London Office Market Q3 2019

The London Office market saw an increased level of letting activity in Q3 2019. Overall quarterly take-up rose by 13% from the 2nd quarter to a 12-month high. Appetite for pre-letting is growing as occupier concern over supply shortages, encourages deals to conclude at an increased rate, with 1.3m sq ft of London office pre-lets concluded in Q3.

Absorption levels are more subdued as a high proportion of secondhand space is bypassed in favour of new builds. However, the good new for the fit-out industry is that confirmed major pre-lets for schemes completing in 2020-2022, include G-Research, Cooley, Bridgepoint, Splunk and Millbank increasing the size of their floorspace in their pre-lettings.

Central London office market vacancy levels have has edged below 5% for the first time since early 2017, with availability of completed recently new/refurbished space just above the all-time record low for London.

Recently emerging separate requirements for over 100,000 sq ft, across the entire London market, prioritising product availability over include occupiers such as IBM, BNY Mellon, Mastercard, The Telegraph
and Kingfisher.

The City office market has seen an increased level of demand. In the last three months deals to BT, Monzo, ICG Longbow, Urban Outfitters, ION and Reinsurance Group of America have boosted Grade A letting activity surpassing 1 million sq ft for the first time in nearly 20 years. Rival flexible offices providers are also active with Knotel pre-letting 82,000 sqft at City Place House, Uncommon forward purchasing Templar House WC2 (140,000 sq ft)and Convene taking over 100,000 sq ft at 22 Bishopsgate, EC2. The pipeline in the City of London is set to see 2.5 million sq ft of speculative space delivered up to the end of 2021. Future large-scale schemes not under construction will not impact the market until 2022 at the earliest.

The West End also saw take-up improve in Q3, to 1.0 million sq ft, with pre-letting activity accounting for 30% of lettings including Diageo, Bridgepoint and Nationwide Digital. Vacancy rates rose very marginally, but the future pipeline includes 3.5m sq ft to be delivered up to end of 2020, albeit that 80% of that is pre-let, There are only three speculative schemes over 50,000 sq ft set to be delivered up to the end of 2020.

Thanks, best wishes and Merry Christmas to all Metropolis office blog readers!

Paul Ives, Apollo Business Research, can be reached via Linkedin

London Office Schemes – The Next Wave

The following 10 examples are part of a major ongoing research project on the next 200 London office schemes to be built in central London, forecast to be built 2021-2024:

Skipton House, 80 London Road, London, SE1 – Major 42,000 sq m mixed use scheme planned by London & Regional Properties and designed by Piercy & Company

Panther House, 38 Mount Pleasant, London, EC1 – Panther Securities planning a 6,600 sq m office scheme designed by Cano Lasso Architects

One Fairchild, 201 Shoreditch High Street, London, E1 – Folgate Estates planning a 9,900 sq m scheme designed by Gensler

90 Long Acre, London, WC2 – Northacre have worked up a 9,900 sq m office scheme designed by PLP Architecture

Euston Tower, 286 Euston Road, London, NW1 – London & Sydney is fine-tuning plans for upto 28,000 sq m of offices in a project designed by KPF

Commercial Union House, 1 Long Acre, London, EC1 – GMS Estates planning a 10-storey office building of 11,000 sq m designed by Emrys Architects

56-64 Leonard Street, London, EC2 – Melville Holdings looking to build 8,000 sq m offices in scheme designed by AHMM

Haymarket House, 28-29 Haymarket, London, SW1 – Hermes Investments on the path to a 10,000 sq m office scheme designed by TP Bennett

Suffolk House, 127-129 Great Suffolk Street, London, SE1 – TLS/GSS planning a major refurbishment and extension of the 7,000 sq m building, designed by TDO

Woolworth House, 246 Marylebone Road, London, NW1 – Henderson Park pursuing a 18,500 sq m scheme designed by AHMM

Schemes totalling over 280,000 sq m (30 million sq ft) are in the pipeline for 2020-2024, with more expected to emerge.

 

Paul Ives, Metropolis and Apollo Business Research – November 2019

Pre-letting offices in London

The London office market has seen 42 medium/large pre-lets of office space so far in 2019, totalling 2.5m sq ft, which represents a 20% rise on 2018. With one month to go the 42 pre-lets matches the record from any of the previous ten years. Central London occupiers launching searches further in advance of their planned lease expiries than ever before. Pre-letting has gradually risen in importance and is now accounting for around 25% of London office space being transacted.

Cushman and Wakefield say that pre-letting has historically been an important part of the Central London office market, accounting for 23% of total transactions over 5,000 sq ft between 2009 and 2018. Some 24.4 million sq ft was pre-let across 267 pre-let transactions completed during this period. On average, there were 27 pre-lets each year. The pre-let market will play an increasingly important role in the London office market over the next five years.

Pre-letting has traditionally been more prevalent in the City and City fringe of London than in the West End, with 148 pre-lets and 119 pre-lets, respectively. The average duration between exchange and practical completion was 13 months. Pre-lets for buildings which were under construction, the average duration between exchange
and completion was 9 months.

Many pre-lets tend to involve large-scale occupiers with examples in 2019 including 300,000 sq ft to BT at 1 Braham Street, E1 and 360,000 sq ft to EBRD at Bank Street, E14. This trend has historically been driven by the financial services sector (such as EBRD) taking large pre-lets in the City Core and Canary Wharf. But in the last ten years the most active sector for pre-lets has been the media & technology sector (eg BT in 2019). Followed by banking & financial companies and public & government sector.

Large transactions from several new London market entrants have boosted pre-let volumes in recent years including Apple’s acquisition at Battersea Power Station (475,000 sq ft), Dentsu Aegis’ 312,000 sq ft pre-let at 1 Triton Square and Facebook’s recent signing at King’s Cross (600,000 sq ft).

Last year pre-lets to finance sector companies such as Deutsche Bank at 21 Moorfields (469,000 sq ft), SMBC’s acquisition at 100 Liverpool Street (161,000 sq ft) and TP ICAP’s acquisition of 135 Bishopsgate (122,000 sq ft) dominated the league table.

The City Core has seen the largest volume and the highest total number of pre-let transactions such as Brewin Dolphin and Smith & Williamson, but King’s Cross is becoming a close competitor with virtually all the new office stock pre-let in recent years (Sony Music pre-let 130,000 sq ft this year). In addition, West End submarkets such as White City, Battersea and Nine Elms have attracted pre-lets of a large part of their total stock levels. Stratford has also seen a high level of pre-let activity.

C&W estimate that the total potential size of the development pipeline over the next 5 years is 35 million sq ft, with 10m sq ft already either pre-let or under offer. The prospect is that shortages of completed speculative space could make pre-lets even more popular and a large number of companies are currently at an early stage in London large move searches.

Paul Ives, November 2019

 

Law Sector in London – One Year On

In autumn 2018, Metropolis published a blog on the demand for office space by the law sector in the UK. This piece updates that analysis with a look at current trends.

Large law firm requirements have long been one of the mainstays of the City of London and Midtown office markets, accounting for up to 10% of take up in some years.

Some of the largest moves announced in 2019 included:  Cooley pre-letting 70,000 sq ft at 22 Bishopsgate; Kingsley Napley preletting 51,000 sq ft in Bonhill Street, EC2; Shoosmiths pre-letting 40,000 sq ft at One Bow Churchyard; Cadwalader Wickersham and Taft pre-letting 22,000 sq ft at 100 Bishopsgate, BDB Pitmans taking 38,000 sq ft at 1 Bartholomew Close, EC1;

Research suggests over 2m sq ft could be transacted to law firms in 2020. Searches include: Reynolds Porter Chamberlain looking for 50,000 sq ft in the City of London; Leigh Day & Co looking for 25,000 sq ft in Midtown; Baker Botts, Travers Smith and Fried Frank looking for 30,000 sq ft in the City of London; Covington & Burling is looking for 70,000 sq ft in Midtown; Charles Russell Speechlys looking for 150,000 sq ft in Midtown. More legal sector requirements are emerging every month in London.

As well as quantity, the design of the new offices taken by law firms is interesting. Law firms tend towards a mixture of open plan and cellular offices, with the amount seeing some open plan now over 50%. It is not a style that works for all law firms. More junior staff favour open plan, with senior staff requiring cellular for confidentiality. Advances in technology have supported flexible working by allowing lawyers to move around more freely with portable devices – many now use Bluetooth headsets so they can go to a meeting room for noisy or confidential calls. The design of workspace in law firm offices continues to evolve.

There are 60 medium/large London law firms with lease expiries approaching over the next two years.

Metropolis is tracking over 100 law firms with either identified requirements or potential requirements for relocation from October 2019 onwards.

 

Paul Ives Metropolis and Apollo Business Research

Central London Fit-Out Market in 2019

Metropolis Property Research has carried out some research on the central London fit-out market in 2019.

So far this year to October 2019, there have been 380 office leases signed in central London, where the new office size has been 5,000 sq ft or more. The total London office space occupied in these medium/large deals was nearly 8.5m sq ft. There were 125 deals on newly constructed, newly refurbished or under construction office space (pre-lets). These ‘grade A’ deals have amounted to 4.3m sq ft in the first 9 months of the year. Stand out transactions included  the EBRD’s pre-let of 420,000 sq ft at 5 Bank Street, E14, BT’s 328,000 sq ft at One Braham, E1, WeWork at Churchill Place, E14, Diageo at 16/17 Great Marlborough Street, W1 and various occupiers at 22 Bishopsgate, EC2.

Among the companies winning or tendering for work on major fit-out opportunities this year were ISG (winners of the £40m Diageo fit-out in Soho), Overbury (winners of the Cooley fit-out at 22 Bishopsgate), Collins Construction (Kirkland & Ellis at 30 St Mary Axe); StructureTone (£60m WPP fit-out at Rose Court, SE1); BW (Universal Music at Kings Cross).

No 1 Fit Out Contractor – ISG. ISG has been ranked as London’s No 1 fit out contractor again (consistent with previous surveys). This is 28% market share amongst the named TOP 10 firms.

No1 Fit Out Architect – Gensler. Gensler topped the list this times with a 17% market share.

No 1 Interior Project Manager – Gardiner & Theobald is London’s No 1 project manager on interior fit out projects.  This is 20% market share amongst the named TOP 10 firms.

No 1 Tenants Agent – CBRE. CBRE has been ranked as London’s No 1 tenant agent

Looking ahead, there remain medium/large London office requirements of up to 7.5m sq ft, which could come to fruition over the next two years, with new requirements being added weekly. There is currently over 12m sq ft of London office space under construction, with over 7m sq ft available to let. From past experience, some 50% of this demand could sign for space in newly constructed, or newly refurbished London office space which will continue to present a substantial number of opportunities for 2020.

 

Paul Ives, Metropolis and Apollo Business Research

Glasgow Office Market Update

Glasgow has seen the highest level of office lettings take-up in more than a decade in a new report by property consultancy CBRE. Take-up in Scotland’s largest city during the third quarter of 2019 has been “exceptionally strong”, according to CBRE, totalling just over 352,000 square feet – the highest level of Q3 take-up in more than ten years. The year-to-date total of office leases signed reached 611,712 sq ft. CBRE say that the total take-up for 2019 expected to bypass the five-year average of 700,974 sq ft following the strong Q3 performance.

Metropolis has run 72 leads on Glasgow office movers so far this year, with around 90 lettings recorded of over 2,000 sq ft. Researchers are talking to a further 120 office occupiers with lease expiries approaching in Glasgow over the next two years.

The Q3 figure was significantly bolstered by the letting of 272,858 sq ft at One Central on Argyle Street by JP Morgan Chase. Stream Technologies took 27,000 sq ft at 319 St Vincent Street. Of the remaining 24 deals, over half were under 5,000 sq ft, yet occupier demand for larger buildings remains high, as proven with the number of active requirements ongoing in Glasgow including from serviced office operators.

From total demand of 800,000 sq ft, there is strong underlying demand from the banking & finance sector from occupiers such as Barclays, Aviva and Chubb Insurance. WeWork is believed to be under offer on 77,000 sq ft at 50 Bothwell Street. A number of active larger requirements, should further boost take-up by year end, although in reality a two tier market is operating with demand for Grade B smaller offices more challenging. A greater number of smaller deals points to stable market which is less susceptible to fluctuation, than one driven by large individual deals.

Over the past five years Glasgow has seen employment growth of 19% in the professional, scientific and tech industries, and is forecast to see a further 12% growth over the next five years. This is projected to create an additional 4,000 jobs in these industries, suggesting strong demand from these sectors will continue. This is reflected in the current requirements in the market.

Overall Glasgow city centre office supply has risen slightly and now sits at 1,082,569 sq ft (a vacancy rate of 8.07%), with a further 185,222 sq ft rumoured to be under offer. There is now no ‘new build’ Grade A space available and none due to complete until late 2020.  There are some revamps with 151 West George Street, 55 Douglas Street, Ink Building and Sentinel all currently under refurbishment and due to complete in 2019. However the pressure on good quality space will continue over the course of 2019 and 2020.

Guildford and Surrey Office Markets

Recent research by Savills has highlighted office market activity in Guildford and the wider Surrey area. The report reveals that the town has become a creative and tech powerhouse, which has driven a higher rate of economic growth than comparable towns, however that growth could be dented in the future if occupiers relocate away from the area.

Research by Metropolis has revealed that medium/large office moves totalling nearly 700,000 sq ft have been signed in Surrey so far in 2019, including big moves for Gartner in Staines, Discovery Financial in Farnborough and GRENKE in Guildford. Recent leads from Metropolis have highlighted more than 80 occupiers searching, preparing to search, or agreeing moves in the county, including over a dozen in Guildford and others considering the town.

Savills say that a major contributor to Guildford’s success story in recent years has been the University of Surrey, through scientific and technological research, with a strong reputation in health, medicine, space, environment and mobile communications.

Surrey Research Park, attached to the university, encompasses 700,000 sq ft of office, research and development space, and is home to over 140 companies. One sector that has benefited from the tech focus of the area, is the gaming industry.  Guildford is home to the largest cluster of video gaming companies in the UK, with over 60 studios and more than 1,000 employees in the sector, with further growth plans. Guildford’s gaming community was further strengthened recently when Electronic Arts committed their future to the town by consolidating Onslow House and expanding to lease a further 22,000 sq. ft. in 2019. There are now proposals for the research park is set to be extended with an extra 325,000 sq ft of space planned, as part of the Blackwell Farm extension.

The central Guildford market has benefited from Beltane Asset Management’s recently developed 42,000 sq ft at 255 High Street, and M&G Real Estate comprehensively refurbished London Square (much of which taken by Grenke), while Investra are speculatively developing 30,000 sq ft at Riverworks which is due to complete later this year. Savills say there is a threat of occupiers been drawn to the Oxford-Cambridge corridor and the M4. There have been several corporate relocations from Guildford since 2018 including Ericsson and Sanofi both moving to Reading.

Metropolis is talking to nearly 250 Surrey occupiers (50 in Guildford) that are approaching lease expiries in the next two years.

 

Central London Office Market September 2019

Central London office lettings in September 2019 reached 1.2m sq ft sq ft, from 57 mid-large size office transactions (5,000 sq ft+) during the month. The September 2019 deals volume figure is above the current monthly London average of 1m sq ft.

September was characterised by 14 office deals over 20,000 sq ft, which were led by WeWork’s long awaited 287,000 sq ft deal at 30 Churchill Place, London, E14; Li Fung’s 51,000 sq ft deal at West Works, W12; Intermediate Capital’s 50,000 sq ft pre-let at Procession House, EC4 and Hana’s 45,000 sq ft deal at 70 St Mary Axe, EC3.

Business services topped the table of lettings by sector, compiled by Metropolis, underpinned by lettings to WeWork, Knotel and Hana. This was followed by financial services, led by deals to Ion Trading, Nasdaq and Triton. The IT services sector was also prominent.

Office deals ‘under offer’ in central London rose slightly to 3.7m sq ft, with pending deal volumes are healthy in nearly all sub-markets, with a number of impending deals in solicitor’s hands.

By area, the City accounted for 36% of the office floorspace let in September 2019 at 442,000 sq ft. The West End saw 280,000 sq ft of take-up. Midtown contributed 181,000 sq ft of lettings. Current London office demand is calculated to be around 4m sq ft in the City and 3.2m sq ft in the West End.

The volume of grade A (newly built or refurbished office space) let during the month, reached 416,000 sq ft sq ft (35% of the monthly total). Slightly down on recent months. Availability is dominated by secondhand space in all London markets.

The large number of upcoming lease events in the core has been a key driver to mover activity. Metropolis research is currently monitoring 640 ‘live’ London office requirements, including a large volume of requirements from the banking and finance sectors, with pending deals for space of up to 2.5m sq ft due to sign in the next few months.

Thames Valley Rising

The recent JLL research on the M4 western corridor office market reveals that office lettings in the first half of 2019 topped 1m sq ft – the third successive year that take-up volume has increased.

A large proportion of the moves agreed to summer 2019, came in west London, which accounted for 433,000 sq ft of deals. The rest of the Thames Valley accounted for 567,000 sq ft of office transactions. Reading was the most active market with 225,000 sq ft of take-up, followed by Basingstoke (130,000 sq ft) and Hammersmith. Virgin Media, Sanofi and Ericsson all moved to Reading in 2018. There were 70 medium/large office moves in the wider Thames corridor in the first 9 months of 2019.

Large deals signed included Sovereign Housing Association taking 65,000 sq ft in Basingstoke for a new HQ, Bottomline Technologies taking 58,000 sq ft in Reading and Li Fung agreeing a deal for a 50,000 sq ft move to White City, London, W12. There were smaller moves involving Gartner in Staines, GTT Communications, Eteach, MyWorkSpot and Orega. The technology, media and telecom (TMT) sector was the most active with 25% of space taken, while the serviced office sector was relatively subdued.

JLL also draw attention to the growing life sciences sector. The White City area has recently attracted office deals from Novartis, Autolus, GammaDelta and Synthace. Metropolis is tracking up to 20 confirmed and potential requirements in this sector.

Across the Thames Valley, Metropolis is speaking to nearly 900 office occupiers that have lease expiries approaching in west London, Surrey, Berkshire and Buckinghamshire in the next two years.

Just over 800,000 sq ft of speculative office space has been completed so far during 2019, but this compares to over 1.7m sq ft in previous years. In the first half of 2019, some 700,000 sq ft of office space went under construction, although much of this was in refurbishments. Mapletree is speculatively developing 400 and 450 Longwater Avenue, Green Park, Reading, both buildings will each comprise 114,000 sq ft. In addition, there are major refurbishments taking place at Arlington Business Park and Thames Valley Park.

Agents say that the shortage of ready-to-occupy new office space is restricting the number of large office moves in the Thames Valley and is leading to a rising number of pre-lets.

 

The Squeeze on Space

A recent report by property consultant DeVono Cressa has revealed that office occupiers taking the best or better space on the market is leading to a dearth in choice for some occupiers. At a macro level the volume of available office space across central London continues to be high at 15.2 million sq ft. The figures are masking the difficulty in matching requirements with the available office buildings.

DeVono say that in the West End there is 3.5 million sq ft available, with just 22% of this is Grade A space. Victoria and Soho are particularly tight for available space. Even in the City where many new buildings are being built, Grade A space in this market is reducing, largely as a result of early-letting and pre-letting of new developments ahead of completion. Occupier searches are increasingly getting earlier in order to secure space, as well as more occupiers being open to fringe locations and taking more space for future expansion.

A noticeable trend in 2019 has been the rise in demand from the legal sector. A high number of active requirements have been launched recently. Whilst only 201,000 sq ft has been let so far this year, more moves are expected as legal firms scour London for space.

Metropolis is currently tracking nearly 50 law firms looking at options for alternative London office space.

The largest deal up to the end of Q2 2019 was 68,275 sq ft taken by Milbank at 100 Liverpool Street, London, EC2. Followed by Cadwalader, Wickerhsam & Taft pre-letting 21,700 sq ft in the soon to be completed 100 Bishopsgate tower. Some 62% of space leased by law firms this year is of Grade A quality.

DeVono Cressa say that in recent months 23 firms have begun a search or will soon start their search. If all firms decide to move, close to 1.9 million sq ft of office space could be let. Some of these requirements could take 2-3 years, as breaks or expiries are approached searches are showing signs of being started early to secure the right space.

The third quarter has seen US law firm Cooley pre-let 75,000 sq ft of tower space at 22 Bishopsgate, expanding from the 26,000 sq ft they currently occupy. Also in the City Kingsley Napley are doubling their space to 51,344 sq ft at the soon-to-be completed 20 Bonhill Street. Legal occupiers are becoming more footloose in their choice of location. More moving to the City and even the Southbank. Moving to newer buildings, newer locations and introducing new ways of working and/or new technologies is expected to facilitate a change. In an industry that is rife with competition for business and talent, all tools need to be deployed to stay ahead.

Metropolis is talking to nearly 100 law firms which have lease expiries or lease break options in the next three years.