CLO. Central London Office Overview. Real Estate Q1 2014

Transcription

1 CLO Central London Office Overview Real Estate Q1 2014

2 2 Central London Office Overview Availability falls 7% across Central London Economic Economic growth in the UK is predicted to outperform expectations set only three months ago. The Bank of England (BofE) growth forecast of 3.4% makes the UK the fastest growing economy in Europe whilst the IMF believes it will grow faster than all other major economies including America and Germany. There are still residual concerns over the potential dependency on the Consumer in fuelling the recovery and the OBR has warned of possible risks that could threaten its growth forecasts. In particular, it said that escalation of the situation in Ukraine risks lower growth. Currently however the London economy in particular is driving on, despite these potential downside risks. Take up across all Central London markets is 11% up year on year (YOY). Two of the largest deals in Q1 were transacted in Docklands with the 205,000 sq ft letting to EY at 25 Churchill Place and 150,000 sq ft taken by Bank of New York at 1 Canada Square. The Shard on London s Southbank continues to let up, having secured its largest tenant to date with HCA acquiring 90,000 sq ft on the lower three floors. In Kings Cross, Google have taken a pre-let on a further 160,000 sq ft as part of their new London campus. Buoyant demand coupled with a restricted development pipeline has resulted in supply falling by 7% across the total Central London market in Q1. Vacancy rates in the City dropped 1% to 8.4% whilst Midtown fell 0.8% to 5.5%, making it the lowest in Central London. As markets such as Southbank and Kings Cross continue to mature, occupiers who traditionally occupied core areas in the City and West End are increasingly competing with TMT companies in fringe locations. Consequently the TMT occupier s ability to continue to secure the flexible terms it prefers, is starting to come under pressure, particularly around lease length. Take up in the West End is up 8% (YOY). Concerns over grade A supply is fuelling a steady stream of pre-lets such as Ares Asset Management acquiring 30,000 sq ft at The Crown Estate s 10 New Burlington Street at a rent reported in excess of 100 per sq ft. A growing number of deals are surpassing the 100 per sq ft mark putting upward pressure on the prime rent which remains at per sq ft. For example, Muzinich & Co Ltd acquired 3,854 sq ft at 8-10 Hanover Square at a rent of 103 per sq ft. With the threat of supply falling further, major pre-lets dominate the City occupational market as occupiers with large requirements look to secure space. Developments such as Land Securities 20 Fenchurch Street, EC3 is now 87% pre-let following three lettings this quarter totalling 95,000 sq ft to Allied World Assurance Company Limited, Jane Street Europe and Vanquis Bank. Notable pre-letting activity includes ING pre-letting 130,000 sq ft at 8 Moorgate due for completion at the end of 2014, Schroders pre-letting of 310,000 sq ft at Brookfield s London Wall Place which is scheduled for completion in 2017, M&G acquiring 300,000 sq ft at Generali s 120 Fenchurch Street and Mizuho is reportedly under offer on 200,000 sq ft at Land Securities 2 New Ludgate, EC4. Land Securities decision to speculatively develop their large schemes has paid dividends and we expect other developers who have been reluctant to begin construction without a significant pre-let, to potentially follow suit in other core City locations. The lack of supply of large floor plates, limited development pipeline and recent large pre-lettings has resulted in Capita s prime City rent increasing by 2.50 per sq ft this quarter to 60 per sq ft. The first signs that Stratford will become a credible option for Central London occupiers are beginning to be felt with the first phase of the 130,000 sq ft One Stratford Place nearing full occupancy and the FCA agreeing a pre-let of close to 420,000 sq ft at Lend Lease s Stratford International Quarter. As with Kings Cross, the success of this sub market has been largely driven by the significant investment in improving transport links and surrounding amenities. The eastern City Fringe sub market is one to watch as it undergoes significant redevelopment. Aldgate Tower (320,000 sq ft) has been speculatively developed although has yet to attract an occupier, nor has Redrow s One Commercial Street scheme which has 100,000 sq ft of new office space available. Transport links to the area while not currently as efficient as Stratford or King s Cross will improve significantly from 2018 with the Crossrail station at Whitechapel. turnover was only restricted by supply in Q1 as owners struggle to justify selling when values are expected to rise further. The high levels of demand show no sign of abating however, with UK investors now looking more competitive against overseas investors in the market, making up 53% of all purchases in Q1. This is an interesting change with overseas investors having previously accounted for more than 50% of purchases by value in 17 out of 21 of the last quarters. The attraction of office buildings with the potential for conversion to residential continues to draw strong competition. Two such properties were sold this quarter in Victoria at 1 Queen Anne s Gate Buildings, Dartmouth Street for 42.1m which was 15% above the 36.5m asking price and 14 Great Peter Street for 32.4m which was 54% above the 21m asking price. The largest single transaction for Q1 was Berlin Doctors Pension Fund s acquisition of 60 Holborn Viaduct from AXA for 245m. Other significant transactions were the Hyperion Portfolio acquisition by Legal & General for 550m of which 260m was property in the West End and 2a Southwark Bridge Road, SE1 sold to M&G for 122m. While Central London pricing shows no sign of cooling, we have seen UK investors compete strongly with overseas buyers over the last three quarters. Whilst we do not expect overseas demand to diminish, a strengthening pound and the attractiveness of other property markets around the globe which are perceived to offer greater returns, albeit with potential for greater risk, may start to swing this trend further towards UK buyers. We will be monitoring this trend closely over the course of 2014.

3 Central London Office Overview 3 At a glance

4 4 Central London Office Overview West End At a glance 1 Queen Anne s Gate Buildings, Dartmouth Street, SW1 5 Old Bond Street, W1 17 Connaught Place, W2 Purchaser: Henley Tenant: Freehold Tenure: Multi-let Lease expiry: 2016 Price: 42,000,000 Net Initial Yield: 4.4% Landlord: NFU Mutual Insurance Society Ltd Tenure: Squarestone Property Management Ltd Size: 2,539 sq ft ( sqm) over 5th floor Term: 5 year lease Rent: psf Rent free: 8 months Landlord: WELPUT Tenant: Blue Water Energy Size: 7,540 sq ft ( sqm) over 4th, 5th & 6th floors Term: 10 years lease, tenant break option after year 5 Rent: psf Rent free: 10 months

5 Central London Office Overview 5 Take Up Development Pipeline Availability Prime Rent Vacancy

6 6 Central London Office Overview City At a glance Deals 60 Holborn Viaduct, EC1 The Rex Building 62 Queen Street, EC4 Finsbury Circus House 12 Finsbury Circus, EC2 Purchaser: Berlin Doctors Pension Fund Tenant: Amazon Tenure: Freehold Lease expiry: 2023 Price: 245,000,000 Net Initial Yield: 4.75% Landlord: UBS Sub lessor:henderson Global Investors Tenure: Intralinks (advised by Capita) Size: 9,960 sq ft ( sqm) on part 4th floor Term: Sub lease until 2025 with a Tenant break in 2020 Landlord: Union s Tenant: First State Size: 25,125 sq ft (2,334 sqm) over the 7th & 8th floors Term: 15 years with a break at 10 Rent: psf on 7th and on 8th Rent: psf Rent free: Total of 28 months spilt over break option Rent free: 24 months initial with 10 after break

7 Central London Office Overview 7 Take Up Development Pipeline Availability Prime Rent Vacancy

8 8 Central London Office Overview City Fringe At a glance Deals 120 Aldersgate, EC1 Alphabeta Building 14 Finsbury Square, EC2 The Bryant Building Great Eastern St, EC2 Purchaser: Legal and General UK PUT Tenure: Freehold Tenant: Multi-let Lease expiry: 2015/2016 Landlord: Resolution Tenant: SEI Wealth Management Size: 57,905 sq ft (5,379.6 sqm) over 1st, 2nd & 8th floors Landlord: Darien Ventures Tenant: Capital Markets Company Ltd Size: 23,250 sq ft (2,160 sqm) Price: 25,750,000 Term: 15 years lease Term: 15 years Net Initial Yield: 5.7% Rent: psf Rent: psf Rent free: Confidential Rent free: Confidential

9 Central London Office Overview 9 Take Up Development Pipeline Availability Prime Rent Vacancy

10 10 Central London Office Overview Midtown At a glance Deals 11 Chenies Street, WC1 33 Kingsway, WC2 Brettenham House Lancaster Place, WC2 Purchaser: Schroder UK Property Fund Tenure: Freehold Tenant: Omnicom Lease expiry: 2028 Landlord: Aviva plc Tenant: Channel Advisors Size: 20,054 sq ft (1,863.1 sqm) over 2nd, 3rd & 4th floors Landlord: Endeavour Energy Tenant: Chrysaor Holding Ltd Size: 7,262 sq ft ( sqm) on 4th floor Price: 31,850,000 Net Initial Yield: 5.35% Term: 10 years, tenant break option after year 5 Rent: psf Term: Feb 2022, tenant break option in 2017 Rent: psf Rent free: 12 months Rent free: 12 months if break option not exercised

11 Central London Office Overview 11 Take Up Development Pipeline Availability Prime Rent Vacancy

12 12 Central London Office Overview Southbank At a glance Deals 2a Southwark Bridge, SE1 75 Bermondsey Street, SE1 Chapter House, Crucifix Lane, SE1 Purchaser: M&G Property Portfolio Tenure: Freehold Tenant: Ofcom Lease expiry: 2022 Price: 122,000,000 Landlord: Hermes Real Estate Management Ltd Tenant: The Lexis Agency Size: 11,500 sq ft (1,068.4 sqm) over Ground, 1st, 2nd & 3rd floors Landlord: Edge Architecture & Design Ltd Tenant: Bliss Size: 3,919 sq ft ( sqm) over 3rd floor Net Initial Yield: 5.4% Term: 10 years Term: Sub lease expiring July 2018 Rent: psf Rent: psf Rent free: 16 months Rent free: 5 months

13 Central London Office Overview 13 Take Up Development Pipeline Availability Prime Rent Vacancy

14 14 Central London Office Overview Docklands At a glance Deals 10 Upper Bank Street, E14 1 Canada Square, E14 Landlord: Canary Wharf Group Tenant: EY Size: 205,309 sq ft (19,074 sqm) Term: 25 years (pre let) Rent: per sq ft Rent free: Confidential Landlord: Canary Wharf Group Plc Tenant: Bank of New York Size: 152,226 sq ft (14,142 sqm) over 7th and 8th floor Term: 8 years Rent: per sq ft Rent free: 18 months

15 Central London Office Overview 15 Take Up Development Pipeline Availability Prime Rent Vacancy

16 16 Central London Office Overview Locations West End City City Fringe Midtown Southbank Docklands

17 Central London Office Overview 17 Glossary Average Rent Typical headline rent for an average quality Grade A building. Assumes a single floor of over 5,000 sq ft in a refurbished building in an average location. Availability Offices on the market for occupation. Excludes offices under offer up to exchange but includes all development and refurbishment projects that are scheduled to be completed within the next 12 months. Development Pipeline Offices under construction or comprehensive refurbishment. The forecast of development completions relates only to developments commenced and currently under construction. Grade A, B or C Subjective view of quality reflecting age, specification, floorplate efficiency and aesthetics. Transaction Activity Capital transactions comprising freehold and long leasehold acquisitions for investment or development. Net Effective Rents Prime rents reflecting lease incentives typical in the market for a 5,000 sq ft floorplate on an assumed a market term. Net effective rents assume a notional three month fit-out period and amortisation over term of the lease up to a maximum of 10 years. Prime Rent Typical headline rent for the best quality buildings following development or comprehensive refurbishment to Grade A quality. Assumes a single floor of over 5,000 sq ft in a prime location. Assumes a middle floor in a tower building. Prime Yield Net Initial Yield for a rack rented freehold building in a prime location which has been newly developed/ refurbished to Grade A quality and let for a market term to a tenant of very good covenant status. Rent Free Period Typical Market incentive granted for a lease of 10 years without break option. Assumes a prime Grade A quality building and floor plate of 10,000 sq ft. Take-up Office acquisitions for occupation including all lettings, pre-lettings and sales to owner occupiers completed in the quarter. Vacancy Rate Availability or supply as a percentage of total stock.

18 18 Central London Office Overview Contacts Alan Dornford Robert Cass Andrew Mercer Ben Nichols Head of Markets +44 (0) Head of +44 (0) West End +44 (0) West End Agency +44 (0) Archie Hubble Mike Umfreville Paul Clark City Agency +44 (0) City Agency +44 (0) Central London Development +44 (0)

19 Central London Office Overview 19 Whilst we have no reason to believe that there are any inaccuracies or defects in the information and forecasts provided in this report, it is constrained by the use of information and forecasts from other persons and we cannot warrant the accuracy and completeness of such information and forecasts. The information and forecasts provided through this report are of a general property market nature although, where possible, we have attempted to take account of the nature of the relevant properties. Growth forecasts should be seen as indicative rather than definitive and we recommend that decisions should be supported by appropriate professional advice on value. We accept no liability for any loss or damage (including consequential or indirect loss or damage which shall include but which shall not be limited to loss of property or of profit, business revenue or anticipated savings) or for any costs, claims, demands, proceedings, expenses or liability of any nature arising directly or indirectly out of the use of or access to the information and forecasts of this report and whether or not arising from our negligence nor that of our employees or agents. Capita 2014 The copyright and all other rights of whatsoever nature relating to the information and forecasts provided in this report shall remain ours. Exception to this arises where such information and forecasts are sourced to third parties in which case they shall remain the property of such third parties. The information and forecasts provided in this report are for the sole use of the person or persons for whom the report has been prepared and therefore may not be reproduced, replicated, retransmitted or passed on to third parties whether in the form in which they are received or in any other form without our prior written consent.

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