The. London South Bank. Office & Retail Markets Q A different view of South Bank More Depth, More Insight. A member of

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1 The London South Bank Office & Retail Markets Q A different view of South Bank More Depth, More Insight A member of

2 Discover South Bank On pages 6 to 9, we outline the exciting change in Farebrother s South Bank research, breaking down and digging further into Central London s most dynamic market. Bankside London Bridge Waterloo Borough West Bermondsey Vauxhall BURGESS PARK VAUXHALL PARK Oval KENNINGTON PARK Commentary 1 The Transformation of London s South Bank 4 A Different View of South Bank 6 Stock 10 Take-up 12 Availability 14 Future Supply 16 Investment 18 Retail 22 St Havil Inside this edition... ad les Ro St. Gil n St ingto Elm r St Medla Way ercial Nay Comm Way ercial Comm 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 Midtown and South Bank office and retail markets. Farebrother s extensive research is aimed at providing a short, sharp insight into what are two 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 Midtown and Southbank markets. Definitions South Bank - 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 Long-Term - average calculated since the 1st Quarter 2005

3 Commentary South Bank s record year of Take-up and Investment turnover is expected to continue into 2014, but concerns over sustaining mid-long term growth persist South Bank has had an exceptional year of Take-up following numerous high profile lettings throughout the year reaching a total Annual Take-up of 1.64m sq ft in (164) deals; levels not seen since The South Bank market continues to go from strength to strength, and shows no signs of weakening, at least not in the short-term. The 3rd Quarter was dramatically highlighted by two major deals, the letting of the entire 430,167 sq ft at The Place to News UK and Ogilvy & Mather s letting of 226,343 sq ft at Sea Containers, Upper Ground. Take-up in the 4th Quarter 2013 totalled 337,416 sq ft, and though down on an exceptional 3rd Quarter, was 59% higher than the five-year quarterly average (212,259 sq ft) rounding off a standout year for South Bank. Unlike the 3rd Quarter, the largest letting in the 4th Quarter was just 30,000 sq ft and in line with the current trend for South Bank; demonstrating remarkable strength with a high volume of mid-sized transactions completed by a range of Occupiers taking space in a variety of both New, Refurbished and Secondhand buildings. This reinforces the rise of this vibrant market. With the Occupier demand still high, rents of to psf are being achieved more frequently, particularly in New, Refurbished and Secondhand Grade A Supply. The highest reported rent achieved in 2013 was psf at 1 London Bridge. There is currently circa 160,000 sq ft under offer in South Bank so strong levels of Take-up are expected to continue through Availability fell 12% on the 3rd Quarter 2013 from 1.42m sq ft to 1.25m sq ft lowering the Availability Rate from 7.2% to 6.4%, however, Supply increased marginally on the year by 5%. It is worth mentioning that without the 514,342 sq ft available at The Shard, South Bank s Availability Rate would in fact be a very low 3.8%. New and Refurbished buildings account for 66% of current Availability making it a very top-heavy market which traditionally has a good churn of secondary space. Julian Hind Head of Leasing, Sales & Development New and Refurbished space accounted for 62% of lettings in 2013, levels last seen in 2007 when PWC Pre-let the entire 376,000 sq ft in 7 More London and Southwark Council Pre-let 185,000 sq ft at 160 Tooley Street. South Bank s Take-up has been predominantly Secondhand until recently since the completion of The Shard in the 3rd Quarter Prior to this there was a lack of any New or Refurbished Availability in South Bank.

4 The hugely exciting and visionary Garden Bridge project designed by Thomas Heatherwick will provide further impetus to South Bank Secondhand Grade A space is currently at the lowest level on record (58,757 sq ft). Reinforcing the view that Occupiers consider South Bank as a credible and cost-effective Central London location, pulled into focus by high-quality New buildings which can command high rents. This in turn is putting pressure on the supply of good quality Secondhand Grade A space which continues to let well. UK Investors represented 99% of the 4th Quarters turnover, however, 2013 was driven in equal measure by Overseas and UK Investors, which sets South Bank apart from the other Central London markets. With the impending sale of More London in the 1st Quarter 2014 for 1.7bn, the record will be superseded once more, reinforcing South Bank s emergence as one of the key Central London markets. Investment activity in the 4th Quarter 2013 reached 615m in nine transactions, making it a record quarter and rounding off a record year with an Annual Investment turnover of 1.3bn. This is four times higher than the five-year Annual average of 347m. While we expect the market to enjoy a prosperous 2014, the paucity of New stock coming on to the market combined with the lack of mid-long term pipeline is a concern and will potentially hinder the current growth. We are delighted to publish for the very first time, a new detailed and in-depth set of research, breaking the South Bank down into five constituent and diverse parts. Farebrother research has changed to meet the challenges and diversity of Central London s most exciting market. In the 4th Quarter 2013 Thomas Heatherwick s proposed Garden Bridge received Treasury backing, pushing this visionary idea a step closer to becoming a reality and providing further impetus to both the Midtown and South Bank Office and Retail markets 2 farebrother.com

5 Q4 13 Overview % change on Q3 13 Total Availability 1.25m sq ft -12% Availability Rate 6.4% -0.8% pt Availability - New & Refurbished 830,206 sq ft -14% Availability - Secondhand 423,479 sq ft -7% Speculative Construction 407,382 sq ft -6% Take-up 337,416 sq ft -61% Investment 615m +259% 2013 % change on 2012 Annual Take-up 1.64m sq ft +123% Annual Investment 1.3bn +280% farebrother.com 3

6 The transformation of London s South Bank Over the last twenty years, South Bank has established itself as one of Central London s most dynamic commercial and cultural hubs, offering a unique mix of new large scale office developments right alongside trendy warehouse conversions, museums, galleries and a large residential population. Over 150 million passengers pass through Waterloo and London Bridge annually. South Bank includes some of the most visited attractions in the UK, including The Southbank Centre which attracts over 22 million visitors each year and Tate Modern which sees 5.3 million visitors a year. This combined with a number of independent retailers, food markets and fine restaurants make South Bank an attractive and vibrant Central London market over seven days, not just an office location. South Bank, which was once derided as London s back-office playing host to a majority Occupier base of Associations, Charities and QUANGO s, is now a popular destination for an impressive list of blue-chip companies who are headquartered there. Over the last fifteen years South Bank has been the focus of some of the largest regeneration projects in Central London, gathering momentum when More London completed. This multi-building campus development spread over 13 acres attracted big names into the area, adding to South Bank s already diverse Occupier mix. This combined with the opening of the Jubilee Line extension in 1999 has proved to be the catalyst for an influx of tenants such as, PWC, RBS and the GLA to South Bank. Occupiers have relocated from London s traditional cores in search of a higher quality working environment without the need to compromise on build quality. South Bank, which can provide large amounts of cost effective New and Refurbished space, has recently benefitted from the supply constrained markets in the rest of Central London. 1980s 1990s Isolated, single building development London Bridge City Borough High Street Dearth of activity Catalyst for development The Globe Jubilee Line Tate Modern Borough Market 4 farebrother.com

7 Large scale development Striking architecture More London Palestra Bankside 1, 2 & Tooley Street Bermondsey Square Infrastructure Global buildings London Bridge Quarter Blackfriars Station London Bridge Station 2000s 2010s More recent development schemes building on the success of More London and Bankside 1, 2 & 3 include London Bridge Quarter, a mixed-use scheme including over 1m sq ft of offices and incorporating the world-renowned 72 storey Shard, the tallest building in Western Europe and the The Place which was the chosen destination for News UK to relocate and consolidate their subsidiaries under one roof in the 3rd Quarter As well as commercial success, South Bank offers a worldbeating array of cultural and artistic attractions such as, Shakespeare s Globe Theatre, The London Eye, Borough Market and The Royal Festival Hall, allowing South Bank to continue to benefit enormously as an alternative to the West End and City markets as Occupiers seek a more vibrant working environment, enhanced by a rich blend of restaurants, retail and contemporary culture. South Bank has unrivalled transport links with nine mainline and underground stations including Waterloo station, the UK s busiest with an estimated 94 million passengers a year. Commuters are well served by a variety of transport options via the Jubilee, Northern and Waterloo & City lines through Southwark, Waterloo and London Bridge underground stations. London Bridge Station is to be completely re-built by the end of the decade, increasing capacity from 60 million to 75 million passengers. On completion, the concourse will be the largest in the UK, creating 66% more space with new retail and station facilities. South Bank is a truly mixed-use market, set apart from its neighbours North of the river and home to an impressive list of Global Occupiers just as diverse as the buildings that contain them. South Bank is very much a two-tier market where Occupiers can find large amounts of New and Refurbished cost effective space or small cheap units of Secondhand space ideal for start-ups and not for profit enterprises. farebrother.com 5

8 The London South Bank Office & Retail Markets Q A different view of South Bank Bankside London Bridge Waterloo Borough West Bermondsey Vauxhall Vauxxha Vauxha Vaux Vauxh hall BURGESS PARK VA AUXHALL UX UXH L PARK P VAUXHALL Oval Ov va val KENNIN NGT N GTON PARK K KENNINGTON One common observation which was borne out by an independent Perception Study of South Bank commissioned by Farebrother. The challenge has always been how to monitor the performance of high-quality Riverside developments versus the rest of South Bank. South Bank is a key Central London market for Investors and Occupiers and deserves a deeper analysis. In response to this feedback, we have decided to split the existing SE1 boundary into five submarkets; Bankside, London Bridge, Waterloo, Borough West and Bermondsey enabling us to deliver the most detailed research on one of the capital s fastest growing destinations, with an unprecedented analysis 6 farebrother.com of Take-up, Availability, Future Supply and Investment over the last five years. Furthermore, we have examined the building stock in South Bank to uncover any trends within the five submarkets and analysed the age, grade and quantity of the stock. ay all W merci Com South Bank is the most diverse 19.7m sq ft of stock in Central London ranging in specification from large scale New builds like the towering steel and glass of The Shard, sitting alongside Victorian warehouse conversions and the village community atmosphere of The Cut and Lower Marsh. This gives South Bank its remarkable character which visitors and Occupiers alike love about the area, setting it apart from any other Central London market. South Bank is the most diverse office market in Central London, in which five distinct submarkets have emerged ylo Na The South Bank market has evolved considerably in recent years and has enjoyed a record breaking 2013 in terms of Investment turnover and office Take-up. As the provider of dedicated analysis of the South Bank market, Farebrother recognise the need for a more analytical approach to offer a deeper insight into this rapidly growing market which identifies business opportunities and threats for our clients and local stakeholder communities.

9 Bankside is truly a seven day district with popular attractions such as Tate Modern, Borough Market and The Globe Theatre which are easily accessible through excellent transport connections from the two stations bookending the submarket, Southwark and the rejuvenated Blackfriars with its new Southern entrance. Bankside would benefit from more retail to push the river facing success backwards. The Blue Fin Building, Southwark Street (left) and Palestra, 197 Blackfriars Road (below) are examples of high-profile buildings found in Bankside, both of which were Pre-let by IPC Media (2004) and Transport for London (2006) respectively. Bankside is a high profile, predominantly mixed-use destination and with 29% of the total stock in South Bank it is the largest of the five submarkets. Although it is one of the smallest submarkets by square footage, it is the most developed with 5.6m sq ft of stock encompassing much of the active and development pipeline stock, having already been a successful Pre-let territory. London Bridge has 5.1m sq ft of stock making it the second largest South Bank submarket with 26% of its total stock. London Bridge is the highest profile submarket and has experienced three waves of office development, increasing in size and ambition each time. The river fronting London Bridge City development with the 87-storey Shard towering behind which forms part of the London Bridge Quarter development. The first ever Shangri-La Hotel in London is due to open in 2014 occupying the 34th -52nd floors of the tallest building in Western Europe The area is fundamentally controlled and influenced by three very different organisations (Network Rail, St Martins Properties and Borough Market Trustees) It is frequently compared to the City office market due to more relevance and reference as it is only a short distance to the City Core via London Bridge. The next stage for London Bridge is to improve the stock South of the station and fronting Borough High Street. The wharves east of Tower Bridge which are not in residential use do offer a strong secondary market.

10 Waterloo is London s gateway from the South and accounts for 25% of South Bank s total stock. Waterloo is different to other submarkets in that it falls within the borough of Lambeth whereas the rest are in Southwark. Although centrally located with the UK s busiest railway station. It is one of London s poorest quality office markets. Change of land use has influenced the market more than any other factor, with loss of B1 space around Waterloo undermining the area s potential as a thriving work location. Much needed office development schemes such as the redevelopment of Elizabeth House and The Shell Centre are subject to frustrating delays and stalled consents. The recent rejuvenation of Waterloo Station has been boosted by the retail offer in the area and should attract further Investment, however, the next stage has to be improvements through to York Road as this area will soon act as the gateway to Nine Elms and the Embassy Quarter. Aerial view of Waterloo, highlighting the railway station and the two potential development campuses at Elizabeth House and The Shell Centre, either side of York Road

11 London Southbank University is one of the largest occupiers in the Borough West submarket Bermondsey has 10% of South Bank s stock but with no distinct office market or location. It is predominantly characterised by warehouse and period building conversions. Change of use to residential has been a major factor. An expanding and diverse creative and design led hub situated around Bermondsey Street highlights the type of Occupiers that could relocate to South Bank and is already home to cultural offerings with galleries such as the White Cube. Some of the largest office buildings in Bermondsey are, Newington Causeway, which is a Secondhand Grade B 80 s building totalling 120,000 sq ft and The Leathermarket, Weston Street, which is a Victorian warehouse conversion which totals 114,000 sq ft and epitomises the style of buildings that characterise the Bermondsey submarket. Top White Cube Gallery on Bermondsey Street Bottom Woolyard, Bermondsey Street, is a part new, part refurbished former Victorian warehouse which epitomises the style of buildings found in the Bermondsey submarket Above The London Fire Brigade Headquarters, 169 Union Street. Originally built as a Post Office sorting office in 1905, it then underwent refurbishment in 2000 and is currently one of the largest office buildings in the Borough West submarket Borough West is arguably South Bank s most important future market, linking Waterloo and Bankside to Elephant & Castle, accounting for 10% of total stock in South Bank. It is made up predominantly low rise office schemes with generally small floor plates of 1960 s and 1970 s blocks. South Bank University is an important Occupier of much of the Southern portion of the submarket, with residential Local Authority and Housing Association type stock dominating the remaining area. Southwark Council s redevelopment plans for Blackfriars Road should dramatically improve the amenities and public realm of the area, particularly towards the Southern end near Elephant & Castle. farebrother.com 9

12 Stock Fig.1 South Bank Submarket stock by Grade - 4th Quarter million sq ft Bankside London Bridge Waterloo Borough West Bermondsey New Refurbished Secondhand Grade A Secondhand Grade B South Bank stock is comprised predominantly of Secondhand buildings, in particular Secondhand Grade B accounting for 69% of total stock. The majority of Secondhand Grade A stock can be found in Bankside and London Bridge in buildings such as, The Blue Fin Building, Southwark Street, Bankside 2 & 3 and the More London campus. There is 1.2m sq ft of New stock in South Bank but this is largely at The Shard and The Place, that form London Bridge Quarter. Supply of New stock is practically nonexistent in Bankside and Waterloo. Bankside has a small amount of Refurbished stock from recent development works at The Harlequin Building, 65 Southwark Street and The Crane Building, 22 Lavington Street, however, neighbouring Waterloo has no Refurbished stock and just a small amount of Secondhand Grade A resulting in 95% of Waterloo stock being Secondhand Grade B. Borough West and Bermondsey are both majority Secondhand Grade B markets with a small amount of New and Refurbished stock. There is 19.7m sq ft of office stock in South Bank, of which 28% is ranged 1,000-5,000 sq ft in 175 buildings. The majority of these buildings are in Bermondsey situated along Long Lane, Bermondsey Street and Old Kent Road. At the larger end of the scale there is a total of forty buildings which are larger than 100,000 sq ft, 15 of which are in Bankside and 12 are in London Bridge. The river fronting submarkets, Bankside, London Bridge and Waterloo hold the majority (80%) of South Bank stock Fig.2 South Bank Submarket stock by Age - 4th Quarter million sq ft Bankside London Bridge Waterloo Borough West Bermondsey Pre WW2 WW s s 21st Century 10 farebrother.com

13 90% of South Bank stock is Secondhand Bankside has a total of 151 buildings making it the second largest submarket by number of buildings. The majority (26%) of buildings within Bankside are 5,000-10,000 sq ft, however, 10% of Bankside stock is over 100,000 sq ft. London Bridge has a total of 119, 34% of which are 1,000-5,000 sq ft and 5% are over 100,000 sq ft. Since London Bridge City was developed in the 1980s, London Bridge has predominantly been an office led submarket. Recent developments have transformed the submarket, however, the main problem now is increasing connectivity between the shiny new London Bridge Quarter development and Borough Market, one of the largest and oldest food markets in London. Waterloo has a great cultural offer and excellent positioning and connectivity within Central London but is lacking good quality office stock. Waterloo should have large high profile buildings just like its neighbours, Bankside and London Bridge, however, B1 stock has disappeared over the years due to significant amounts of change of use. There are 61 buildings in Waterloo making it the smallest submarket by number of buildings, evenly spread across the size bands. Compared to the other submarkets, all of which have over 100 buildings, it is clear to see the disadvantage Waterloo already faces in terms of actual building stock available to redevelop. Borough West has 123 buildings, 74% of which are sub 30,000 sq ft making it a predominantly low-rise submarket. There are only two buildings over 100,000 sq ft. Lack of office space could prevent growth of South Bank business district southwards Bermondsey has a total of 164 buildings which is the largest proportion in South Bank, however the majority (40%) of stock is between 1,000-5,000 sq ft and predominantly low-rise. Bermondsey has the potential to be a thriving seven day district similar to the likes of some City Fringe destinations. Bermondsey Street is already home to a number of Creative Occupiers and has Arts and Cultural offerings with galleries such as the White Cube. The majority of South Bank stock (36%) was built in the 21st Century, 82% of which is in Bankside and London Bridge, however, only 7% of buildings in Waterloo were built in the 21st Century, making it the submarket with some of the oldest buildings in South Bank. 55% of stock in Waterloo was developed in the period WW which is largely accounted for in two buildings, Elizabeth House and the Shell Centre, York Road. There is a pronounced imbalance between the most mature markets at London Bridge and Bankside, which are already attracting companies from The City, West End and Canary Wharf - and Waterloo, Bermondsey and Borough West, where fundamentally, it is a shortage of good quality office space that is preventing the growth of this business district southwards. There is a tremendous opportunity for landlords to unlock the demand from Occupiers across these areas. They key will be appropriateness: while Waterloo could support the type of office development we have seen at London Bridge and Bankside; Bermondsey and Borough West require smaller, flexible space designed for the SME community, as has been delivered in the City s fringe locations. The vibrancy of South Bank borne out of the mix of retail, residential and office space, the cultural heritage and nightlife, means it will continue to attract occupiers, but only if the right space is available. Grade (sq ft) New Refurbished Secondhand Grade A Secondhand Grade B Total Bankside 5, ,035 1,592,936 3,866,949 5,615,517 London Bridge 1,028, ,362 1,959,254 1,511,476 5,076,228 Waterloo 8, ,198 4,704,892 4,959,465 Borough West 56,554 30, ,864 1,802,615 2,026,504 Bermondsey 63,612 46, ,296 1,656,440 2,007,975 Total 1,162, ,495 4,176,548 13,542,371 19,685,689 farebrother.com 11

14 Take-up South Bank has had an exceptional year of Take-up following numerous high profile lettings throughout the year. A further 337,416 sq ft let in the 4th Quarter 2013 resulting in total Annual Take-up reaching 1.64m sq ft in 164 deals; levels not seen since New and Refurbished stock accounted for 62% of total Take-up in 2013 in 31 lettings which was more than double the levels seen in A record year of Take-up in South Bank totalling 1.6m sq ft, more than double the five-year Annual average of 706,521 sq ft Fig.3 Annual Take-up by Age Fig.4 Annual Take-up by Submarket million sq ft 1.8 million sq ft Pre WW2 WW s s 21st Century Bankside London Bridge Waterloo Borough West Bermondsey The disparity in the quality of office space available across the five South Bank submarkets has meant a different occupier profile has emerged at each. A total of 1.32m sq ft has been let in Bankside since 2009 making it the submarket that has had the most Take-up in the last five years, 60% of which has been to Occupiers from the TMT sector (Technology, Media and Telecoms). Of this Take-up the top three largest Occupiers by sq ft in Bankside are all from the TMT sector, Ogilvy & Mather who leased 226,343 sq ft at Sea Containers, 20 Upper Ground in the 3rd Quarter 2013, United Business Media who took a Pre-let of 103,452 sq ft at 240 Blackfriars Road in the 1st Quarter 2012 and Detica who took 40,322 sq ft at The Blue Fin Building, Southwark Street in the 3rd Quarter There has been 1.28m sq ft of lettings in London Bridge making it the submarket with the second largest Take-up since 2009, with an Occupier base predominantly made up of TMT, accounting for 50% of total Take-up. However, London Bridge has a large Professional occupancy due to a number of firms such as PWC, Lawrence Graham and EY having a number of holdings in More London and London Bridge City. The lack of good quality stock in Waterloo stands out when looking at total Take-up in the last five years, totalling just 343,617 sq ft. Despite accounting for a quarter of office stock, Waterloo is the smallest submarket in terms of Take-up representing just 10% of South Bank s total Take-up over the past five years. Waterloo has become a hub for non-profit organisations, with 44% of the 343,000 sq ft of office space let over a five year period occupied by charities, associations and QUANGOs, who are drawn to the cheaper, lower grade space and excellent transport links. A total of 435,361 sq ft has been let in Borough West and 593,359 sq ft in Bermondsey over the last five years with the TMT sector being the driver for leasing activity in both submarkets accounting for 35% and 18% of total Take-up respectively. Given that the vast majority of office buildings in these markets are in the 1,000-5,000 sq ft size brackets, these markets are more attractive to growing companies in this sector rather than mature corporates. Borough West is also home to a significant number of Charities & Associations (17%), while Bermondsey shows a relatively even spread between the TMT (18%), Legal (16%) and Professional (15%) sectors. 12 farebrother.com

15 The 23,648 sq ft letting during construction to Boodle Hatfield was the second reported deal at Great Portland Estates 240 Blackfriars Road Selected office lettings in South Bank 4th Quarter 2013 Occupier Address Sq ft Grade Reported Rent psf Network Rail Cottons Centre, Hay's Lane 30,000 Refurbished Cheil Europe Ltd The Crane Building, 22 Lavington Street 28,443 New Conf. Guy s & St Thomas NHS Foundation Trust 200 Great Dover Street 25,223 Refurbished Boodle Hatfield 240 Blackfriars Road 23,648 New Puma Sea Containers, 20 Upper Ground 23,319 Refurbished Zoopla The Harlequin Building, 65 Southwark Street 14,591 Refurbished ATG Media The Harlequin Building, 65 Southwark Street 13,228 Refurbished The Challenge Network (MTV) Elizabeth House, 39 York Road 13,094 Secondhand Grade B Conf. Addison Design & Associates 49 Southwark Bridge Road 11,590 Refurbished Fieldglass 1 Valentine Place 7,020 New Conf. Fig.5 Annual Take-up by Grade million sq ft (projection) Pre-lets New Refurbished Secondhand Grade A Secondhand Grade B

16 Availability Supply remains stable, without the Shard it would have the lowest Availability Rate in Central London, at 3.8% Overall Availability at the end of the 4th Quarter 2013 fell by 12% on the 3rd Quarter, falling from 1.42m sq ft to 1.25m sq ft, which equates to a decrease in the total South Bank Availability Rate from 7.2% to 6.4%. The decrease was primarily due to there being no development completions during the 4th Quarter, combined with another strong quarter of Take-up. The Availability of New and Refurbished space fell 14% in the 4th Quarter 2013 due to a handful of lettings including, a total of 39,286 sq ft at The Crane Building, 22 Lavington Street, two lettings totalling 27,819 sq ft at The Harlequin Building, 65 Southwark Street and two lettings at 33,757 sq ft at Cottons Centre. Secondhand Availability decreased by 7% from 456,844 sq ft in the 3rd Quarter 2013 to 423,479 sq ft in the 4th Quarter, with a significant reduction in Secondhand Grade A supply, down 67% down on the 4th Quarter It is currently at the lowest level on record with just 58,757 sq ft available. The lack of Secondhand Grade A supply has always been a problem in South Bank, as the demand is high for good quality secondary space. New Availability accounts for 44% of total South Bank supply, 93% of which can be found in London Bridge largely due to the 514,312 sq ft available at The Shard, which, if excluded would result in South Bank s overall Availability Rate being 3.8% and thereby the lowest in Central London. Refurbished stock accounts for 22% of Availability where the majority can be found in London Bridge in two recently refurbished buildings, 1 London Bridge and Cottons Centre, Hay s Lane. Secondhand Grade B accounts for 29% of Availability with the largest proportion in Waterloo. Fig.6 South Bank Annual Availability by Grade 1.5 million sq ft (projection) New Refurbished Secondhand Grade A Secondhand Grade B 14 farebrother.com

17 Fig.6 South Bank Availability by Submarket 4th Quarter 2013 Fig.7 South Bank Availability by Submarket 4th Quarter million sq ft Bankside London Bridge Waterloo Borough West Bermondsey New Refurbished Secondhand Grade A Secondhand Grade B London Bridge accounts for 65% of total South Bank Availability Fig.8 South Bank Availability by Age 4th Quarter million sq ft Bankside London Bridge Waterloo Borough West Bermondsey Pre WW2 WW s s 21st Century farebrother.com 15

18 There is currently 407,382 sq ft of space Under Construction, with the current pipeline reaching its end in 2015, the big question is where the next wave of development will be provided? CIT and joint venture partner Saudi-based Jadwa Investments mixed-use scheme, South Bank Tower, due for completion in the 3rd Quarter 2015 will deliver circa 225,000 sq ft of office space and 191 luxury apartments. The scheme also includes 36,000 sq ft of retail which will cover the majority of the perimeter of the site 16 farebrother.com

19 Future Supply After a recent wave of Pre-lets and lettings during construction of New and Refurbished stock in South Bank the question causing concern is whether the development pipeline can sustain this level of demand. There is currently 407,382 sq ft speculative development Under Construction in South Bank, of which 182,598 sq ft is expected to complete in the 1st Quarter The remaining 40,412 sq ft at Sea Containers, Upper Ground is already under offer, leaving only 120,254 sq ft at 240 Blackfriars Road and 21,932 sq ft at Friars House, 160 Blackfriars Road. If strong Take-up levels continue into 2014 as we anticipate this will put pressure on South Bank s rapidly decreasing Availability Rate of 6.4% as there are no more development completions expected for the remainder of The first wave of regeneration to Blackfriars Road is already underway and making good progress. Sea Containers, Upper Ground and 240 Blackfriars Road, which both complete in the 1st Quarter 2014, have both experienced strong Occupier interest and let large amounts of space before completion. South Bank Tower which is positioned directly behind Sea Containers is also underway and will deliver 224,784 sq ft in the 3rd Quarter There is a real asset management opportunity for landlords to exploit the South Bank s renaissance by investing in existing stock to increase income. Good examples of where this strategy is reaping attractive rewards are Cottons Centre, Sea Containers the Harlequin Building and the Crane Building.. Major development is desperately needed around Waterloo where 95% of stock is of substandard Secondhand Grade B. Much needed mixed-used schemes such as The Shell Centre and Elizabeth House redevelopment on York Road are encountering frustrating planning delays which would totally transform Waterloo if approval were granted. Fig.9 Development Activity in South Bank 900,000 sq ft 800, , , , , , , , Completed Pre-let Under Construction There were no completion in the 4th Quarter 2013 the next wave of new schemes will be delivered in the 1st Quarter 2014 from the remainder of Sea Containers and 240 Blackfriars Road farebrother.com 17

20 Investment Alastair Hilton A record year of Investment turnover in South Bank totalling 1.3bn Whilst South Bank is the smallest of the four recognised Central London markets, its position within the context of Central London is now well established. As a result, market activity across Central London will have a very direct influence on South Bank. Capital inflows and therefore trading for Central London finished at circa 18bn in terms of value turnover, which reflects, its highest level since The drivers behind this are well publicised, with Overseas Investors becoming the dominant Investors, however, you will see from the figures below that South Bank still holds a significant attraction to UK Investors. Fig.10 Investor Breakdown - 4th Quarter 2013 Vs. Total m UK vs 5.2m Overseas 859m UK vs 345m Overseas Investment Source % by Value in Q Investment Source % by Value in Total 615m Total bn 44 UK Fund UK Private / Other UK Property Company Overseas European Overseas Middle Eastern Overseas Far Eastern 6 16 Overseas Other Owner Occupier Undisclosed 18 farebrother.com

21 Selected Investment Transactions in South Bank Address Sq ft Vendor Purchaser Reported Price m Bankside 2 & 3 453,904 Land Securities M&G Real Estate Elephant & Castle Shopping Centre, New Kent Road 327,000 St Modwen / Salhai Real Estate Delancey / APG Camelford House, Albert Embankment 240,000 Marcol Thames Water Park Street 80,000 Reuben Brothers Delancey The Harlequin Building, 65 Southwark Street 53,847 Rockspring / Moorevale Scottish Widows (HIFML UK Property Fund) Brandon House, 180 Borough High Street 42,229 Chantrey Ltd Crest Nicholson Ltd Albert Embankment 20,290 Imperial Resources SA Berkeley Homes (St James Group) The largest transaction of the 4th Quarter 2013 was M&G Real Estates purchase of 453,904 sq ft of offices at Bankside 2 & 3 for 315m from Land Securities farebrother.com 19

22 Fig.11 Vendor Breakdown 4th Quarter 2013 Vs. Total m UK vs 0m Overseas 1.1bn UK vs 158m Overseas Vendor Source % by Value in Q Total 615m 89 Vendor Source % by Value in Total 1.3bn 48 3 UK Fund UK Private / Other UK Property Company Overseas European Overseas Middle Eastern Overseas Far Eastern Overseas Other Owner Occupier Undisclosed There is still strategic value to be had, when put alongside the other markets, however, due to the limited size of the market, its values are moving ahead quickly. Furthermore, whilst the general perception has been that South Bank has had a way to go in terms of its evolution, if you consider the high profile occupational transactions, plus the numerous capital projects, then one can argue that it has now reached a maturity comparable with the other markets. This is confined to the river facing areas, so there remains considerable scope for the market to evolve southwards. Investment activity in the 4th Quarter 2013 reached 615m in nine transactions, making it a record quarter and rounding off a record year with an Annual Investment Turnover of 1.3bn in 35 transactions. UK Investors represented 99% of the 4th Quarters turnover, of which more than half was UK Institutional money with the M&G Real Estate purchase of Bankside 2 & 3 dominating. Institutional support for the South Bank market is therefore significant. With the impending sale of More London, the record will be superseded once more in the 1st Quarter 2014, reinforcing South Bank s emergence as one of the key Central London markets. UK Investors account for 66% of total Investment in 2013 compared with 26% from Overseas Investors. We are starting to see more Overseas interest in South Bank, however, and that should continue to show into farebrother.com

23 Whilst the 4th Quarter itself was dominated by UK Institutional activity, if you look at turnover throughout the year it was driven in equal measure, by Overseas and UK Investors. This sets South Bank apart from the other Central London markets, it is likely that the Overseas Investor will continue to raise its profile and become the dominant Investor in South Bank. Looking ahead we anticipate more of the same, with illiquidity in the market, having a positive effect on pricing. Waterloo is the second largest submarket in terms of Investment since 2007 with 963m invested, accounting for 28% of total South Bank Investment. Two of Waterloo s largest transactions were the sale of the Shell Centre, York Road in the 2nd Quarter 2011 for 300m and more recently the sale of the IBM Building, Upper Ground from AMSProp to Cordea Savills for 120m which took place in the 3rd Quarter The remaining three submarkets, London Bridge, Borough West and Bermondsey combined represent the final 25% of South Bank Investment. Whilst the 4th Quarter itself was dominated by UK Institutional activity, if you look at turnover throughout the year it was driven in equal measure, by Overseas and UK Investors Fig.12 Annual Investment Turnover by Submarket m 1400 Annual Turnover m , Five Year Annual Average Bankside London Bridge Waterloo Borough West Bermondsey farebrother.com 21

24 Retail Josephine de Castro South Bank has the potential to become one of London s premium leisure, shopping and dining destinations South Bank is becoming a vibrant destination, with international tourist presence and expanding office and high-end residential developments that continue to grow the area s footfall. Retail in South Bank has great potential over the next ten years as the majority of future development schemes are mixed-used, incorporating retail and hotel usage. Previously, neglected ground floor spaces and a lifeless streetscape in various areas of South Bank have been both an eyesore and an unexciting shopping experience for visitors. South Bank is, however, beginning to find its identity. The future pipeline will increase the quantity and quality of the retail stock, making it possible to attract a very different type of retailer whose requirements historically have not been met. With the completion of London Bridge station in 2018 and the opening of three 5* hotels, The Mondrian at Sea Containers, The Shangri-la at The Shard and the Hilton London Bankside, visitor numbers in South Bank are expected to rise further. Proposed plaza and public realm at Sampson and Ludgate House which will be lined with retail, include dedicated play areas for children and possibly commissioned public art 12 farebrother.com

25 Southwark Council and Network Rail are consulting on Team London Bridge s proposition to open up the Victorian arches and tunnels surrounding London Bridge station. Team London Bridge are currently in collaboration with Southbank University examining the feasibility of creating an arts, crafts and technology cluster within these unique spaces, utilising this landmark feature to compliment the flourishing communities that surround it Bankside is South Bank s largest submarket in terms of office stock and encompasses much of the active and future development pipeline. Plans for Bankside are centered around the regeneration of Blackfriars Road, proposing a cluster of tall office buildings at the Northern end which comprise five schemes fronting the river. There are eleven planned schemes in total, providing circa 75,000 sq ft of new retail space, the largest of which is Southbank Tower, a residential led mixed-used scheme undergoing extensive redevelopment with a total of 36,000 sq ft of restaurants and retail space being delivered in In the 1st Quarter 2014, the first Mondrian Hotel in Europe is due to open in Sea Containers, 20 Upper Ground with approximately 360 rooms. This luxury hotel from the New York based Morgan s Hotel Group, is also expected to feature two riverside restaurants and a modern rooftop bar. The recently approved Ludgate and Sampson House development schemes will offer 25,000 sq ft of retail space, which will be delivered in phases from 2015 until early Proposals include a large plaza that allows for pedestrian flow from Blackfriars station in a space that will be lined with retail providing access to the viaduct retail arcade. London Bridge has undergone significant redevelopment in recent years, drastically enhanced by the London Bridge Quarter redevelopment which has boosted the retail offer in the area. There are, however, to include a new underground shopping mall linked by escalators to a piazza. The London Bridge Station concourse, which on completion in 2018, will be the largest in the UK, will be delivering 66% more space including new retail and station facilities. The London Bridge regeneration challenge is to fully integrate the station and The Shard with the surrounding area. Improvements have already involved cutting new viaducts through Borough Market and improving street space for stall holders and shoppers and Southwark Council and Network Rail are now consulting on Team London Bridge s proposition to open up the derelict railway arches and tunnels that form part of the Listed Victorian viaduct along Crucifix Lane to link Hay s Galleria and Bermondsey Street. The arches and tunnels could be transformed to create active street frontages and provide access to the cavernous space beyond which offers opportunities for a multitude of uses. St. Thomas Street, Holyrood Street, Druid Street and Crucifix Lane have the potential to become thriving high streets both day and night with an offering of retail, leisure and creative art type Occupiers because of the plans for the arches and tunnels. The future pipeline will increase the quantity and quality of the retail stock, making it possible to attract a very different retailer farebrother.com 23

26 Recent lettings at Waterloo station have boosted the retail offer in the area and should attract further Investment Waterloo is already an established centre for arts and culture but it continues to lag behind its counterparts, London Bridge and King s Cross when it comes to office space and retail. The recent lettings at Waterloo Station have significantly boosted the retail offer in the area and should attract further Investment but the concourse and immediate vicinity around the station look tired and in desperate need of renovation. The next stage has to be the linkage through to York Road, however, Waterloo faces continued stalled progress with the proposed redevelopment of the Shell Centre and Elizabeth House. If the Shell Centre redevelopment plans receive approval it is set to see strong interest from a wide variety of local and international retailers, with surrounding retail parades such as Lower Marsh and The Cut also set to register a significant increase in retailer demand. Proposals include 64,000 sq ft of retail space with a public plaza and a new route connecting Waterloo station to the River Thames. This scheme alone is likely to transform the whole Waterloo submarket with its much needed commercial space making it a more desirable place to live, visit and work. An additional 30,000 sq ft of retail space will be delivered across three proposed schemes, Elizabeth House, 39 York Road, Station House, 158 Waterloo Road and residential scheme The Corniche, 20 Albert Embankment. Further opportunities for retail development will arise as the location becomes more known and established as a destination. Borough West will be a key market in South Bank s future as it links Bankside and Waterloo to Elephant & Castle where large regeneration works are planned. Retail in Elephant & Castle is already taking a similar approach to the City Fringe where planning was approved for a pop-up style retail facility on Lend Leases Heygate Estate, similar to that of the Boxpark in Shoreditch. The proposals involve forty-eight empty shipping containers which will be cheaply available to let for a maximum of five years allowing a variety of tenant uses including, studio, gallery, retail and restaurant space. Borough West is dominated by residential areas with not much retail currently on offer. The existing retail element is poor and lacks any real active frontage. A temporary facility named Artworks Elephant is expected to open in 2014 on Lend Lease s Heygate Estate in Elephant & Castle. The facility will be formed of forty-eight recycled shipping containers providing low-cost retail space for local companies and start-ups on leases for up to a maximum of five years

27 Bermondsey has plans for retail improvements around Borough High Street that will ensure the street continues to be a hub of activity and to keep its high street appeal. Plans include making it easier to walk along and across the street through a range of streetscape improvements, including improved shop fronts, better paving, reduced clutter and widened pathways. There will be a range of shops, facilities and services to meet the needs of local people, office workers and visitors. Bermondsey is another key submarket in South Bank s future as just like Borough West, it will benefit from the regeneration in Elephant & Castle which took a major step forward in 2012, when Lend Lease signed a regeneration agreement and submitted three planning applications to incorporate 3,000 new homes, new retail, business space and a new park. The site situated on the corner of Old Kent Road formerly known as Tribeca Square, is one of the mixed-used developments that sit within the heart of the Lend Lease and Southwark Council regeneration area in Elephant & Castle. Delancey, in partnership with Oakmayne Properties, acquired the cleared site as part of a consensual deal with Royal Bank of Scotland. Work has started on site and will be complete in 2016 delivering, 373 private apartments, 272 student residences, 13 new retail units, a four-screen cinema, three restaurants and a 17,000 sq ft Sainsbury s supermarket. There will also be a Market Square, which will form a focal point for the development and the wider Elephant & Castle regeneration zone. Furthermore, in the 4th Quarter 2013, developers Delancey and APG purchased the Elephant & Castle Shopping Centre and plan to redevelop the 3.5-acre site replacing the existing centre with up to 500,000 sq ft of retail space and more than 1,000 flats above. Delancey will combine the new retail and residential with its existing Tribeca Square scheme to create a wider development called South Village. With work under way on a range of schemes, a new leisure centre, and improved public spaces the entire area will be transformed into a 24-hour vibrant place for people living in the area to enjoy. Delancey and Oakmayne Properties development site in Elephant & Castle, formerly known as Tribeca Square will have a four-screen cinema, a 17,000 sq ft Sainsbury s supermarket, 13 new retail units and three restaurants farebrother.com 25

28 In the 4th Quarter 2013 Thomas Heatherwick s proposed Garden Bridge received Treasury backing, pushing this visionary idea a step closer to becoming a reality and providing further impetus to both the Midtown and South Bank Office and Retail markets A member of Farebrother Key Contacts Office & Retail Market Alistair Subba Row Senior Partner, Investment asubbarow@farebrother.com Alastair Hilton Investment ahilton@farebrother.com Farebrother 27 Bream s Buildings London EC4A 1DZ For further information please call farebrother.com Follow us on Working in Partnership Julian Hind Office Leasing & Residential Sales & Development jhind@farebrother.com Charlie Thompson Office Leasing, Sales & Development cthompson@farebrother.com Other Research available Malcolm Brackley Lease Advisory, Valuation mbrackley@farebrother.com Jeff Norris Business Rates jnorris@farebrother.com The London Midtown Office & Retail Markets Q Garden Bridge London Midtown Office & Retail Market Quarterly Reports Farebrother IPD London Midtown & Southbank Investment Reports Andrew Glover Property Management aglover@farebrother.com Josephine de Castro Retail Leasing, Sales & Development jdecastro@farebrother.com This research is available in PDF format. Please lcave@farebrother.com 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. Julian Chappell Corporate Real Estate jchappell@farebrother.com Victoria Shreeves Research vshreeves@farebrother.com Designed and Produced by Sears Davies searsdavies.com