WEST END FLOOR REVIEW

Transcription

1 WEST END FLOOR REVIEW A floor-by-floor review of the West End office market Q3 215 Take-up jumps 42% on the quarter as: Facebook pre-lets 23, sq ft at One Rathbone Square Kings College London completes letting of 3, sq ft in Covent Garden King Digital Entertainment let 65, sq ft in Soho Prime rents rise further to 12 per sq ft Outlook for 215 tempered by fall in ratio of requirements to supply

2 THIRD QUARTER REVIEW THE QUARTER IN NUMBERS Q ON Q Y ON Y COMMENT 567, totalling 2.3 million sq ft 2% by (-11% by sq ft) -7% by (-16% by sq ft) Whilst the overall volume of space on the market fell by 11% during Q3, the number of marketed stayed broadly flat as several smaller unrefurbished entered our supply figures. The average size of floor marketed fell from 4,588 sq ft to 3,979 sq ft, despite the addition of a handful of developments with larger floorplates. 318 taken-up during Q3, totalling 1.4 m sq ft 28% by (42% by sq ft) 15% by (59% by sq ft) Headline deals in the gaming technology, serviced office and education sectors, with companies such as Facebook, King Digital, The Office Group and Kings College London committing to large amounts of space ensured that Q3 take-up rose to 1.4 million sq ft, the largest volume transacted in just under 3 years. 29% of take-up accounted for by the TMT sector 5% in Q % in Q3 214 As well as Facebook committing to almost 23, sq ft at One Rathbone Place in Fitzrovia, several game and software developers signed up to West End space during Q3. Proportionately, this was most pronounced in Soho, as the TMT sector accounted for 82% of all space taken. 4,161 sq ft average size of floor taken-up 3,953 sq ft 3,184 sq ft The average size of floor taken-up rose for the eighth consecutive quarter as companies continued to expand and large scale pre-lets were agreed. 2.3 requirements chasing each floor 2.8 requirements 2.9 requirements Whilst the number of under offer fell in Q3, actual letting activity was very strong and the number of requirements in the market remains high. There is still over 2 requirements chasing each floor, but this ratio has been steadily reducing over the course of the last year. 12 per sq ft Mayfair and St James s prime rent Private equity and hedge fund occupiers continue to compete for the best space in Mayfair and St James s. After considerable rental growth over the last two years, we expect future rental growth to be more subdued given the increased amount of space in the development pipeline.

3 TAKE-UP 79,192 sq ft AVERAGE 3,443 sq ft KEY SECTOR Multimedia Gaming DEMAND Large scale lettings in the gaming and technology sector have dominated headlines during Q3. Media and digital start-ups are moving away from the traditional core in search of more vibrant areas to locate, but supply in these markets cannot accomodate the increased demand. Paul Pride, Partner TMT occupiers accounted for 29% of all West End take-up during Q3. There are now certain areas of the West End which are flourishing as media and tech centres and are proving themselves viable alternatives to locations further east. In Soho, for instance, 82% of all space let in Q3 was to TMT occupiers, largely due to King Digital Entertainment decision to locate to the 65, sq ft Ampersand building. The completion of two deals over 2, sq ft in size propelled Q3 take-up to the highest volume for almost three years. Facebook pre-letting almost 23, sq ft at One Rathbone Square in Fitzrovia & Bloomsbury and Kings College signing up to almost 3, sq ft at the Aldwych Quarter in Covent Garden meant that overall take-up was 1.4 million sq ft over 318 a 42% increase by volume and a 28% increase by number of. S O H O VICTORIA TAKE-UP 99,253 sq ft AVERAGE 8,271 sq ft KEY SECTOR Finance TAKE-UP 94,919 sq ft AVERAGE 1,861 sq ft KEY SECTOR Other M A RY L E B O NE In honour of the importance of gaming and software companies in Q3 we are going to play our own version of Take-up Pinball! Here we detail by key West End sub-market the types of occupiers taking space and the size of the they are occupying. Size of circle indicates relative amount of take-up Main occupying sector is highlighted in each circle More detailed breakdown of occupying sector in outside circle Serviced Offices Professional Services Other Education Banking & Finance Technology COVENT GARDEN TAKE-UP 357,582 sq ft AVERAGE 5,337 sq ft KEY SECTOR Education FITZROVIA & BLOOMSBURY MAYFAIR AND ST JAMES S TAKE-UP 218,762 sq ft AVERAGE 2,668 sq ft KEY SECTOR Professional Services TAKE-UP 548,59 sq ft AVERAGE 6,6 sq ft KEY SECTOR Media & Technology

4 Q3 215 AVAILABILITY Here we detail our findings on the supply of by each submarket, indicating the number of for each size category as well as their respective quality. This includes space under construction which is due to be delivered to the market within 6 months % on Q2 SUPPLY 2.3m sq ft -11% on Q % on Q2 UNDER OFFERS.57m sq ft -27% on Q2 5-1, 1,1-2, 2,1-3, 3,1-5, 5,1-,,1+ 22,349 sq ft 9 EUSTON MARYLEBONE The inclusion of space under construction at 1-2 Welbeck Street and Bacardi s HQ on Dorset Square within current supply has meant that this is the only sub-market to post an increase in space during Q3. Below average take-up during the quarter combined with the return of several unrefurbished to the market has meant that most mid-size floor categories have seen an increase in supply. MARYLEBONE ,285 sq ft 2 3 6,58 sq ft 5-1, 1,1-2, 2,1-3, 3,1-5, 5,1-,,1+ 57,751 sq ft 4,358 sq ft 17,3 sq ft EDGWARE ROAD BAKER STREET MARYLEBONE Marylebone MARBLE ARCH REGENTS PARK OXFORD CIRCUS BOND STREET Mayfair & St James s GREAT PORTLAND STREET WARREN STREET Fitzrovia & Bloomsbury TOTTENHAM COURT ROAD Soho PICCADILLY CIRCUS LEICESTER SQUARE 9 GREEN PARK MAYFAIR & ST JAMES S Whilst the sub-markets remain a mainstay for private equity and hedge fund occupiers and the best space continues to be fiercely competed for, there are still several new of different sizes. There is also a high proportion of unrefurbished small to medium sized in this sub-market. With this said, overall supply has fallen 4% on the quarter. 96,813 sq ft 198,858 sq ft MAYFAIR ,268 sq ft 186,196 sq ft 97,276 sq ft 27,93 sq ft 5-1, HYDE PARK CORNER VICTORIA Victoria ST JAMES S P 1,1-2, SOHO There has been a lack of churn activity in this sub-market during Q3 and the space that has been taken-up has not been replaced. This meant that supply fell 32% on the quarter and with the Ampersand building taken-up, there are only a handful of new schemes such as Quadrant 2 South on Air Street and 21 Glasshouse Street which have the ability to accommodate larger floorplates. 2,1-3, 3,1-5, 5,1-,,1+ 9 SOHO ,819 sq ft 3,399 sq ft,54 sq ft 18,748 sq ft 15,13 sq ft PIMLIC

5 KINGS CROSS ST PANCRAS RUSSELL SQUARE HOLBORN Covent Garden TEMPLE CHARING CROSS WESTMINSTER ARK O CHANCERY LANE BLACKFRIARS 5-1, 1,1-2, 2,1-3, 3,1-5, 5,1-,,1+ 9 VICTORIA ,385 sq ft 7,2 sq ft 163,677 sq ft 2 3 3,112 sq ft 51,327 sq ft 5-1, 1,1-2, 2,1-3, 3,1-5, 5,1-,,1+ 11,18 sq ft 9 5-1, 1,1-2, 2,1-3, 3,1-5, 5,1-,,1+ COVENT GARDEN ,892 sq ft 96,613 sq ft FITZROVIA ,713 sq ft 11,865 sq ft 76,8 sq ft VICTORIA ,911 sq ft 177,8 sq ft 17,113 sq ft 12,873 sq ft 26,554 sq ft 87,431 sq ft 3,774 sq ft Victoria has the fewest on the market out of all sub-markets. The large floorplates on offer in this sub-market make it attractive to a broad range of occupiers, as evidenced by Deutsche Bank s interest in the Zig Zag building and the recent lettings to financial and media occupiers at 62 Buckingham Gate. COVENT GARDEN FITZROVIA & BLOOMSBURY This market has witnessed a sharp contraction in office supply for the second consecutive quarter, with volumes falling by 27% on Q2. This is in part to do with the strong letting activity of larger floorplates eroding the supply, but also, the space that has been returned to the market has been small. There were 3 more unrefurbished on the market compared to Q2 as several small self-contained office buildings became. The letting activity on buildings within the Aldwych Quarter has had a dramatic impact on supply in this sub-market during 215 and there are now very few new being marketed. Covent Garden is one of the more under-supplied markets in the West End and currently has a high proportion of unrefurbished space. New Refurbished Unrefurbished West End boundary Sub-market boundary Source: Gerald Eve Arrows indicate quarterly movement in the number of. Current letting policies may dictate some are not in isolation.

6 REQUIREMENTS AND SUPPLY REQUIREMENTS Despite supply remaining low, the number of requirements recorded against each floor fell across most floor size categories during Q3. Some of this may be attributable to the summer holiday period, but there is also an element of occupiers becoming less fussy and more footloose in their hunt for office space, often citing broader London instead of specifically the West End. Whilst the number of requirements recorded has fallen too, the average size has risen substantially to 5,974 sq ft, from 5,84 sq ft with occupiers seeking larger amounts of West End space as their own businesses continue to expand. Together Mayfair and St James s were the most sought after locations during Q3, with Fitzrovia & Bloomsbury also high on occupiers wish lists. The quarterly fall in the overall number of requirements is unlikely, in the short term, to have a material impact on prime rents. However, in the longer term, the trend of potentially fewer occupiers looking for larger amounts of space will ultimately begin to feed into more subdued, but still positive, growth in rents, which we are forecasting will taper off over the next few years. NUMBER OF REQUIREMENTS PER AVAILABLE FLOOR Q3 Q2 5-1, 1,1-2, 2,1-3, 3,1-5, 5,1-,,1+ Floor size category (sq ft) A. 5-1, floorplates Q3 is the first quarter we have recorded a fall in the ratio of requirements to supply of the smallest floorplates. The return to the market of several small self-contained buildings during Q3 meant that there were more being marketed but the number of recorded requirements also fell as potential occupiers looked to trade up to larger premises to house increased levels of staff. The serviced office market, itself a key demand sector for West End offices, is proving an attractive option for occupiers with smaller requirements. B., sq ft + floorplates Conversely, the ratio of requirements to supply of the largest floorplates showed a quarterly increase. The large lettings agreed during the quarter has had a significant impact on the supply of offices with the largest, which reduced by around 4, sq ft on the quarter. This, combined with a steady increase in requirements for the largest space, often from companies with far off lease expiries, has meant that on this measure, the largest floorplates are the most mismatched against likely future demand.

7 DEFINITIONS Availability Marketed pace over 5 sq ft in size and to move into within 6 months that may or may not be vacant but which is actively marketed by an appointed agent. We monitor pace in central London at an individual floor level. Each floor is assigned a floor size category and an individual grade for quality. The availability data covered in this report represents buildings within the boundaries outlined in the map in this report. We monitor availability by the number of being marketed as well as the total size. The floor area in sq ft adopted throughout is the net internal area. Floors which are under offer are not included in our availability statistics. Availability is accurate two weeks before the end of the calendar quarter. Newly space Space on the open market including developments which are within 6 months of completion. This includes units of secondhand space which are undergoing refurbishment. Requirement Named entities with appointed agents and a declared requirement for office accommodation which the named entity wishes to satisfy in the foreseeable future. If the requirement has a preferred size range, the average size of the requirement is used. Given requirements often include a range of targeted sub-markets, we have included the requirement for each of the sub-markets when analysing individual sub-markets, but, when calculating overall West End requirements, duplicates are removed. Prime headline rents The rent being paid which may not take account of concessions such as rent free periods, in which case it is known as the effective rent. The references to both headline rents and incentives in this report are a reflection of the best office space in that submarket which is taken on an assumed year term. We use the best achieved method of recording prime rents. Where there is recent evidence of transactions, then our data is representative of it. In cases where there is no recent evidence, then the rent is recorded on the basis of the best hypothetical transaction which could be achieved as at the end of that quarter. Incentives This refers to the concessions offered by a landlord to a tenant as part of the negotiation process. Incentives usually adopt the form of rent free periods, but can also be in the form of capital contributions or the fit-out of the building. Floor / Floorplate As well as the total volume of space being marketed as, we also monitor the number of which account for this total volume. We monitor whether it is a full floor or part floor which is being marketed, although for our statistics, we treat an individuallymarketed part floor as one floor. If a floor is capable of subdivision to accommodate two suites, but can likewise be occupied together, we use the total floor plate for that floor. Floor quality New: Floor in a newly-developed or newly-refurbished building, including sub-let space in new buildings which have not been previously occupied. Refurbished: A floor which has been comprehensively refurbished and is of good specification, floorplate efficiency and image, but is in a building which is not new or been comprehensively refurbished. Unrefurbished: Poorer quality space, usually offered for occupation as is. Under offer Space which a prospective occupier has agreed in principle to occupy but is most likely to be under no legal or contractual obligation to do so. Take-up Occupational transactions including offices let or sold to an occupier, developments pre-let or pre-sold to an occupier or an owner occupier purchase of a freehold or long leasehold. We analyse take-up at individual floor level Quality of choice This is a subjective measure holistically assessing the appropriateness of current availability to modern office requirements. Whilst our figures may represent a large number of in particular size categories or postcode geographies, the floorplates efficiencies or amenities on offer within this supply may not meet all the expectations of modern office tenants and the quality of choice would be lower.

8 CONTACTS Gerald Eve s London office team provides specialist advice across the spectrum including agency, investment, lease consultancy, rating, valuation, planning and development and project management. To find out more about us and what we could do for you please visit our website ( or contact the following people direct. WEST END Lloyd Davies Head of West End Agency Tel. +44 () Mobile +44 () ldavies@geraldeve.com Paul Pride Office Agency Tel. +44 () Mobile +44 () ppride@geraldeve.com Graham Foster Lease Consultancy Tel. +44 () Mobile +44 () gfoster@geraldeve.com CITY Simon Prichard Senior Partner Tel. +44 () Mobile +44() sprichard@geraldeve.com Fergus Jagger Office Agency Tel. +44 () Mobile +44 () fjagger@geraldeve.com Andrew Mears Investment Tel. +44 () Mobile +44 () amears@geraldeve.com PLANNING & DEVELOPMENT Hugh Bullock Head of Planning and Development Tel. +44 () Mobile +44 () hbullock@geraldeve.com Lisa Webb Planning Tel. +44 () Mobile +44 () lwebb@geraldeve.com Nick Brindley Planning Tel. +44 () Mobile +44 () nbrindley@geraldeve.com GERALD EVE S UK OFFICE NETWORK London (West End) 72 Welbeck Street London W1G AY Tel. +44 () London (City) 46 Bow Lane London EC4M 9DL Tel. +44 () Birmingham Bank House 8 Cherry Street Birmingham B2 5AL Tel. +44 () Cardiff 32 Windsor Place Cardiff CF3BZ Tel. +44 () Glasgow 14 West George Street Glasgow G2 2HG Tel. +44 () Leeds 1 York Place Leeds LS1 2DR Tel. +44 () Manchester No1 Marsden Street Manchester M2 1HW Tel. +44 () Milton Keynes Avebury House Avebury Boulevard Milton Keynes MK9 1AU Tel. +44 () West Malling 35 Kings Hill Avenue West Malling Kent ME19 4DN Tel. +44 () For more information on any of the facts and figures in this publication, please contact: Steve Sharman Tel. +44 () Disclaimer & copyright This brochure is a short summary and is not intended to be definitive advice. No responsibility can be accepted for loss or damage caused by reliance on it. All rights reserved The reproduction of the whole or part of this publication is strictly prohibited without permission from Gerald Eve LLP. /15