +44 ()2 7333 6225 obile +44 ()7747 6739 lwebb@geraldeve.com Nick Brindley Tel. +44 ()2 7333 6362 obile +44 ()7944 584743 nbrindley@geraldeve.com ondon Research teve harman Tel. +44 ()2 7333 6271 obile +44 ()758 8118 ssharman@geraldeve.com Alex Dunn Associate Tel. +44()23 486 3495 obile +44 ()7917 587 23 adunn@geraldeve.com Disclaimer & copyright ondon Floor Review 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 P. www.geraldeve.com