THE LONDON SOUTH BANK OFFICE MARKET Q4 2014

Transcription

1 THE LONDON SOUTH BANK OFFICE MARKET Q4 2014

2 Bankside London Bridge S SE S Waterloo Borough West S1 SE S 11 1 Bermondsey Elephant & Castle SE S7 S E Kennington Vauxhall Pimlico Camberwell Vauxhall BURGESS PARK Nine Elms Oval KENNINGTON PARK K Brixton rd MYATTS FIELD Peckham Road Denmark Hill Ln Wandsworth Road Ln Peckham Rye ell kw Stoc Cla pha m Denmark Hill Hill our rb ha ld Co ough hbor Loug orne Queen stown Way Way La th ilver er nd ve La cial mer Com d ts MOSTYN GARDENS ll ha rk es Roa r St Medla Wa y Stockwell Wandsworth St il St Hav Lan sdo wne mercial Com ington Elm yl Na SW8 SW S W8 W8 ar ew St Queenstown Road VAUXHALL PARK St. Gill Battersea Battersea Park Sh DISCOVER SOUTH BANK WATERLOO BANKSIDE BOROUGH WEST LONDON BRIDGE BERMONDSEY ELEPHANT & CASTLE CAMBERWELL KENNINGTON VAUXHALL NINE ELMS BATTERSEA WANDSWORTH MAX ROACH PARK Clapham High Street Loughborough Junction RUSKIN PARK xton WYCK GARDENS UNION STREET PARTNERS IS A JOINT VENTURE BETWEEN FAREBROTHER AND TUCKERMAN. IT PROVIDES A SPECIFIC AND BESPOKE REAL ESTATE SERVICE FOR THE SOUTH BANK, A MARKET WHICH HAS UNDERGONE AN UNPRECEDENTED TRANSFORMATION AND WHICH IS NOW FIRMLY ESTABLISHED AS ONE OF CENTRAL LONDON'S MOST IMPORTANT BUSINESS DISTRICTS. THE PRACTICE'S SERVICES INCLUDE OFFICE AND RETAIL LEASING, SALES AND DEVELOPMENT, LEASE ADVISORY, BUSINESS RATES, VALUATION AND INVESTMENT ADVICE. UNION STREET PARTNERS EXTENSIVE RESEARCH IS AIMED AT PROVIDING A SHORT, SHARP INSIGHT INTO THE LONDON SOUTH BANK MARKET. THIS QUARTERLY REPORT REVIEWS THE OVERALL PERFORMANCE OF THE LEASING, DEVELOPMENT AND INVESTMENT MARKETS AND IS PUBLISHED ALONGSIDE UNION STREET PARTNERS INVESTMENT REPORTS, PRODUCED IN PARTNERSHIP WITH IPD, TOGETHER PROVIDING A COMPREHENSIVE ANALYSIS OF THIS MARKET. VICTORIA SHREEVES HEAD OF RESEARCH T VS@UNIONSTREETPARTNERS.CO.UK Front Cover In 2014 South Bank enjoyed a second year of standout Take-up and Investment turnover, but with supply now under pressure, the opportunity for major pre-lettings in 2015 is likely and will be required if recent levels of Take-up are to be sustained Image More London, S

3 The London South Bank Office Market Q COMMENTARY SOUTH BANK ENJOYED A STELLAR END TO 2014 WITH ANOTHER STANDOUT YEAR OF TAKE-UP AND A RECORD TOTAL OF INVESTMENT TURNOVER Take-up in the 4th Quarter 2014 reached 759,577 sq ft, three times higher than the five-year quarterly average (239,352 sq ft), which boosted total annual Take-up to 1.61m sq ft (in 177 deals), close to the record 1.65m sq ft achieved in In 2014 Take-up in South Bank was robust across all size bands, however, the majority (64%) remained within the 1,000-5,000 sq ft size bracket. There were three transactions over 50,000 sq ft in 2014 which included, advertising group Omnicom s 368,123 sq ft subletting at Bankside 2 and 3, S, HCA Hospital s 69,602 sq ft three floor letting at The Shard, S, and Howard Kennedy Fsi s 54,552 sq ft relocation and consolidation from the West End to 1 London Bridge, S. The South Bank office market is now fully established as a key Central London market and continued to go from strength to strength throughout 2014, building on the momentum of South Bank is now an area of choice for Occupiers and not a compromise on price or an overspill from the City. In 2014 there were thirty transactions over 10,000 sq ft, 27% of which were Occupiers relocating from the West End, 27% were already in South Bank, 13% came from Midtown, 13% were new entrants to Central London and 3% from the City. Surprisingly, 17% were lettings to the Serviced Office sector where we continue to see robust demand across Central London. The level of Take-up experienced over the past two years is not sustainable in 2015 and beyond. There are currently only two buildings, The Shard and South Bank Tower, capable of accommodating requirements in the 50,000 to 100,000 sq ft bracket. Overall Availability at the end of the 4th Quarter plummeted to 726,412 sq ft, equating to an Availability Rate of 3.3%, the lowest level on record. With no substantial New or Refurbished stock due to deliver imminently, we expect to see Availability decline throughout Investment transactions in the 4th Quarter totalled 173.6m in eight transactions, an increase of 132% on the 3rd Quarter when 75m was invested in thirteen transactions, nine of which were under 5m. IN THIS EDITION 2014 Investment in South Bank totalled 2.51bn following the record 1.7bn acquisition of More London, S, by St Martins Property. This is almost double the 1.3bn transacted in Overseas Investors were the dominant Investor for 2014, accounting for 72% of total turnover. Investor appetite remains strong in South Bank, and we expect to see a good volume of transactions in 2015 assuming we see some liquidity. Commentary 01 House View 03 Take-up 04 Availability 06 Future Supply 08 Investment 10 Retail & Leisure 12

4 The London South Bank Office Market Q TOTAL 726,412 sq ft -51% NEW & REFURBISHED 359,013 sq ft -40% Q4 14 TAKE-UP 759,577sq ft 328% TOTAL 2014 TAKE-UP 1.6m sq ft % change on % SECONDHAND 367,399 sq ft -58% RATE 3.3 % -3.4 pts Q4 14 INVESTMENT 173.6m +132% TOTAL 2014 INVESTMENT 2.51bn % change on % TOTAL SPECULATIVE SPACE UNDER CONSTRUCTION 537,151sq ft +45%

5 The London South Bank Office Market Q HOUSE VIEW South Bank is firmly established as a key Central London market The perception that the South Bank market serves as merely an overspill for The City has long gone. Over the last twenty years, the South Bank has become a cultural and commercial hub that can hold its own with the most dynamic areas of London. Its transformation was underlined in 2013 when a total of 1.65m sq ft of office space was leased, which was more than double the previous two years put together. South Bank s credentials as a commercial property destination were further bolstered following advertising agency Ogilvy & Mather s decision to move to the area, and along with News UK, the owner of The Times and Sun newspapers, moving to the building famously nicknamed The Baby Shard, now renamed The News Building. In early 2014, fears over diminishing supply effecting Take-up for the year were disreguarded when 368,123 sq ft of RBS space came to the market at Bankside 2 and 3, S. This was quickly snapped up by advertising group Omnicom, boosting end of year Take-up figures, resulting in South Bank transacting 1.6m sq ft of Take-up in However, supply is now under significant pressure and we predict a significant fall in Take-up of stock but corresponding increase in Pre-letting. Outside of The Shard, the only place Occupiers can source sizable New or Refurbished accommodation is in schemes currently in the development pipeline. Where is the next wave of development? With London Bridge and Bankside at close to saturation point, attention will turn to Vauxhall and Nine Elms, where large-scale development can satisfy demand in the medium-term. The Southern and Western areas of South Bank are about to undergo massive change with the consented schemes in and around Vauxhall, Nine Elms and Elephant & Castle gathering momentum and starting to get underway. A more diverse and vibrant retail and leisure offer will continue to emerge South Bank's continued renaissance will result in the emergence of a more diverse and vibrant restaurant offer. Large mixed-use developments like The Shard and Sea Containers, S, have bought a wave of exciting new restaurants and hotels, such as the first Shangri-La and Mondrian Hotels in London. The restaurant and bar offer in The Shard is now part of an elite list of London hotspots and on a par with fine dining offerings that can be found in the West End. Mark Hix became the next A-lister chef to embark on South Bank when he recently opened his trendy Hixter Bankside restaurant hidden just off Southwark Street, perfectly located to sweep up the pre- and post-theatre crowd looking for a quick bite to eat. Hix, joins Gordon Ramsay, whose entirely Italian restaurant, Union Street Café, has been around since 2013 and we are already witnessing increasing demand from leading restaurants. South Bank will remain a challenging market due to lack of liquidity Over the course of 2014, 49 transactions were completed across South Bank illustrating the lack of opportunities in the market for Investors. By comparison there were 72 options dealt in Midtown. South Bank s occupational market remains strong but, in addition, it offers Investors long-term structural growth prospects. This is through the combination of transport improvements, net absorption of offices lost to residential and master planning initiatives on a global scale, such as Battersea Power Station. In summary, the combination of strong Investment demand, solid growth prospects and limited Availability will continue to put upward pressure on prices for the foreseeable future. In the 4th Quarter 2014, Fraser Property s mixed-use development, Sky Gardens, SW8, got underway which on completion in the 1st Quarter 2017 will deliver 239 luxury apartments and 35,500 sq ft of office space. In addition, Oakmayne Properties and Lone Star s joint venture at 251 Southwark Bridge Road, S, commenced works in the 4th Quarter. This stand alone office podium totalling 33,368 sq ft is part of a larger mixed-use scheme that incorporates a 41-storey residential tower and 3,014 sq ft of new retail. The number of mixed-use developments being speculatively built, will see new homes, creative office space, retail and leisure accommodation, completely transforming the area.

6 The London South Bank Office Market Q TAKE-UP TOTAL TAKE-UP 759,577sq ft +328% TAKE-UP NEW & REFURBISHED 223,713 sq ft +173% TAKE-UP SECONDHAND 535,864 sq ft +461% Five-year Quarterly Average 239,352 sq ft Five-year Quarterly Average 86,094 sq ft Five-year Quarterly Average 143,460 sq ft THE STELLAR END TO 2014 WAS BOOSTED BY DEMAND DRIVEN BY THE DAMIT SECTOR WHICH ACCOUNTED FOR 70% OF TAKE-UP IN THE 4TH QUARTER THE BIGGEST SECTOR OF TAKE-UP IN 2014 WAS ADVERTISING, MARKETING & PR TOTALLING 29% TABLE.1 SELECTED OFFICE LETTINGS IN SOUTH BANK Occupier Address Sq ft Grade Reported Rent psf Omnicom Group Bankside 2 & 3, Southwark Street, S 368,123 Secondhand Grade A ED & F Man The News Building, 1 London Bridge Street, S 45,623 New c The Office Group The Shard, 32 London Bridge Street, S 33,578 New Conf. Regus The News Building, 1 London Bridge Street, S 30,939 New c Guy's and St Thomas' NHS Foundation Trust Minerva House, 5 Montague Close, S 25,130 Secondhand Grade A Conf. Vubiquity More London, 3 More London, S 21,229 Secondhand Grade A Teradata The News Building, 1 London Bridge Street, S 15,618 New c Aegis 1 London Bridge, S 15,568 Refurbished Keltie LLP 1 London Bridge, S 12,856 Refurbished Gallup The Shard, 32 London Bridge Street, S 12,163 New Conf. Lonely Planet 240 Blackfriars Road, S 12,027 New Axon Communications 160 Blackfriars Road, S 11,727 Refurbished Blippar 1 London Bridge, S 7,909 Refurbished Rated People 240 Blackfriars Road, S 6,351 New 57.50

7 The London South Bank Office Market Q FIG.1 ANNUAL TAKE-UP BY GRADE 000s sq ft (projection) Pre-lets New Refurbished Secondhand Grade A Secondhand Grade B Buoyed by a strong end to the year, Take-up in 2014 reached 1.61m sq ft, 47% ahead of the long-term annual average (1.1m sq ft) and the third highest annual total recorded. Take-up in the 4th Quarter 2014 totalled 759,577 sq ft and was the strongest quarter since the 3rd Quarter The standout transaction of the 4th Quarter was advertising group Omnicom s subletting of 368,123 sq ft at Bankside 2 and 3, S, which, as well as being one of Central London s largest deals of 2014, continues a long-term trend of Advertising and Media related companies satisfying major requirements in the South Bank. Alongside the Omnicom transaction, South Bank continues to attract companies from across the DAMIT (Design; Advertising, Marketing & PR; Media; Internet and Technology & Telecoms) spectrum with notable transactions in the 4th Quarter involving marketing group Aegis (15,568 sq ft) and Lonely Planet (12,027 sq ft). FIG TAKE-UP BY SECTOR 53% 47% 1,425,741 sq ft Named Take-up in 2014 Undisclosed (177,696 sq ft) 38% 62% D A M I T Total 2014 Take-up: 1,601,980 sq ft FIG TAKE-UP BY SECTOR 1,579,067 sq ft Named Take-up in 2013 Undisclosed (74,414 sq ft) D A M I T Total 2013 Take-up: 1,653,481 sq ft % % Sector DAMIT Design Advertising, Marketing & PR Media Internet Technology & Telecoms Banking, Finance & Insurance Charities & Associations Corporate Education Government Legal Professional Services Retail & Leisure Other Sector DAMIT Design Advertising, Marketing & PR Media Internet Technology & Telecoms Banking, Finance & Insurance Charities & Associations Corporate Education Government Legal Professional Services Retail & Leisure Other Since 2009 Media companies, and those across the Advertising, Marketing & PR segments, have become an increasingly key component of leasing activity in South Bank. In 2009, companies from these sectors accounted for just 13% of total named Take-up, rising to 19% in 2010 and 2011, 23% in 2012, and 51% in With the addition of Omnicom in 2014, these sectors now account for a total of 32% of all named Take-up (5,410,689 sq ft) since No other office market in the UK boasts the same critical mass of companies from the Media and Advertising, Marketing & PR sectors as the South Bank. The News UK and Ogilvy & Mather lettings in 2013 were landmark deals for South Bank, but in truth it merely accelerated a trend that was already emerging with London s Media sector moving south. We expect the market will continue to evolve, and expand southwards, but Media along with Advertising, Marketing and PR will continue to be a key component of the Occupier base moving forward. However, the level of Take-up seen over the past two years is unlikely to be sustainable in 2015 and beyond. We anticipate that the market will continue to be characterised by a high volume of small transactions, as smaller businesses and start-ups begin to cluster around the mature corporates that have established themselves in the market. In 2014, 64% of all transactions were between 1,000 sq ft and 5,000 sq ft. We predict Take-up at the end of 2015 to total circa 1m sq ft, which by comparison, is well below the levels experienced over the past two years. There is simply not enough stock in the pipeline to satisfy demand for space in South Bank. The key to sustaining the recent levels of Take-up will lie within pre-commitment and hidden supply in the form of tenant space potentially being brought to the market. NUMBER OF DEALS OVER PER SQ FT In 2014 South Bank witnessed some record rents, with The Shard delivering some of the highest rents ever achieved in the market, at levels reaching and per sq ft. In 2014 there were 29 transactions that achieved rents over per sq ft, four times that achieved in 2013.

8 The London South Bank Office Market Q TOTAL 726,412 sq ft RATE 3.3 % -51% Five-year Quarterly Average 1.26m sq ft +3.4%pts Five-year Quarterly Average 5.7% NEW & REFURBISHED 359,013 sq ft SECONDHAND 367,399 sq ft -40% Five-year Quarterly Average 350,545 sq ft -58% Five-year Quarterly Average 707,437 sq ft BANKSIDE 18% 13% FIG.4 QUARTERLY OFFICE BY SUBMARKET 15% 12% 24% LONDON BRIDGE 69% 73% 18% WATERLOO 100% BERMONDSEY 72% 6% 5% 64% BOROUGH WEST 36% S7 100% 38% Re 62% SW8 Re New Refurbished Secondhand Grade A Secondhand Grade B S1 100% Re

9 The London South Bank Office Market Q FIG.5 SOUTH BANK RATE BY AREA (% OF TOTAL STOCK) South Bank currently has the lowest Availability Rate in its history and of all the Central London markets. It is important to bear in mind, however, that 25% of total Availability last quarter was in Bankside 2 and 3, and once let, the Availability Rate was anticipated to drop considerably. The Shard now accounts for 44% of South Bank s total Availability and without it, the Availability Rate in South Bank would be 1.8%. Without any imminent New stock coming onto the market, we anticipate a sub 4% Availability Rate in South Bank until the end of % Bankside Waterloo 0.1% SE S S Borough West 0.9% S1 SE S 11 1 Vauxhall Pimlico Nine Elms Camberwell 2.7% BURGESS PARK VAUXHALL PARK Oval K KENNINGTON PARK ial Way merc Com n St Brixton Lan sdo wne Way rd Wandsworth MYATTS FIELD MOSTYN GARDENS Peckham Ln ha rk Shi La m ha ugh ap Peckham Rye ld Co oro we ck Sto Cl ou rb ha ghb enst own e Que r Ln Lou orn rth lve Wandsworth Road Hi MAX ROACH PARK nd ve La Clapham High Street Figure 6 illustrates the drastic fall in supply from the 3rd to 4th Quarter in Refurbished stock is now nonexistent and Secondhand Grade A stock has fallen 80% since the 3rd Quarter. Our projection for total Availability at the end of 2015 is circa 450,000 sq ft, which at today s stock levels would result in an Availability Rate of 2.1%. The level of Refurbished stock coming to the market in 2015 does not fill the gap, based on the current levels of supply, barely making up for a quarter of the current levels of Take-up. Denmark Hill ll ll er Road Denmark Hill Stockwell ll ial Way merc Com l St ngto Elmi lar St Med ad r Ro ylo Na 4.0% Havi ts ar ew St Queenstown Road SW8 SW S W8 W 8 2.2% Elephant & Castle s Road St. Gille Battersea Battersea Park Bermondsey S7 SE S E Kennington 1.8% Vauxhall 8.8% London Bridge Overall Availability at the end of the 4th Quarter 2014 fell 51%, from 1.48m sq ft in the 3rd Quarter 2014 to 726,412 sq ft, resulting in South Bank s Availability Rate plummeting from 6.7% to 3.3%. Loughborough Junction RUSKIN PARK ton WYCK GARDENS Brix There are currently ten buildings available in South Bank over 10,000 sq ft, three of which are already under offer. Once these are let there will be no sizable floor plates outside of The Shard on offer in South Bank as the majority of supply is in the 1,000-5,000 sq ft size band. FIG.6 QUARTERLY OFFICE BY GRADE 1.5 million sq ft 1.0 (projection) 0.5 South Bank is firmly established as a key Central London market and presents a compelling offer to Occupiers. There is clearly a desire to be in the South Bank but it has rapidly reached a critical point where this appetite cannot be satisfied. There are currently 42 Central London requirements over 50,000 sq ft with South Bank as a potential target location. However, the development pipeline for the next twelve months is sparse. With The Shard and only two floors at 240 Blackfriars Road, S, totalling 23,891 sq ft, what choice can South Bank offer Occupiers? We believe The Shard, which still remains the single largest portion of New supply in South Bank, totalling 322,021 sq ft at the end of 2014, will be fully let by the end of New Refurbished Secondhand Grade A Secondhand Grade B TABLE.2 CENTRAL LONDON SUPPLY COMPARED Grade (sq ft) South Bank Midtown West End City New & Refurbished 359, , ,759 1,708,344 Secondhand Grade A 118, , ,956 2,452,394 Secondhand Grade B 248, ,126 1,234, ,938 Total 726,412 1,253,441 2,950,013 4,838,676 Stock 21,915,235 31,777,060 72,908,753 85,515, % 3.9% 4.0% 5.7% Availability Rate (%) 15 The shortage of supply will have a considerable impact on rents, which we anticipate could be driven upwards to record highs in 2015 as Occupiers compete for remaining space.

10 The London South Bank Office Market Q FUTURE SUPPLY TOTAL SPECULATIVE SPACE UNDER CONSTRUCTION 537,151sq ft +45% SPECULATIVE CONSTRUCTION DUE BY Q LACK OF SUPPLY BEYOND THE SHARD IS LIKELY TO PUT THE BRAKES ON WHAT HAS BEEN A BOOMING MARKET OVER THE LAST TWO YEARS 221,560 sq ft CONSTRUCTION STARTS IN THE 4TH QUARTER 2014 SKY GARDENS, SW8 251 SOUTHWARK BRIDGE ROAD, S Fraser Property s residential led mixed-use scheme Sky Gardens, SW8, commenced construction in the 4th Quarter The scheme will provide 239 luxury apartments, 35,500 sq ft of office space and 2,260 sq ft of retail and is due for completion in the 1st Quarter 2017 Lone Star Real Estate Fund III and development partners Oakmayne Properties commenced construction of their 41-storey residential mixed-use tower Two Fifty One in the 4th Quarter. The development includes 3,014 sq ft of new retail space and an adjacent 8-storey 33,368 sq ft office building

11 The London South Bank Office Market Q IS LIKELY TO SEE PRE-LETTING AS SUPPLY IS UNDER PRESSURE The South Bank supply pipeline extends far beyond S, encompassing S1, S7 and SW8. With supply in London Bridge and Bankside approaching saturation point, and office development at Waterloo continuing to stall, attention turns to Vauxhall and Nine Elms where large-scale development of Grade A office stock will satisfy demand in the medium-term. There is currently 537,171 sq ft of speculative space under construction in twelve schemes, the largest of which is South Bank Tower, S, which on completion in the 2nd Quarter 2016 will deliver 224,784 sq ft of Refurbished office space. However, we anticipate a large proportion of this building will let during construction and therefore not form part of Availability. The reason for such optimism is due to it being one of only two buildings in South Bank (the other being The Shard) capable of accommodating requirements in the 50,000 to 150,000 sq ft bracket. 95% OF SPACE DELIVERED IN 2014 HAS ALREADY LET Developers and landlords are not reacting quickly enough to meet increasing demand for space in South Bank, in particular the S postcode area. The Waterloo submarket is in desperate need of good quality stock, much of which could be unlocked by the Shell Centre and Elizabeth House, S, development schemes, however, both are still subject to frustrating delays. In the 4th Quarter 2014, Chelsfield and London & Regional gained consent from Lambeth Council for their resubmitted proposals for the 800m redevelopment of Elizabeth House. The redevelopment will now be referred to the Mayor of London and the Secretary of State with a verdict expected this year. The scheme will transform the public spaces around Waterloo Station, benefitting the 95m people who use the station each year, and enable major improvements to be delivered within the station itself. FIG.7 FUTURE SUPPLY IN SOUTH BANK m sq ft Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q Let Completed Under Construction Hidden Supply

12 The London South Bank Office Market Q INVESTMENT Q4 14 TURNOVER 173.6m +132% Five-year Quarterly Average 248m 100% OF Q4 14 TRANSACTIONS WERE UNDERTAKEN BY TOTAL 2014 TURNOVER 2.51bn More London represents ( 1.7bn) % change on % Five-year Annual Average 529m 72% OF ALL TRANSACTIONS IN 2014 WERE UNDERTAKEN BY 3 YEARS INVESTMENT TOTALS m bn bn TABLE.3 SELECTED INVESTMENT TRANSACTIONS IN SOUTH BANK Address Sq ft Vendor Purchaser Reported Price m Keybridge House, 80 South Lambeth Road, SW8 700,000 BT Mount Anvil & 89 Southwark Street, S 32,934 Allies & Morrison Standard Life Investments UK Property Fund America Street, S 39,189 TP Bennett LLP Standard Life Investments (IGNIS) Queen Elizabeth Street, S 19,358 Confidential Holleybrook 10.50

13 The London South Bank Office Market Q m FIG.8 INVESTOR TYPE BY VALUE IN % 26% 27% 7% 67% 1% Total Turnover in bn 705m UK vs. 1.8bn Overseas % FIG.9 INVESTOR TYPE BY VALUE IN 2013 Total Turnover in bn 963m UK vs. 344m Overseas % Investor Type UK Fund UK Private / Other UK Property Company Owner Occupier Overseas European Overseas Middle Eastern Overseas Far Eastern Overseas Other Investor Type UK Fund UK Private / Other UK Property Company Owner Occupier Overseas European Overseas Middle Eastern Overseas Far Eastern Overseas Other FIG. 10 ANNUAL INVESTMENT TURNOVER BY S SUBMARKET SOUTH BANK WILL REMAIN A CHALLENGING MARKET DUE TO LACK OF LIQUIDITY - APPETITE FOR ASSETS SOUTH OF THE RIVER HAS STRENGTHENED AMONGST ALL INVESTOR TYPES Investment in the South Bank reached 173.6m in the 4th Quarter This pushed the Annual Investment turnover for 2014 to a record level of 2.51bn, representing a 92% increase on 2013 and 474% increase on the five year annual average. This is the second year of consecutive record setting Investment in South Bank, and illustrates the growing Investor interest in this Central London market. Whilst the turnover levels are indicative of the positive market sentiment, we should recognise that 1.7bn was absorbed in just the one transaction. More London, S, accounted for circa 1.7bn so, making an allowance for this reduces the annual total for 2014 to 809m. This leaves an average lot size of 17m across 48 other transactions, providing a more accurate representation of the smaller scale Investment activity typically seen in South Bank. Looking at the figures in more detail, the 4th Quarter 2014 Investment turnover of 173.6m was spread across eight transactions. This quarterly figure represents an 132% increase from the 3rd Quarter 2014 but is 42% below the five-year quarterly average of 248m.There is no cause for concern as Investor sentiment remains positive and the lower than average turnover this quarter is primarily due to the lack of stock. The Investor base has become more diverse albeit there are still distinct trends. The Overseas purchasers are more likely to be attracted to the more prominent buildings in South Bank in the more established locations. Behind this sits a myriad of UK Investors, both Property Companies and Institutional, and over the course of 2014 UK Funds and UK Property Companies were still the most active purchasers in the South Bank market. Again this conveniently reflects the nature of the market. Reinforcing the above point, activity in the 4th Quarter 2014 was entirely dominated by UK purchasers with not a single Overseas Investor. Historically, the market has been characterised by a sequence of UK Property Companies seeking opportunities to enhance value, with UK Funds then acquiring recently Refurbished and well let properties. During the 4th Quarter, 59% of transactions by volume were purchased by UK Property Companies and 35% by UK Funds. We do, however, expect Overseas interest in South Bank to continue to increase, albeit it will be opportunity driven Five Year Annual Average 538m Bankside London Bridge Waterloo Borough West Bermondsey 2014 Among the notable transactions of the 4th Quarter was the acquisition of 85 Southwark Street, S, which was acquired by Standard Life Investments UK Property Fund after a closed marketing campaign for 30.32m. It is an award winning 2004 Refurbished scheme, which was sold with a new fifteen-year leaseback to Allies & Morrison at per sq ft. The price reflects the continued pressure on values and this will remain, due to the scarcity of supply in South Bank. It sets a record Capital Value for South Bank of 920 per sq ft and a Net Initial Yield of 4.68%. Whilst this is a new benchmark for South Bank, it still represents a discount from equivalent Prime West End, Midtown and City values.

14 The London South Bank Office Market Q RETAIL & LEISURE SOUTH BANK'S RENAISSANCE ACROSS THE USE CLASSES CONTINUES AND WE WILL SEE A MORE DIVERSE AND VIBRANT RETAIL AND LEISURE OFFER CONTINUE TO EMERGE Below: The Herzog & De Meuron designed extension to the Tate Modern is scheduled to complete in 2016 The Tate Modern Project, S South Bank has an inherent vibrancy and international cultural appeal which only grows stronger. This is particularly prevalent in S where the Herzog & De Meuron designed extension to the Tate Modern, currently under construction, will deliver six new levels of exhibition space to the rear of the building in Stretching along an entire street in Vauxhall, Damian Hirst s Newport Street Gallery, S1, is due to open in Spring/Summer It will house over 2,000 artworks from Hirst s private collection, including pieces by Francis Bacon, Jeff Koons and street artist Banksy. The gallery will sit within a row of converted and extended theatre warehouses and will include a new restaurant. This example is just the start of an emerging retail and leisure offer for the area, which will no doubt add to the occupier appeal that has already been generated by the well-documented development and infrastructure improvements currently in place. Since 2009, some of Central London's largest leasing transactions have been to Media, Advertising, Marketing & PR Occupiers in the South Bank (News UK, Omnicom Group, Ogilvy & Mather and United Business Media). These large scale DAMIT (Design; Advertising, Marketing & PR; Media; Internet; and Technology & Telecoms) sector Occupiers will dramatically increase and change the Occupier profile of the area, enticing a wave of new retail and leisure operators and enhancing the quality of retail on offer in the market. Recent restaurant openings, lettings and registered requirements has already demonstrated this, as shown below. "It's a place to show my collection of contemporary art. It feels bad having it all in crates." Damien Hirst WHO'S OPENED WHO'S OPENING WHO'S LOOKING VISIT 10BRIDGES.CO.UK OUR SISTER WEBSITE FOR FURTHER DETAILS OF SOUTH BANK'S HIDDEN GEMS AND TUCKED-AWAY TOP-TENS!

15 DEFINITIONS South Bank - S, S1, S7, SW8 Stock - office accommodation, excluding offices under construction Floorspace - net internal area, unless otherwise stated Available - office space available for immediate occupation Availability Rate - available offices as a proportion of total stock Take-up - completed transactions where offices are let or sold to an occupier New - brand new buildings or buildings developed behind a retained façade Refurbished - buildings which have undergone a major refurbishment Secondhand Grade A - previously occupied higher quality space with features such as air-conditioning or raised floors Secondhand Grade B - previously occupied lower quality space with features such as central heating or perimeter trunking Construction start - development where the main contract has commenced, normally excluding demolition or stripping out Construction completion - development where the main contract has reached practical completion Hidden Supply - space which is not currently on the open market, but likely to come available in the near future Long-Term - average calculated since the 1st Quarter 2005

16 CAN WE HELP YOU? MARK FISHER Investment M MF@UNIONSTREETPARTNERS.CO.UK ALASTAIR HILTON Investment M AH@UNIONSTREETPARTNERS.CO.UK JULIAN HIND Leasing, Sales & Development M JH@UNIONSTREETPARTNERS.CO.UK MARK ANSTEY Leasing, Sales & Development M MA@UNIONSTREETPARTNERS.CO.UK UNION STREET PARTNERS 25A COPPERFIELD STREET LONDON S 0EN T TEAM@UNIONSTREETPARTNERS.CO.UK UNIONSTREETPARTNERS.CO.UK GUY BOWRING Leasing, Sales & Development M GB@UNIONSTREETPARTNERS.CO.UK HARRY CORMACK Leasing, Sales & Development M HC@UNIONSTREETPARTNERS.CO.UK Union Street Partners is a joint venture company between Farebrother and Tuckerman. It provides a specific and bespoke Real Estate service for the South Bank, a market which is undergoing an unprecedented transformation and which is now firmly established as one of Central London s most important business districts. The Practice s services include Office and Retail Leasing, Sales & Development, Lease Advisory, Business Rates, Valuation and Investment advice. WORKING IN PARTNERSHIP ALEX LEWIS Lease Advisory, Valuation, Rating M AL@UNIONSTREETPARTNERS.CO.UK MALCOLM BRACKLEY Lease Advisory, Valuation, Rating M MB@UNIONSTREETPARTNERS.CO.UK ALISTAIR SUBBA ROW Strategic Property Advice M ASR@UNIONSTREETPARTNERS.CO.UK NEIL DAVIES Retail & Leisure M ND@UNIONSTREETPARTNERS.CO.UK This publication has been carefully prepared and it is intended for general guidance only. No responsibility is accepted by Union Street Partners for any errors or omissions. The information contained herein should not be relied upon to replace professional advice on specific matters and is not, in whole or in part, to be published, reproduced or referred to without prior approval. Information may be subject to revisions in subsequent editions Union Street Partners. All rights reserved. This research is available in PDF format. Please lc@unionstreetpartners.co.uk to receive a copy Designed and Produced by Sears Davies searsdavies.com