Birmingham Review

Recent research from Colliers International saw office move activity in Q2 2019 in central Birmingham rise a substantial 65% on Q1 leasing levels, albeit driven by three large serviced office deals. The total number of agreed deals hit 320,595 sq ft in 30 deals according to the property consultant.

The quarter represents one of the strongest Q2 leasing levels in Birmingham since Q2 2015. The first half of 2019 overall saw 514,000 sq ft leased in 55 deals including Irwin Mitchell taking 46,750 sq ft at the Colmore Building and The Commonwealth Games who took 72,261 sq ft of Grade A space at One Brindleyplace. In Q2, the serviced office sector was responsible for 72% of total take-up. All three of the largest deals this quarter were attributed to WeWork, which leased a total of 229,042 sq ft in three separate deals: 92,670 sq ft over seven floors at 6 Brindleyplace, together with Louisa Ryland House (81,280 sq ft) and 55,092 sq ft at 55 Colmore Row simultaneously setting a new headline rent for Birmingham at £34 per sq ft. The 6 Brindleyplace deal was the largest in the city centre this year.

Without WeWork, the 2nd quarter would have seen take-up levels at their lowest (91,553 sq ft) since Q2 2012. Business services were the second-most active sector in Q2, accounting for 9% of total take-up.
The largest deal was for 8,097 sq ftat 52 Charlotte Street, let to Newhall Charlotte.

Total Grade A take-up totalled 262,587 sq ft, which was heavily skewed by the WeWork deals. Grade A take-up increased by 70% from Q1. Four out of 19 Grade A deals transacted this half was for space greater than 50,000 sq ft. The average Grade A deal size in H1 2019 was 21,935 sq ft.

Metropolis is talking to nearly 60 Birmingham occupiers of 5,000 sq ft or more approaching lease expiries in the next two years.

Agents say that the mover size bracket of 5,000-15,000 sq ft is unlikely to be affected by WeWork or the other serviced office providers, so agents expect to see continued healthy levels of take-up of this size. The 2,000-5,000 sq ft bracket will be watched with particular interest.

Sheffield Update

According to the latest market statistics released by Commercial Property Partners, 57% of office take up in Sheffield in Q2 2019 was ‘out of town’.

The figures released by the commercial property agency showed that 39,304 sq. ft of the total 68,745 sq. ft take up was outside of the city centre. The total for H1 2019 increased to 266,196 sq ft, 34% more when compared to the same period last year.

CPP also reported a particular increase in demand for Grade B facilities, which accounted for 48,280 sq. ft of the total take up, at 70%.

A total of 15 deals occurred over the three-month period, the most significant of which was the take up of 20,000 sq. ft by education publishing house Twinkl at Hallamshire Business Park.

The figures also revealed continued activity within the professional and business services sector, with companies such as Etico Group securing 7,803 sq. ft at St James House, and Gleeson securing 5,510 sq. ft at Europa Court.

Meanwhile, the city region’s growing number of creative industry businesses accounted for 9,735 sq. ft of space, with Egress Software agreeing a five-year lease for a 7,500 sq. ft Grade A suite, following a recent announcement to grow its workforce from 90 to at least 120 people in 2019, and becoming partners of Sheffield Digital.

The development pipeline remains limited. Despite 27,000 sq ft of speculative space being delivered in Q2, Grade A availability remained limited with 85,000 sq ft being marketed in Q2. Works due to complete on just 81,000 sq ft of office space split between Steel City House and the NUM Building.

Sheffield City Council has signed up developer Scarborough International Properties to lead the expansion of the Sheffield Olympic Legacy Park. Over a dozen new buildings planned for Sheffield Olympic Legacy Park. The developer will spearhead the major regeneration project in the lower Don Valley area, initially aiming to build 750,000 sq ft of business space for the sport, health and well-being sector.

Scarborough plans for its first project as preferred development partner a building of around 40,000 sq ft of office space, close to Sheffield Hallam University’s ‘Advanced Wellbeing Research Centre. Scarborough expects to commence work on its building early in the New Year.

Leeds Offices Step Up

Recent research by Avison Young showed a strong start to 2019 in Leeds city centre with 222,000 sq ft take-up in 39 deals, 56% above the 10 year average. TMT occupiers accounted for the lion’s share of activity, and with Channel 4’s announcement that it intends to acquire 25,000 sq ft at Rushbond’s Majestic this commitment is likely to act as a further stimulus for the continued growth of this sector in the Leeds region. Banking and finance combined with professional services also accounted for a third of transactions.

Take up was led by the 71,000 sq ft letting at M&G’s Central Square to Link Asset Services, a share registry provider. There were also five transactions above 10,000 sq ft, the largest of which was 20,700 sq ft to WYG plc at 3 Sovereign Square as well as Unite Union (12,800 sq ft) and Opera North (11,000 sq ft). There were two further 5,000 sq ft deals to engineering companies BAM Nuttall and Buro Happold. The Government Hub announced its move in 2017 and will open in the next 12 months. Metropolis has published details of 20 future relocations and 36 companies considering a move in recent months.

Out-of-town mover activity was more subdued but there was also a greater than average level of take-up for deals below 5,000 sq ft across both markets.

Channel 4’s deal to lease three floors of the 66,000 sq ft Majestic, the former cinema located opposite the train station will account for one office scheme. Along with 34 Boar Lane (46,000 sq ft) this is currently undergoing a major refurbishment in the city centre. The speculative 4 Wellington Place (155,000 sq ft) is also under construction in the city centre and due for completion by the end of 2020. The only new development completed recently was the newly refurbished 33 Wellington Street of which 15,000 sq ft is still available.

Metropolis is tracking around 40 companies looking for office space in the Leeds area.

City of London Update

A recent research update on the City of London office market by property consultant Savills, revealed that office take-up on the 12-month rolling total had reached 6.9m sq ft, the lowest it has been
since July 2017.

Savills say that demand for space in the fringes of the City has been reduced this year, with most large deals concluded in the core area. The largest deal to be signed in the last two months saw the financial group Brewin Dolphin acquire the whole of 25 Cannon Street, EC4 (114, 000 sq ft) with the relocation happening in July 2022. In addition, competitor Smith & Williamson signed for 86,975 sq ft at Gresham St Pauls, 40 Gresham Street, EC2 relocating from their current offices when the scheme completes in Q3 2020. Demand continues to be concentrate on the new schemes with a two tier market evident. For example 100 Liverpool Street has seen deals of 63,000 sq ft to Millbank and 40,000 sq ft to Peel Hunt, achieving higher than average rents for the area. During Q1, construction started on 6-8 Bishopsgate (710,000 sq ft), Ropemaker Place (480,000 sq ft) and 1 Portsoken Street (190,000 sq ft).

The Insurance and Financial services sectors are the mainstay of demand in the City, currently with 27% of the share of take-up, followed by the Serviced Office Provider sector with 18% share, and the Professional services sector in third with 11%.  Tech & Media sector is lagging in 2019. Tech & Media occupiers are thought to be choosing to move into serviced offices, which continue to expand. The Serviced Office
sector has taken 363,000 sq ft of offices in the City, so far this year, up on this point last year by 78% and up on the 10-year average. An example is WeWork acquiring 50,000 sq ft at 2 Minster Court, EC3. The average deal size for the quarter was just 13,621 sq ft, its lowest since 2012. This was due to a lack of larger transactions.

During the first 6 months of 2019 Metropolis ran leads on 180 occupiers looking for alternative office space in the City of London.

Thames Valley Update

Recent reports from CBRE and LSH revealed that office deals (take-up) across the Thames Valley region totalled 393,653 sq ft during Q1 2019. Metropolis Research listed 58 ‘space found’ leads during that time as part of 62 recorded deals of 4,000 sq ft and over in the market area.

CBRE say that deal volumes represented a solid start to the year, which is marginally up on the same period in 2018 and in line with the five year quarterly average. The largest deal took place at Ascent 3, Farnborough Aerospace Centre where 45,788 sq ft was let by Discover Financial Services. Other large relocations announced included Gartner taking over 40,000 sq ft at Lovett Road, Staines; Arena taking 37,000 sq ft at Quantum House, Basingstoke; Axa taking 17,000 sq ft in Weybridge and HP taking 30,000 sq ft at Thames Valley Park

CBRE say there is currently 351,014 sq ft of office space under offer (deals about to be signed) across the Thames Valley for space over 10,000 sq ft, the majority of demand in the sub 20,000 sq ft size band. Total office availability at the end of Q1 2019 was 5.7 million sq ft. Grade A supply at the end of Q1 stood at 2.3 million sq ft which is 34% below the five-year average. CBRE have identified four new developments due to
complete in 2019 and say there is already competition for the best existing stock.

In the northern half of the region there were five transactions over 10,000 sq ft in Q1. The largest deal to complete was at The Maylands Building in Hemel Hempstead, where serviced office provider Spaces acquired nearly 25,000 sq ft. Other deals completed in Milton Keynes, including K2, Timbold Drive and The Pinnacle, which both let 19,000 sq ft respectively.

Take-up in the M25 South region in Q1 2019 totalled only 28,030 sq ft. There were two transactions over 10,000 sq ft. Cabot Financial took almost 11,000 sq ft at 35 Kings Hill Avenue, West Malling, while Zoetis Pharmaceuticals acquired just over 17,000 sq ft at Birchwood Building, The Office Park, Leatherhead.

Lambert Smith Hampton identify the Technology, Media and Communications (TMT) sector providing a major source of demand across the South East region. Since the beginning of 2018, it has accounted for almost a third of take-up, well above the next most active sources: Pharmaceuticals, Medical and Healthcare (12%) and Professional Services (10%). Whilst TMT remains the cornerstone of demand in the South East, the rapid growth in activity among flexible office providers has been the most striking trend in the market and indicative of clear structural shifts in occupier demand and a race for market share among operators. Rising from a nearly zero just three years ago, take-up from serviced office providers amounted to over 500,000 sq ft over the past 12 months.

Lease events were the primary trigger of recent office relocations in the Thames Valley, accounting for 44% of transactions. This was closely followed by expansions, with 39%. Workspace improvement also
played a significant role, being the key driver in a significant proportion of deals. These included several deals in which companies upgraded to newflagship offices. For example, KPMG recently agreed a 45,478 sq ft deal that will see it relocate its Reading office to the newly-built 2 Forbury Place in Reading.

Inward investment deals – those involving occupiers locating to new markets in which they were not previously present – represented 20% of recent transactions over 5,000 sq ft. Reading was by far the biggest attractor of inward investment, which accounted for 334,559 sq ft of occupier transactions last year. This was more than half of the town’s total take-up and it represented 42% of inward investment across the whole of the SouthEast. The largest deal in Reading saw Virgin Media take 120,000 sq ft for a new UKheadquarters at Green Park. Other major entrants to the Reading market included Sanofi, Ericsson and Fora.

Central London Office Market May 2019

Central London office lettings in May 2019 reached 1.3 million sq ft, from 40 mid-large size office transactions (5,000 sq ft+) during the month. The May 2019 deals volume figure is well above the current monthly London average of 1m sq ft.

May was characterised by 14 office deals over 20,000 sq ft, which were led by EBRD’s 365,000 pre-let at 1-5 Bank Street, E14; along with the letting of the refurbished 25 Cannon Street to Brewin Dolphin; WeWork at Film House, Soho, W1; Parliamentary Estates taking space at 64 Victoria Street, SW1, plus Quilter at Senator House in EC4 .

Financial Services topped the table of lettings by sector, compiled by Metropolis, underpinned by the EBRD pre-let and Brewin Dolphin’s new City of London HQ. This was followed by business services led by WeWork and Signature (Regus) deals. Public services, led by Parliamentary Estates and professional services with Cadwalader and Comply were also well represented.

Office deals ‘under offer’ in central London stood at 3m sq ft, and pending deal volumes are healthy in nearly all sub-markets, with a number of deals in solicitor’s hands.

By area, the City accounted for 34% of the office floorspace let in May 2019 at 437,000 sq ft. The West End saw 350,000 sq ft of take-up. Docklands 365,000 sq ft, Midtown contributed 109,000 sq ft of lettings and Southbank 21,000 sq ft. Current London office demand is calculated to be around 3.7m sq ft in the City and 3m sq ft in the West End.

The volume of grade A (newly built or refurbished office space) let during the month, reached a healthy 960,000 sq ft sq ft (74% of the monthly total), as transactions for new space maintained the recent strong showing. Availability is dominated by secondhand space in all London markets.

Metropolis research is currently monitoring 625 ‘live’ London office requirements, including a large volume of requirements from the banking and finance sectors, with pending deals for space of up to 1.5m sq ft due to sign in the next few months.

Central London Office Market in March 2019

Central London office lettings in March 2019 reached nearly 850,000 sq ft from 48 mid-large size office transactions (5,000 sq ft+) during the month. The March 2019 figure is just below the current monthly London average of 1m sq ft.

March was characterised by 14 office deals over 20,000 sq ft, which were led by Sony Music’s 120,000 deal at Kings Cross Central, N1 along with large deals to Milbank Tweed at 100 Liverpool Street, EC2; Glencore at Hanover Square, W1; WeWork at Dixon House in EC3; plus Peel Hunt at 100 Liverpool Street, EC2 and Merian Global also in EC2.

Media topped the table of lettings by sector, compiled by Metropolis, underpinned by the Sony Music. This was followed by professional services led by law firm Milbank Tweedy. Business services, especially Spaces and WeWork, finance and mining sectors were also well represented.

Office deals ‘under offer’ in central London rose to 3.5m sq ft, and pending deal volumes are healthy in nearly all sub-markets, with a number of deals in solicitor’s hands.

By area, the City accounted for 46% of the office floorspace let in March 2019 at 390,000 sq ft. The West End saw 218,000 sq ft of take-up. Midtown contributed 160,000 sq ft of lettings and Southbank 72,000 sq ft. Current London office demand is calculated to be around 3.9m 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 a healthy 400,000 sq ft sq ft (47% of the monthly total), as transactions for new space maintained the recent strong showing. Availability is dominated by secondhand space in all London markets.

Metropolis research is currently monitoring 620 ‘live’ London office requirements, including a large volume of requirements from the banking and finance sectors, with pending deals for space of up to 1.5m sq ft due to sign in the next few months.

Paul Ives Metropolis, paul@metroinfo.co.uk

Rise of the Serviced Office Sector

As part of Metropolis’ detailed monitoring of the London office market, it has emerged that the serviced or ‘co-working’ office sector is now the third largest business type taking office space in the capital. Some 2m sq ft was let to serviced office operators in 2017 and over 2.4m sq ft was let to the sector in 2018. There are now over a dozen serviced operators looking for additional sites in London, with more requirements being launched each month. The sector has expanded across Central London and the UK regions with business models from both operators and landlords adapting to changing customer demands.

Over recent years, we there has been a substantial growth in the flexible office market. Providers such as IWG (whose brands include Regus and Spaces) and new entrants from the US including WeWork, now dominate the market. Reports by analysts such as Cushman & Wakefield point to a greater willingness amongst major corporate occupiers to source quite significant amounts of office accommodation from the serviced sector and take advantage of their flexible terms.

Central London has one of the largest and most mature flexible workplace markets and over the last five years has cemented its global reputation for new office occupancy models . Cushman & Wakefield estimates that flexible workplace operators currently occupy around 10.7 million sq ft of space across Central London. This equates to around 4% of the Central London office stock.

In 2012, Clerkenwell, Southbank and Covent Garden were the areas that had the highest proportion of flexible workplace sector but Metropolis lettings data indicates that now Aldgate, City fringe, Shoreditch and Paddington have the highest concentration. The average serviced office centre is estimated at 22,300 sq ft up from 15,000 sq ft in 2016., with 30 centres in excess of 50,000 sq ft in Central London, many operated by WeWork.

Agents report that many larger companies are examining their business models in a bid to encourage creativity by providing a more unstructured and less centrally controlled environment than their traditional business. Recent market activity has included IWG focusing on expanding its Spaces brand while BE group has purchased Headspace to enable dramatic future growth. WeWork have said that it could offer an entire building to a single tenant and manage the custom build-out of the space.  BE Offices provide bespoke space via their BeSpoke division, which is aimed at corporate occupiers.

A BCA report revealed that increasing numbers of operators are seeking densities of 50 sq ft per desk across the UK. WeWork’s new centres are now being planned at 35-45 sq ft per desk Knotel, the newest entrant from the US is planning a similar density.

However some operators are finding difficulty in securing space, with some operators searching in the West End frustrated by a lack of stock. The larger operators will need to seek prelets or purchase buildings, but these are not options for smaller players. Most operators aim to achieve 85% occupancy within 12 months after fit out, which will generate a high level of sales activity, not least for removal companies.

To sum up, the new breed of flexible operator is challenging the traditional business model and the sector is going to remain an important segment of the real estate industry in the future. Take-up by the sector has increased year on year, with 2018 the most active year for the sector, with WeWork responsible for more than half of take up in 2017-18. WeWork and Spaces are also expanding into Manchester, Birmingham, Leeds, Glasgow and Edinburgh and plenty of evidence that other operators are following.

The Triggers for Relocation

Recent research by Metropolis Property Research on its 6,400 office occupier relocation leads in 2018, suggested that nearly 50% of moves were triggered in some part by lease events, either expiries or break options. Some 3,112 office leads made some reference to a lease expiry in 2018. Of the remainder, the majority were mostly either expansions, start-ups or mergers.

The research chimes with a recent report on office occupiers the Thames Valley by property consultant Lambert Smith Hampton (LSH).  It says that triggers for 2018 corporate relocation remain more or less on trend with the previous 5 years. LSH say that moves predicated on a lease event are slightly less prevalent at 40% than they were when the research was started in 2012 (43%), but still make up a large part of the market. For example see Riverbed Technology (Metropolis lead id 120785), JDA International (id 122285) and Midwich (id 121691) moves in Bracknell alone in 2018 . In 2015-16, the percentage of relocations triggered by a lease event was down to 36%, however LSH point to a high proportion of merger and acquisition activity (20%) that same year which forced some occupiers to relocate to accommodate such activity ahead of a lease expiry or break clause.

In 2012-13, expansion accounted for 34% of relocation triggers, however this has since grown to 38% in 2018 while merger and acquisition activity has reduced to 9%. LSH use the example of significant corporate expansion is provided by Oxford Nanopore Technologies (Metropolis lead id 121255) which freehold purchased the Danby Building on Oxford Science Park. The 55,000 sq ft deal came alongside their pre-let of a 35,000 sq ft manufacturing/R&D base at Harwell. This type of occupier is synonymous with the current Oxfordshire market; huge expansion as funding is being increased both from the University and globally.

Location, location, location remains the predominant criteria when relocating and some 37% to 50% of occupiers specify moves to particular districts over the last 6 years, but it is always the majority influencer. Alongside location is betterment, as occupiers desire to improve the quality of their working environment. The number of companies looking for better quality workspace has increased from 22% in 2012 to 34% in 2018. At the same time cost has reduced in importance over the period of the research from 22% down to 11%, albeit up from 6% in 2016.

Occupiers are more and more seeking better working environments in order to attract and retain the best staff and maximise productivity. LSH point to corporate occupiers coming to the market seeking more cost effective space only to change their minds and commit to better space having reviewed and evaluated the options. Mobile Broadband Networks (Metropolis id 121223) were seeking sub £30 per sq ft space in Reading only to move to Thames Tower at £35 per sq ft despite there being cheaper space available nearby. Occupiers often lean towards better space both in terms of quality and amenity once options are shortlisted

Looking into the future, Some 3,000 occupiers are looking for space in 2019 in advance of lease events with more at an early stage in advance of 2020 lease events. The number of occupiers asking for more fitted and furnished office space has risen considerably. This may be as a result of flexibility and Brexit concerns and is related with the demand for shorter leases.

Paul Ives Metropolis Head of Research. paul@metroinfo.co.uk

Metropolis Movers January 2019

Metropolis ran 653 business leads on ‘office movers’ in January 2019. If all reported moves were added together, the total would exceed 16 million sq ft of office searches and transactions, researched by Metropolis’ unique market-led intelligence research team, last month.

London was the largest region with 336 business leads during month, but there were also strong showings from the North West (56), South East (50) and Yorkshire (44). Financial services, IT and business services were the largest business sectors planning relocations or agreeing moves during the month.

The relocation leads geographically covered the whole UK and provided details of the size of the office occupier,  likely move dates, a description of the reasons or trigger for the move, its business sector and full contact details including an address for written inquiries, at least one telephone number and in most cases an email address. Some of the largest planned moves and top picks amongst the 653 January leads, included those on occupiers Nomura Bank, BNY Mellon, Virtus Data, Brewin Dolphin and Merck & Co .

The January 2019 leads included 201 ‘identified requirements’ across the UK, including 120 in London. Which means that the company confirmed to researchers that it has current or future plans to search for alternative office space. Of these 201 searches, 117 were newly posted office searches, not previously notified to clients.

The most recent research also included 202 ‘potential movers,’ which were mainly longer-term leads on occupiers, considering a future relocation, however the occupier has yet to make a final decision on whether to search for offices.

Most of the remaining stories covered companies that have just signed for new office space and have set a move date, including some large pre-lets and companies inviting tenders for fit-out contracts. The shortest planned move date is just over a month away, whilst the longest was late 2021.

Recent research by Metropolis concluded that a conservative estimate of ‘live’ business tender opportunities on the database in recent months, exceeded £1bn of business.