The London Southbank Office & Retail Market Q1 2013

Transcription

1 The London Southbank Office & Retail Market 2013 Royal London Asset Management and Blackfriars Investments Ltd s sale of Transport for London s offices at Palestra, 197 Blackfriars Road for 223m was the largest Investment transaction of the Quarter Our firm is part of:

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 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 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 become available in the near future Long-Term average calculated since the 2nd Quarter Introduction 3 Commentary 4 Take-up 6 Selected office lettings 7 Availability 8 Future supply 9 Investment 10 Retail 11 Contact details 12 2 farebrother.com

3 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 Farebrother is an established Practice of Real Estate consultants and Chartered Surveyors. The Practice s services include Corporate Real Estate, Leasing, Sales, Development, Management, Lease Advisory, Business Rates, 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 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, Investment and Retail markets 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 farebrother.com 3

4 Commentary First office letting in The Shard Julian Hind In the 1st Quarter of 2013, total Take-up of 193,000 sq ft in the Southbank office market was above the quarterly average, partially due to Take-up of both New and Refurbished space absent in the 4th Quarter. The first letting in The Shard completed without fanfare, Sellar Property Group and Qatari Investment Authority letting 27,793 sq ft on the 16th floor to media occupier Al Jazeera. Combined with a healthy churn in smaller units, primarily Secondhand Grade B space, Take-up in the Southbank office market remains stable as occupiers continue to seek better value for money in Central London. Office Supply rose significantly with the completion of The Shard in the 4th Quarter and will do so again in the 2nd Quarter 2013 as The Place, Cottons Centre, 1 London Bridge and The Crane Building are set to add nearly 800,000 sq ft to availability. Whilst space will let, the Southbank market s Availability Rate will rise during 2013 from its current level of 6.9%. In addition, Secondhand Grade B availability has also increased from 295,000 sq ft to 472,000 sq ft in the 1st Quarter with 130,000 sq ft at the County Hall Quarter and 44,000 sq ft at 111 Westminster Bridge Road being brought to the market. Since the start of the construction of The Shard at the beginning of, market activity has centered on the London Bridge Quarter, however, Planning Permission for 900,000 sq ft at Elizabeth House, 39 York Road, (which will not be called in by the Secretary of State) plus the redevelopment of The Shell Centre, 2 York Road, suggest that the Waterloo area could be the focus for much of the Southbank market s Development Pipeline in the next three to five years. Another significant development start was the mixed-use (Residential led) South Bank Tower, formerly King s Reach Tower, Stamford Street, by CIT and Jadwa Investments, which will deliver 370,000 sq ft in the 4th Quarter Strong Investment turnover in the 4th Quarter continued into the 1st Quarter Transactions totalled 294m in the 1st Quarter 2013, dominated by the disposal of Palestra, 197 Blackfriars Road, by Royal London Asset Management and Blackfriars Investments Ltd to DEKA for 223m. The disposal of this property with a recently regeared lease to Transport for London until 2036, demonstrates that a prime Southbank property is a prime Central London one albeit with slightly lower yields than other Central London locations. Owner-occupier transactions remained a component of the Investment market with ITV s acquisition of its London Weekend Television Centre, Kent House, Upper Ground, from the Coal Pensions Authority for 56m, a transaction that follows the largest transaction of 4th Quarter when London Borough of Southwark purchased 160 Tooley Street, from Overseas clients of HSBC Private Bank for 170m Overview % change on 12 Total Availability 1.29 million sq ft +8% p Availability Rate 6.9% +0.5%pt p Availability - 691,000 sq ft -4% q New & Refurbished Availability - 602,000 sq ft +26% p Secondhand Speculative 1.6 million sq ft -36% q Construction Take-up 192,000 sq ft +77% p Investment 294 million +20% p 4 farebrother.com

5 At the start of the 1st Quarter, CIT and its joint venture partner Saudi-based Jadwa Investment, commenced construction at King s Reach Tower, Stamford Street, to be rebranded as South Bank Tower. The mixed-use scheme, due for completion in the 4th Quarter 2015, will include 173 luxury apartments, 72,000 sq ft of retail space and 370,000 sq ft of offices farebrother.com 5

6 Take-up Total Take-up in the 1st Quarter 2013 reached 193,000 sq ft, an increase of 77% on the 4th Quarter and 7% higher than the last five years quarterly average of 179,000 sq ft. It was the highest total of quarterly Take-up since the 3rd Quarter, excluding pre-lets. For the first quarter in two years, there was Take-up of New space as the first transaction in The Shard completed. Al Jazeera has taken 27,793 sq ft on the 16th floor and will relocate from its Knightsbridge office by the 1st Quarter Four Communications acquisition of 14,605 sq ft at Great Portland Estates New City Court, 20 St Thomas Street, was the only letting of Refurbished space in the 1st Quarter. The Media Agency, currently in Leicester Square, has agreed a 10 year term with a tenant only break at the 5th year at a headline rental of per sq ft. There was no Take-up of New or Refurbished space in the 4th Quarter. Total Take-up increased by 77% on the 4th Quarter driven by Take-up of New and Refurbished space Secondhand Take-up also increased by 39% on the 4th Quarter to total 150,000 sq ft; 35,000 sq ft on Secondhand Grade A space and 115,000 sq ft on Secondhand Grade B. Two of the largest transactions of the Quarter were on Secondhand Grade B space. 26,609 sq ft was let to King s College London at Britannia House, 7 Trinity Street and 19,437 sq ft let at Union Street to Artists Studio Company (A.S.C). This increased level of Secondhand letting activity will continue as Demand increases. More Occupiers view the Southbank market as a credible and cost-effective Central London location, pulled into focus by International-quality New buildings and infrastructure improvements, putting pressure on a restricted Secondhand market. The 14,605 sq ft letting to Four Communications at Great Portland Estates New City Court, 20 St Thomas Street, was the only letting of Refurbished space in the 1st Quarter Secondhand Take-up rose 39% on the 4th Quarter to total 150,000 sq ft. The largest Take-up of this grade of space and the second largest transaction for the Quarter was to King s College London which took 26,609 sq ft of Secondhand Grade B space at Britannia House, 7 Trinity Street 6 farebrother.com

7 Selected office lettings on Southbank Occupier Address Sq ft Grade Rent psf Al Jazeera The Shard, London Bridge Street 27,793 New Conf. King s College London Britannia House, 7 Trinity Street 26,609 Secondhand Grade B 25 Artists Studio Company Union Street 19,437 Secondhand Grade B 10 Four Communications New City Court, 20 St Thomas Street 14,605 Refurbished 35 The Risk Associates 3 More London 11,500 Secondhand Grade A 46.5 Tamar Energy 2 London Bridge 4,500 Secondhand Grade B 36 Glyndwr University Hannibal House, Elephant & Castle 8,236 Secondhand Grade B Conf. Instant Managed Offices Ltd Chapter House, Crucifix Lane 7,266 Secondhand Grade B 25 Vision Critical Dominican Court, 17 Hatfields 6,857 Secondhand Grade B 37.5 Wanstor Bridgegate House, Borough High Street 5,448 Secondhand Grade A 24 The Client Relationship Consultancy 6-10 Valentine Place 3,514 Secondhand Grade B 36 Ubiqus 61 Southwark Street 3,500 Secondhand Grade B 32.5 Frameworks Nutmeg House, 60 Gainsford Street 3,382 Secondhand Grade B 38.5 Source: Farebrother Figure 1: Quarterly Office Take-up sq ft 1,000, , , , , , , , , , Secondhand Grade A Secondhand Grade B New Refurbished Pre-let Source: Farebrother farebrother.com 7

8 Availability 60% rise in Secondhand Grade B availability Overall availability at the end of the 1st Quarter 2013 in the Southbank market increased by 8% on the 4th Quarter, rising from 1.20m sq ft to 1.29m sq ft, which equates to an increase in the Availability Rate from 6.4% to 6.9%. The increase is solely due to a 60% rise in Secondhand Grade B availability. Secondhand Grade B availability has increased from 295,000 sq ft to 472,000 sq ft. The majority of the increase came as a result of the marketing of part of the County Hall Quarter, Westminster Bridge Road. 130,000 sq ft has been put on the market in the West Wing of the former home of the Greater London Council. Additionally, 44,000 sq ft at 111 Westminster Bridge Road, 13,666 sq ft at 200 Great Dover Street and 11,255 sq ft at the Hop Exchange, 24 Southwark Street is now being marketed. Whilst there continues to be very healthy Take-up of Secondhand Grade B space, additional space coming onto the market is rare. Further additions of Secondhand Grade B space are unlikely to reach this quarterly total in the short-term. The availability of New and Refurbished space, as well as Secondhand Grade A space fell in the 1st Quarter The amount of New and Refurbished stock, the majority being New space, fell by 4%. Secondhand Grade A availability fell by 29% due to 23,500 sq ft of lettings at 3 More London and Shackleton House, 4 Battle Bridge Lane. Overall availability in the 2nd Quarter will rise due to the completion of 788,000 sq ft in on-site developments such as The Place, 25 London Bridge Street, Cottons Centre, Hays Lane, 1 London Bridge and The Crane Building, 22 Lavington Street. Unless there is substantial early Take-up of this new stock, these buildings will drive the Availability Rate for the next few quarters. A twin track Southbank market will continue with New and Refurbished availability increasing, then falling back as stock is taken-up, whereas Secondhand availability will remain relatively low despite strong churn. Figure 2: Quarterly Office Availability sq ft 1,400,000 1,200,000 1,000, , , , , Secondhand Grade A Secondhand Grade B New Refurbished Source: Farebrother 8 farebrother.com

9 Future Supply 788,000 sq ft of new supply due in the 2nd Quarter 2013 A total of 788,000 sq ft of New and Refurbished space is expected in the 2nd Quarter After the delivery of an exceptional 621,000 sq ft of New space in the 4th Quarter in The Shard and One Valentine Place, the only completed New building in the 1st Quarter 2013 was at Grange Gardens, Grange Walk where Union Developments has constructed a five-storey residential development that includes 10,518 sq ft of office space on the Lower Ground and Ground floors. The completion of the Sellar Property Group and Qatari Investment Authority s 429,000 sq ft The Place, 25 London Bridge Street is scheduled for the 2nd Quarter The Crane Building, 22 Lavington Street, is also due to complete towards the end of the 2nd Quarter delivering 48,550 sq ft of Refurbished space. Southbank headquartered architect Allies & Morrison has designed the building on a historic site for developers Dorrington plc. The building, with six upper floors, also incorporates two large roof terraces. At the beginning of the 1st Quarter, CIT and its joint venture partner Saudi-based Jadwa Investment, commenced construction on the site of the Kings Reach development. The scheme will be marketed as South Bank Tower. The development, designed by Kohn Pedersen Fox, includes the refurbishment of the 30 storey tower and extension by six additional floors to create new residential apartments. The mixed-use scheme will include 173 luxury apartments, 72,000 sq ft of retail space and 370,000 sq ft of offices, completing in the 4th Quarter During the 2nd Quarter, the redevelopment scheme at Elizabeth House, 39 York Road, near Waterloo Station, was not called in by the Secretary of State for Communities and Local Government following the grant of Planning Permission by the London Borough of Lambeth in the 4th Quarter. The owners, Chelsfield and London & Regional Properties, will develop a North and a South Building of 29 and 10 storeys respectively providing 142 homes and over 900,000 sq ft of office accommodation designed by David Chipperfield. There has not been any firm indication as to the likely start or anticipated completion date of the scheme. With the anticipated transformation of the Shell Centre campus, the Waterloo area will be the focus for regeneration in the medium-term on Southbank. Accompanying Public Realm improvements will also greatly enhance the area and stimulate further investment in the wider Southbank market. Figure 3: Future Supply on Southbank s sq ft Delivered Space Speculative Construction Hidden Supply Source: Farebrother farebrother.com 9

10 Investment Investment turnover 20% up at 294m and 69% up on Long-term quarterly average of 95m Alastair Hilton Southbank has historically achieved relatively low turnover figures on account of its market size (18.7m sq ft) and therefore liquidity. The 10 year, quarterly average is 95m, so the last two quarters paint a very positive picture. The 1st Quarter closed out at 294m, a 20% increase on the 4th Quarter, which closed out at 244m. The majority of 1st Quarter turnover can be accounted for in two individual transactions. The largest was the sale of Palestra, 197 Blackfriars Road. The Will Alsop designed scheme of circa 300,000 sq ft is occupied by TFL and the lease was regeared, extending the term certain to The price paid by DEKA reflects a Net Initial Yield of 5.09% and a Capital Value of 743 per sq ft. Whilst this pricing was driven by the security and length of the income, it does demonstrate that the Overseas market will consider Southbank and more to the point, assets outside the prime areas of Southbank. Looking ahead, we anticipate further Overseas Investor activity as we move into the 2nd Quarter, on account of increased liquidity in the market. The other significant transaction was the purchase by ITV of its own London Television Centre, Kent House, Upper Ground. The building has been occupied by the broadcaster since 1969 so it is particularly bespoke. It was expected therefore that they would look at buying in the freehold interest. The reported price paid was 56m which reflects a Net initial Yield of 3.38% on the original income and a Capital Value of 214 per sq ft. The buildings sit on a site of 2.5 acres. There is at present a considerable level of Investor interest in the Southbank area. This interest covers all sectors, so UK Property Company, UK Institutional and Overseas. Key drivers will be the perceived performance that can be generated through the lower entry prices, when compared with the other Central London markets. As an area of change it supports value add strategies, particularly when aligned with the infrastructure improvements. Occupationally it is maturing and this in turn is offsetting some of the perceived weaknesses that the Southbank market has. Owner-occupier transactions remained a component of the Investment market with ITV s acquisition of its London Weekend Television Centre, Kent House, Upper Ground, from the Coal Pensions Authority for 56m. It was the second largest transaction in the 1st Quarter Selected Investment Transactions on Southbank Address Size Vendor Purchaser Reported sq ft net Price m Palestra, 197 Blackfriars Road 300,517 RLAM & Blackfriars Investments Ltd DEKA The London Television Centre, 261,198 Coal Pension Properties Ltd ITV 56.0 Kent House, Upper Ground 10 Leake Street 20,877 Rivercastle London & Regional Rushworth Street 20,535 Tiger / NAMA GMS Estates 4.25 Metro House, Blackfriars Road 8,116 Raj Thacker Private 3.3 Waterloo Court, 10 Theed Street 900 Private UK Ark Housing 0.43 The Boathouse, 57 Gainsford Street 455 Private UK Premier Events 0.17 Source: Farebrother 10 farebrother.com

11 Retail Waterloo sub-market regeneration continues Josephine de Castro The focus for office regeneration around Waterloo is shared by the retail and leisure markets. The Festival Wing project for the Southbank Centre, announced in the 1st Quarter 2013, will supplement improvements made in to The Royal Festival Hall as well as the more recent upgrades to the retail offer at Waterloo Station. The Festival Wing scheme runs along the western side of Waterloo Bridge and incorporates the Queen Elizabeth Hall, Purcell Room and Hayward Gallery. The proposals outlined in the Feilden Clegg Bradley Studios designed scheme, include their refurbishment and the addition of a glazed atrium to cover the space between them. Further, a new liner building will run along Waterloo Bridge Road providing further educational, cultural and commercial space, including two restaurant units. The transformation is scheduled to commence in the Autumn of 2014 and is anticipated to be complete by early The Southbank Centre is already home to branded retail and restaurant operators including EAT, Giraffe, Wagamama, Ping Pong and Strada. The Company of Cooks has operated sites within the Centre, including Concrete, the Central Bar Terrace, the Terrace Cafe and the Garden Cafe and Bar and is set to take additional space in the complex, with terms agreed. It is expected to open in the 3rd Quarter The continued improvements to the public realm and commercial offer in and around Waterloo Station and the Southbank Centre, have reinforced the market s view that the Southbank is a leading Central London destination. More retailers and restauranteurs are set to take space in this Southbank market. The hope is that surrounding retail streets such as The Cut and Lower Marsh will also benefit. Design Study of Festival Wing at Southbank Centre with new steps, Central Foyer and Glass Pavilion. The Festival Wing project for the Southbank Centre, announced in the 1st Quarter 2013, will supplement improvements made in to The Royal Festival Hall as well as the more recent upgrades to the retail offer at Waterloo Station farebrother.com 11

12 Key Contacts Other Research also available Alistair Subba Row Senior Partner, Investment Alastair Hilton Investment London Midtown Office & Retail Market Quarterly Reports This research is available in.pdf format. Please to receive a copy. 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 Farebrother. All rights reserved. Farebrother IPD London Midtown & Southbank Investment Reports Julian Hind Office Leasing, Sales & Development jhind@farebrother.com Charlie Thompson Office Leasing, Sales & Development cthompson@farebrother.com Malcolm Brackley Lease Advisory, Valuation mbrackley@farebrother.com Jeff Norris Business Rates jnorris@farebrother.com Andrew Glover Property Management aglover@farebrother.com Josephine de Castro Retail Leasing, Sales & Development jdecastro@farebrother.com Farebrother 27 Bream s Buildings London EC4A 1DZ For further information please call +44 (0) farebrother.com Follow us on Julian Chappell Corporate Real Estate jchappell@farebrother.com