The London Southbank Office Market Q4 2011

Transcription

1 The London Southbank Office Market

2 B a n k s i d e B o r o u g h E l e p h a n t & C a s t l e L o n d o n B r i d g e S o u t h w a r k Wa t e r l o o Introduction 3 Commentary 4 Take-up 6 Selected office lettings 7 Availability 8 Future supply 9 Investment 10 Selected Investment transactions 10 Contact details 12 2 farebrother.net

3 Introduction Farebrother is an established Practice of property consultants and Chartered Surveyors. The Practice s services include Corporate Real Estate, Leasing, Sales, Development, Management, Lease Advisory, Rating, Valuation and Investment advice. Farebrother s core market is Central London, specialising in Southbank and Midtown office and retail markets. Farebrother s extensive Research, is aimed at providing a short, sharp insight into what is one of the most dynamic commercial property markets in the World. This quarterly report reviews the overall performance of the leasing market and is published alongside Farebrother s Investment Reports, produced in partnership with IPD, together providing a comprehensive analysis of Southbank and Midtown markets. Vauxhall BURGESS PARK Definitions Southbank SE1 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 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. farebrother.net 3

4 Commentary Lowest availability rate in Central London as market improves Julian Hind The performance of the Southbank office market in was stronger than we expected, particularly the leasing market. Take-up increased by 33% on to 872,000 sq ft. Investment also increased in by 33% to 532m although at a level very much lower than in West End, Midtown and City markets. The amount of offices available for immediate occupation at the end of was reduced by 19% to 790,000 sq ft, lowering the availability rate to 4.1%. It is the lowest rate in Central London, compared to 5.2% in Midtown, 7.3% in the West End and 12% in the City. Rent levels were maintained but rental growth was not apparent despite that low availability rate. Top rents for the best quality space, such as More London, are currently circa 45 psf. It will be interesting to see what premium is attached to The Shard in 2012 and the impact it has on rents in the vicinity of London Bridge Quarter. The Southern ticket hall of Blackfriars station was opened during the 4th Quarter making Blackfriars the only station in London accessible from both sides of the River. Final completion is due in the Summer of The Southern entrance will have significant implications for the Blackfriars Corridor with the potential for future development and investment activity in the surrounding area. During the 4th Quarter, there were a number of significant transactions in that Blackfriars Corridor, including the purchase of the One Blackfriars site by Berkeley Group from the Receiver, a key gateway site to the station s new entrance. The agreement of heads of terms between publisher UBM and Great Ropemaker Partnership for a pre-let of circa 100,000 sq ft at 240 Blackfriars Road was also significant. Plans for a major mixed-use development of up to 1,000 flats and up to 500,000 sq ft of commercial space on the site of UBM s current headquarters at Ludgate House and neighbouring Sampson House was announced by the Carlyle Group. Israeli developer, Circleplane, appointed agents to market 20 Blackfriars Road which has consent for two towers consisting of office and residential space. Planning Consent was secured for the redevelopment of Sea Containers House into 280,000 sq ft of New and Refurbished offices and a Mondrian Hotel after a management agreement was signed with its parent Morgans Hotel Group. This circle of prospective regeneration schemes illustrates how the Southbank market will continue to perform; offices, residential, hotel, leisure, retail, cultural space and accessibility provide a strong environment for economic and office market value growth Ewan Munro 4 farebrother.net

5 Overview % change % change % change on 11 on 10 on total Availability 790,000 sq ft -17% -19% Availability Rate 4.1% -0.8% pt -0.9% pt Availability - New & Refurbished 102,000 sq ft -8% +7% Availability - Secondhand 688,000 sq ft -18% -22% Speculative Construction 1,121,000 sq ft +4% +6% Take-up (Quarter) 162,000 sq ft -56% +3% Take-up (Annual) 872,000 sq ft +33% Investment (Quarter) 94 million +37% Investment (Annual) 532 million +33% Figure 1: Annual Office Take-up Figure 2: Annual Office Availability sq ft 1,400,000 sq ft 2,000,000 1,200,000 1,750,000 1,000,000 1,500,000 1,250, ,000 1,000, , , , , , , Secondhand New/Refurbished Pre-let Projection Secondhand Grade B Secondhand Grade A New & Refurbished Projection The Southern ticket hall of Blackfriars station was opened during and is now the only station in London accessible from both sides of the River. farebrother.net 5

6 Take-up Strong demand from across Central London continues In, Southbank take-up increased for the second successive year but at a much higher rate than in. Take-up rose from 654,000 sq ft in to 872,000 sq ft by the end of, an increase of 33%, 24% above the four-year average. Take-up of New and Refurbished space continued to decline, however, falling by 59% from 75,000 sq ft to 31,000 sq ft. This was due to the lack of choice following four years of very low amounts of speculative construction. Secondhand take-up was strong, increasing by 45% from 579,000 sq ft to 841,000 sq ft, as occupiers sought a central location but at lower rents than North of the River. The increase in take-up in was largely the result of exceptional take-up in the 3rd Quarter when there was a 50% rise in the number of transactions on the previous Quarter, four of which exceeded 20,000 sq ft. Take-up fell in the 4th Quarter by 56% to 162,000 sq ft, with take-up of New and Refurbished at 9,000 sq ft and Secondhand at 153,000 sq ft. Despite this significant Quarterly reduction, take-up in the 4th Quarter was only 7% lower than the four year average of 174,000 sq ft per quarter. Southbank take-up has been driven by demand from both local occupiers and from occupiers coming into the market from the West End, Midtown and the City, attracted by the location, quality of space and cost. The largest letting of the 4th Quarter, for example, was to local occupier Ernst & Young which took the 2nd floor of 23,471 sq ft at 6 More London Place at a rent of 45 psf. This was in addition to the 35,000 sq ft they had already taken on the lower ground, ground and 1st floors in the 3rd Quarter and in total, was an 11% increase on the firm s existing space at 1 More London Place and Becket House, 1 Lambeth Palace Road. The second largest transaction was to former Midtown occupier, The Carbon Trust, which took the refurbished 4th floor of 9,419 sq ft at Dorset House, Stamford Street from Mapeley at a headline rent of psf. In 2012, we expect take-up from existing Southbank occupiers and new occupiers from other Central London markets to continue, boosted, however, by the first lettings at The Shard, London Bridge Quarter, which is currently scheduled to complete in the 2nd Quarter As a result, we project total take-up in 2012 to reach 800,000 sq ft, a 14% increase on the four-year average of 700,000 sq ft. Figure 3: Quarterly Office Take-up sq ft 1,000, , , , , , , , , , Secondhand Grade A Secondhand Grade B New Refurbished Pre-let 6 farebrother.net

7 Selected office lettings in Southbank Occupier Address Grade Sq ft Rent psf Ernst & Young LLP More London, 6 More London Place Secondhand Grade A 23, The Carbon Trust Dorset House, Stamford Street Refurbished 9, Fleet Street Publications Limited Friars Bridge Court, Blackfriars Road Secondhand Grade A 7, Home Fundraising Ltd Swan Court, 9 Tanner Street Secondhand Grade B 6, Quick Office India House, 45 Curlew Street Secondhand Grade A 6, Brand Addition Limited Salamanca Square, 9 Albert Embankment Secondhand Grade B 6, London Internet Exchange Limited 21 St Thomas Street Secondhand Grade A 4, Sunday Publishing Limited 207 Union Street Secondhand Grade B 4, Big Choice Group Great Suffolk Street Secondhand Grade B 4, Ark Home Healthcare Ltd Shand Street Secondhand Grade A 3, MSI Bickel s Yard, Bermondsey Street Secondhand Grade B 3, Eurostaff Group 135 Park Street Secondhand Grade B 3, SMI Group Ltd Harling House, Great Suffolk Street Secondhand Grade B 3, Kempster Ltd Waterloo Road Secondhand Grade B 3, Ernst & Young s acquisition of 23,471 sq ft on the 2nd floor at 6 More London Place was the largest transaction of. The firm had already taken 35,000 sq ft on the lower ground, ground and 1st floors in the previous Quarter. The second largest transaction of was to The Carbon Trust, which took 9,419 sq ft at Dorset House, Stamford Street. farebrother.net 7

8 Availability Supply fell for the first time since In, office availability in Southbank declined significantly from 972,000 sq ft to 790,000 sq ft, a reduction of 19%. It was the first annual fall in supply since, reducing the availability rate from 5% at the end of to just 4.1% at the end of. The rate is the lowest in Central London and has contributed to rent levels being sustained. New and Refurbished availability increased marginally by 7% from 95,000 sq ft to 102,000 sq ft during as a result of modest take-up and new space coming on to the market. Secondhand space fell by 22% from 877,000 sq ft to 688,000 sq ft. Secondhand Grade B availability increased by 39% from 318,000 sq ft to 442,000 sq ft, while Grade A space fell significantly by 56% from 559,000 to 246,000 sq ft. The steep drop in availability in was in the second half of the year with a 17% reduction in both the 3rd and 4th Quarters. In the 4th Quarter, New and Refurbished supply fell by 9,000 sq ft to 102,000 sq ft. Secondhand supply fell by 18% from 839,000 to 688,000 sq ft but this was the result of a significant reduction to Secondhand Grade A stock which fell by 43% compared to Secondhand Grade B space which actually increased by 8%. The steep fall in Secondhand Grade A supply in the 4th Quarter was mainly due to the withdrawal of space occupied by PricewaterhouseCoopers (PWC) at Hay s Galleria. Space at Tea Auction House, Counter Street and Hay s Lane House, Hay s Lane, totalling 108,000 sq ft, was withdrawn after six months as PwC decided to renew its leases. PwC s headquarters is located nearby at 7 More London Riverside. Our projection for the end of 2012 is that Southbank s office supply will rise significantly to 1.3 million sq ft, based on the completion of 667,000 sq ft during the year, 595,000 sq ft of which is located in The Shard. Secondhand Grade A supply falls steeply in due to the withdrawal of space occupied by PricewaterhouseCoopers at Hay s Galleria, London Bridge City. Figure 4: Quarterly Office Availability - sq ft 1,200,000 1,000, , , , ,000 0 Secondhand Grade A Secondhand Grade B New Refurbished 8 farebrother.net

9 Future Supply The amount of stock under construction in Southbank remained stable during but continued to be dominated by The Shard and The Place at London Bridge Quarter. By the end of the year, the scheme, which will add 1m sq ft to office supply by the 1st Quarter 2013, accounted for 95% of all offices under construction on Southbank. Offices at The Shard will be located on 25 levels from the 4th to the 28th floors. On completion it will provide large floorplates ranging from 14,770 to 31,492 sq ft. There is little office construction activity elsewhere on Southbank to meet a greater range of occupier requirements. In the 4th Quarter, the amount of total construction increased marginally by 4% to 1.1m sq ft due to the start of Dealfirst and Gemaco SA s 21,000 sq ft new build at One Valentine Place. Unlike recent mixed-use schemes where offices have been ancillary to residential use, this will be a self-contained office building with a small A1 retail unit. The development, located on the site of a former petrol station on the West side of Blackfriars Road, is due for completion in the 4th Quarter Stripping out of St Martins 330,000 sq ft refurbishment of 1 London Bridge and The Cottons Centre in London Bridge City also began in the 4th Quarter. Construction is expected to start in the 1st Quarter 2012 and scheduled to be completed by the 1st Quarter One Valentine Place and 50,000 sq ft at The Harlequin Building, 65 Southwark Street, are the only other large, stand-alone buildings that will be delivered in 2012 outside of London Bridge Quarter. As a result, occupiers will face a continued lack of choice on Southbank. The market needs to deliver good-sized units to meet current demand as interest from occupiers in other Central London markets is rising. Only two self-contained schemes over 20,000 sq ft due to complete in 2012 outside London Bridge Quarter 2012 take-up will be boosted by the first lettings at The Shard, London Bridge Quarter, currently scheduled to complete in Figure 5: Future Supply in Southbank s sq ft Delivered Space Scheduled Completions Hidden Supply farebrother.net 9

10 Investment The value of Investments up 33% on Alastair Hilton In, the value of Investment transactions in Southbank increased by 33%, from million in to million. In the 4th Quarter, transactions rose by a significant 37% on the 3rd Quarter to 93.8 million. A year after it was placed into administration by The Royal Bank of Scotland, 1 Blackfriars Road was reported to have been acquired from the Receiver by Berkeley Group in the 4th Quarter for a price of 77.4 million. The site has an outstanding Planning Consent for a 52 storey mixed-use tower with 96 residential units and a 261 bedroom hotel. Waterman Group, the owner-occupier of Pickford s Wharf, Clink Street, undertook a sale-and-leaseback to GMS Estates for 11.9 million. The building is a substantial Victorian warehouse in a prominent location on the River between London Bridge and Southwark Bridge, previously redeveloped behind the retained façade in the 1980s. The occupier entered into a 15 year lease with a break at ten years. As well as 21,149 sq ft of offices, the sale included 2,827 sq ft retail, ground leases on eight apartments and the ground lease on The Old Thameside Inn. The overall rent equated to psf on the office and retail space, with the best rent on the office space of psf. This was GMS Estates second purchase in Southbank, having acquired Southwark Street in. Looking forwards, we expect the opening of the Southern entrance to Blackfriars Station to attract Investor interest when looking at strategic reasons to invest on the Southbank. Selected investment transactions on Southbank Address Size Vendor Purchaser Reported sq ft net Price m 1 Blackfriars Road Cleared Site LPA Receiver Berkeley Group plc 77.4 Pickford s Wharf, Clink Street 23,976 Waterman Group GMS Estates Borough High Street 7,522 BW SIPP Trustees Cromdale Investments Ltd Doyce Street 3,863 Private Investor Private Investor 1.1 Weller Street Lofts, 2,539 Toh Shimazaki Architects Ltd Waterfront Solicitors LLP Weller Street (Unit 2) (Owner occupier) 1-5 Bear Lane (Unit 1) 2,857 Fontpress Ltd Private Investor (999 year lease) King s Bench Street (pt 1st) 1,250 J Media UK Ltd Lyndon Scaffolding plc (999 year lease) 10 farebrother.net

11 A significant transaction in was the sale-and-leaseback of Pickford s Wharf, Clink Street, to GMS Estates for 11.9m. farebrother.net 11

12 Key Contacts Other Research also available Julian Hind Strategic Property Advice, Leasing, Sales & Development +44 (0) Andrew Glover Property Management +44 (0) Alastair Hilton Investment and Development +44 (0) Malcolm Brackley Lease Advisory and Valuation +44 (0) Midtown Office Market Quarterly Reports This research is available in.pdf format. Please to receive a copy or visit farebrother.net/office_market.html for earlier editions. This publication has been carefully prepared and it is intended for general guidance only. No responsibility is accepted by Farebrother 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. This research document is produced by Farebrother with the assistance of Chippendale Consulting & Research (CCR) Farebrother. All rights reserved. Farebrother IPD Midtown Investment Reports Jeff Norris Business Rates +44 (0) jnorris@farebrother.net Charlie Thompson Office Leasing, Sales & Development +44 (0) cthompson@farebrother.net Farebrother 27 Bream s Buildings London EC4A 1DZ For further information please call +44 (0) farebrother.net Follow us on