Central London Office Market Report. Supply falls to lowest level since 2008 Q3 2014

Transcription

1 Central London Office Market Report Supply falls to lowest level since 8 Q3

2 Supply falls to lowest level since 8 Central London supply continues to trend down and fell a further 11% in Q3 to 1.5 million sq ft, compared to 11.8 million sq ft at the end of Q. The current vacancy rate of 4.7% is the lowest since 8. The continued strength of occupier demand has put upward pressure on rents. Prime headline rents in the City core increased to 61.5 per sq ft in Q3, up from 6. per sq ft at the end of Q. Prime rents in the Docklands increased to 4. per sq ft from 38.5 per sq ft; the first increase since Q3 11. Q3 investment volumes reached 4.3 billion, which takes the year to date total to 9.9 billion. This is behind the equivalent periods in 13 and 1, which were particularly strong years, but marginally ahead of the 1 year average. City prime yields moved in 5 basis points to 4.5% and are now at their lowest since 7, while West End yields remained stable at 3.75%, although an inward bias remains. Sizes in sq ft Q3 (QoQ) West End City Docklands Take-up 99 ã,34 ã 153 ä Supply,371 ä 6,948 ä 1,179 ä Overall Vacancy Rate.6% ä 6.% ä 5.6% ä Grade A Vacancy Rate 1.9% ä 4.6% ä 5.5% ä Occupier Demand 4,819 ä 11,634 ã 3,719 ã Prime Rent 15. â 61.5 ã 4. ã Under Construction,97 ä,813 ã â Investment Volumes 1,85m ã,164m ã 356m ä

3 Economic overview Expansion continues The UK has seen exceptionally strong GDP growth of late, with 3.1% forecast for the year. This has been driven by a resurgence in consumer and business confidence that is now being felt broadly across sectors and regions, and has placed the UK as the fastest growing large developed economy this year. The growth spurt began in London, and has continued to gather strength here, with rapid growth of 3.7% expected for this year. Over the forecast period, growth is expected to remain solid, albeit moderating slightly from its current pace to average 3.4% from -18. While there is nothing to suggest an immediate halt to the current strong momentum in London and the wider UK, the pace of expansion is likely to moderate in coming quarters. Along with subdued inflation, these global risks are now likely to see base interest rates on hold until well into 15. Forecast GDP growth in 4.% 3.5% 3.%.5%.% Rapid growth has propelled surging employment growth well above expectations. Nationally, the unemployment rate has now fallen to 6.%, and in London employment growth is at a 15 year high, mirroring the surge in employment we last saw in the late 199s. 1.5% 1.%.5%.% London United Kingdom World -18 average United States Eurozone Several positive indicators Besides the formal measures of economic growth, there is a host of anecdotal and survey evidence to suggest that businesses are confident. Surveys of financial businesses are now reporting a strong bounceback, in terms of business turnover and profitability; London continues to cement its reputation as a major tech hub; IPO and capital raising activity has grown rapidly this year; and, surveys of CFOs report that credit conditions are easing with debt becoming more freely available. Global uncertainties In sharp contrast to the UK, recent data from the Eurozone has been very weak and served as a reminder that there are still downside risks to growth. Italy is in recession, France is at best stagnating and the latest indicators from Germany point to a significant slowdown over the summer, and this has triggered a negative reaction from equity markets. Risks are also apparent in current geopolitical tensions in the Middle East and elsewhere, concerns over financial stability in China, and in the recent Ebola outbreak. Source: Oxford Economics Bank rate & CPI inflation 6% 5% 4% 3% % 1% % Source: Oxford Economics 7 8 Bank rate CPI inflation rate Rapid growth has propelled surging employment growth 13 Central London Office Market Report Q3 3

4 The Central London market Take-up on course for another strong year Central London take-up 5 - Q3 Strong leasing activity continued in Q3 with 3.5 million sq ft let across Central London, the highest quarterly total since Q4 1. Year to date take-up is now 8.5 million sq ft, slightly ahead of the equivalent period in 13, which was a very strong year. As a result of the robust take-up, the volume of floorspace under offer fell 5% to 3. million sq ft, from a recent high point of 3.9 million sq ft in Q. However it remains 5% higher than the same point in 13, which indicates leasing activity will continue at above average levels into 15. millions sq ft Large transactions underpin strong take-up West End City Docklands 13 High quarterly take-up was underpinned by large lot sizes with 13 transactions of over 5, sq ft, accounting for a combined 1.7 million sq ft, (around half of Q3 take-up). Leasing volumes in the City market were particularly strong, due to two large pre-lets totalling 76, sq ft, which boosted quarterly take-up to.3 million sq ft; the highest total since Q4 6. Central London active demand 5- Q Continuing the recent trend, pre-leasing accounted for a large share of take-up with a third of all transactions either pre-let or during construction. Occupiers are increasingly aware that the market is becoming more supply constrained and are acting early to secure office space, particularly to satisfy larger requirements; M&G and Amazon are recent examples. millions sq ft Active demand 11 1 Under offer 13 The TMT sector accounted for the largest share of occupier activity in Q3 with large transactions to Amazon, Havas and Truphone boosting their market share to 3%. Banking & finance and service industries both accounted for % of quarterly occupier activity. Occupiers widening search areas Occupier demand for office space in Central London is currently 15. million sq ft; broadly unchanged compared to the Q total and 9% ahead of the 1 year average. Central London requirements are increasingly footloose and driven by cost, quality of product and surrounding amenity rather than a particular location. The lack of supply in certain areas of Central London, particularly the West End core is also a major contributory factor. This trend is currently benefiting the City and Docklands which have recorded quarterly increases of 4% and 11% respectively, at the expense of the West End where overall demand fell 6% to 4.8 million sq ft. Franklin Templeton s move from the West End (The Adelphi, WC) to the City (Cannon Place, EC4) is a recent example. 4 Central London Office Market Report Q3

5 Supply falls to lowest level since 8 Central London vacancy rates 5 - Q3 Central London supply continues to trend down and fell a further 11% in Q3 to 1.5 million sq ft, compared to 11.8 million sq ft at the end of Q; the current vacancy rate of 4.7% is the lowest since 8. The City accounted for the majority of this fall, recording a 14% decrease and has now reached a tipping point, with take-up exceeding speculative completions. Availability (%) of overall stock 14% 1% 1% 8% 6% 4% Despite the strong leasing volumes in the City leasing market in 13/, the vacancy rate had not fallen significantly due to unusually high levels of development completions during the same period. The level of development completions will return to an average level in 15, however 57% of this space has already been pre-leased and strong demand means that the vacancy rate could fall rapidly in 15. % % Sep-4 Sep-5 Sep-6 Sep-7 Sep-8 Sep-9 Sep-1 Sep-11 Sep-1 West End City Docklands Central London prime headline rents 5 - Q3 Sep-13 Sep-14 Supply in the West End remains critically low, currently around.4 million sq ft, which equates to a vacancy rate of.6%. This has supported rental growth in many of the West End sub-markets with a tightening spread of rents across the wider West End market. per sq ft Rental growth resumes in City and Docklands The continued strength of occupier demand has put upward pressure on rents with prime rents in the City and Docklands both increasing in Q3. Prime headline rents in the City core increased to 61.5 per sq ft in Q3, up from 6. per sq ft at the end of Q. Prime rents in the Docklands market increased to 4. per sq ft from 38.5 per sq ft, partly due to tightening supply and the rising rents in other Central London markets, which are making the Docklands increasingly competitive. Prime rents in the benchmark Mayfair and St James s market remained unchanged at 15 per sq ft but upward pressure remains and we expect further rental growth in the short term. While City prime rents have risen, the upward pressure is more apparent in the market for tower space (where rents in excess of 8 psf have been achieved), and for large lot sizes where a shortage of 4 Jun-5 Jun-6 Jun-7 Jun-8 Jun-9 Jun-1 Jun-11 Jun-1 Jun-13 West End City Docklands Jun-14 available options is encouraging occupiers to pre-let. The market for mid-sized requirements in the 1-3, sq ft range is not as tight, with occupiers still able to choose from a number of different options. However, with strong demand and a lack of speculative completions in 15, we expect availability to fall resulting in rental growth across a broader base. Central London Office Market Report Q3 5

6 The Central London market Large lot sizes boost Q3 investment turnover Central London investment volumes 5 - Q3 Q3 investment volumes ( 4.3 billion) were stronger than the first two quarters in, which takes the year to date total to 9.9 billion. This is behind the equivalent periods in 13 and 1, which were particularly strong years, but marginally ahead of the 1 year average. The uptick in investment turnover was driven by large lot sizes with eight transactions in excess of 1 million. Overseas buyers continue to dominate deals of this size, with only two of the eight largest deals involving a domestic buyer, and, in both cases, in a joint venture with an overseas party. billions Notable transactions include: Woolgate Exchange, EC purchased by Cathay Life for 3 million which is the first purchase by a Taiwanese insurance company in the City; and the Pollen Estate, W1 purchased in a joint venture between Norges Bank Investment Management and The Crown Estate for 381 million. The investment market is likely to see a surge in activity in Q4, with several large buildings currently on the market and expected to trade before the end of the year. This could boost turnover to over 15. billion, well short of the record 18. billion traded in 13, but still more than double the historic average. City yields tighten Prime City yields moved in 5 basis points to 4.5% and are now at their lowest since 7, while West End yields remained stable at 3.75%, although an inward bias remains. There is unprecedented demand in emerging areas and in particular vacant buildings are selling today at levels which anticipate strong rental growth over the medium term. Over time we expect these areas to become firmly institutionalised, attracting both UK and overseas capital, as investors realise these markets are quickly becoming established parts of the Central London market. United Kingdom Overseas Central London prime yields and the cost of money 7-8% 7% 6% 5% 4% 3% % 1% % Sep-7 Sep-8 / Datastream Sep-9 Sep-1 Sep-11 Sep-1 Sep-13 West End City 5-year swap Bank rate Sep-14 The investment market is likely to see a surge of activity in Q4 6 Central London Office Market Report Q3

7 Issue to watch: Serviced offices in Central London Serviced office operators occupy approximately 3.5 million sq ft across Central London in 9 separate locations. These operators are not a new phenomenon and have been in existence since the late 198s according to a new report commissioned by the City of London. However over the past 4 months the rate of which they are leasing new premises has accelerated rapidly. Letting activity from service office operators increased 144% in 13, they let 45, sq ft in 5 transactions reflecting an average size of circa 16, sq ft in Central London. Exceptional take-up levels have continued into. Year-to-date 35, sq ft in 16 deals has been let and the average deal size has risen to circa, sq ft, representing 4% of total take-up. There is a further 1, sq ft under offer and activity levels are set to surpass 13. We do not anticipate any abatement in activity from serviced office providers in the short term with seven requirements currently in the market totalling 13, sq ft. Why has activity in serviced offices increased? Economic environment: There is a school of thought that serviced office operators respond quicker than the traditional office occupier when economic conditions start to improve following a downturn. An improving economy underpins growth in business and new ventures while serviced office operators provide occupiers with the flexibility required in an improving market and when staff recruitment is difficult to forecast. Flexibility: Whether corporate occupiers are looking for overflow or project space, to emerge into new locations and markets, SMEs are unsure of their future growth, or a new start-up company requires their first office, they all have one need in common, flexibility. Since the economic downturn there has been a shift in attitude to remain flexible and adaptable to market conditions to minimise risk and potential loss. Cost: Prime rents have risen 1% in the City and 11% in the West End in 4 months and overall occupancy costs are approximately 91. per sq ft and 163. per sq ft. Traditional office leases are unaffordable for many SMEs and start-up companies, particularly when you factor in fit-out and legal costs and deposits. At present the average cost of a workstation in the City core is 75 to 8 per month and 1, per month in core West End, this includes all associated costs and can end up being less or the equivalent cost of a traditional lease, whilst importantly still providing flexibility for businesses. Historic take-up by serviced office operators (6 to Q3 ) sq ft West End City Docklands Q3 Lease length and covenant: Start-up companies and SMEs generally require shorter leases and have a weaker covenant than traditional occupiers. Landlords typically require a minimum term of five to 1 years and this has been reinforced in the current supply constrained market. To offset a weaker covenant, landlords would require a substantial deposit which many SMEs and start-up companies cannot afford. Product: There is a serviced office operator to suit all budgets. Traditional offices are of course still available, however in today s market, serviced office operators have spaces in some of the best buildings in London. They provide a high quality fit-out, meeting rooms with the latest technology, break-out space, network and other business services to facilitate their client s day to day work without the pressure of operating their own office. A combination of factors has underpinned a rise in demand from serviced office operators however there are various factors that may hinder their ability to lease space moving forward, including; a supply constrained market and rising prime rents across Central London. Whilst demand for serviced office space will also be a key factor, as the economy improves, start-up and SME companies will mature and may choose to lease traditional office space and it will be interesting to see how the serviced office operator market evolves in the coming years. Please note the above statistics are for Serviced Office Providers and do not include statistics on new co-working and incubator operations, such as WeWork. Central London Office Market Report Q3 7

8 The West End office market Occupier take-up 99, sq ft was let in 41 transactions, an increase of 15% quarter-onquarter and 19% higher than the 1 year quarterly average of 89,7 sq ft. This brings the year to date total to.6 million sq ft, 5% behind the equivalent period last year but ahead of the 1 year-end total of.5 million sq ft. The TMT sector represented 31% of take-up in Q3. Whilst this sector still dominates take-up, its proportioned share has declined from the levels recorded in 13 as other sectors have become more active such as the manufacturing sector which accounted for % of take-up in Q3. Larger lot sizes (5, sq ft plus) underpinned take-up and represented 47% of letting activity in Q3. This is quite uncharacteristic for the West End, where on average 3% of take-up is 5, sq ft or higher. The higher share for large deals signals that occupier confidence in the market is improving. Significant transactions in Q3 include: 3 Pancras Square, N1C where a pre-let of 164, sq ft completed to Havas at an average rent of circa 6 psf, DONG Energy completed at 5 Howick Place on 81,375 sq ft at a rent of circa 67.5 psf and 3 King Street, W1 secured by LEO (Executive Office Group) at 1.5 psf (3,15 sq ft). There is an additional 64,8 sq ft under offer, a decrease of 3% quarter-on-quarter but 7% higher than the 1 year quarterly average of 566,4 sq ft. West End take-up 5 - Q3 millions sq ft New Secondhand Under construction Off plan West End demand 5 - Q3 millions sq ft Occupier demand Demand weakened in Q3, partly due to the strength of take-up, but also because of footloose occupiers migrating outside the West End boundary. Occupiers accounting for 355, sq ft of in 1 requirements either refined the search area or completed on space outside the West End market; this is 45% higher than the levels recorded in Q1 and Q. As a result, overall demand stands at 4.8 million sq ft, 6% lower than Q and 8% below the 1 year quarterly average of 5.3 million sq ft and active demand is.7 million sq ft; a fall of 1% quarter-onquarter and below the 1 year quarterly average of 3.3 million sq ft. Similar to the sectorial profile of take-up, the dominance of the TMT sector has lessened and represents 3% of overall demand and % of active demand, with a more diverse occupier mix now apparent Active Potential Rolling 1 month take-up New active requirements include; Expedia:, sq ft, Noble Europe: 5, 6, sq ft, Egon Zehnder:, 3 sq ft and Framestore:, 5, sq ft. Existing supply and the development pipeline Total supply is at its lowest level in 14 years and fell 8% quarter-onquarter to.4 million sq ft. New supply accounts for less than a third of total supply. Vacancy rates are at their lowest levels since /1, with overall vacancy standing at.6% and Grade A vacancy at 1.9%, well below the 1 year quarterly averages of 4.8% and.9% respectively. 8 Central London Office Market Report Q3

9 Speculative development under construction is relatively unchanged quarter-on-quarter at.3 million sq ft. A single scheme completed construction in Q3; Walmar House, 88-3 Regent Street, W1 which is under offer to Richemont (4, sq ft). Five schemes started construction in Q3, however two are owner occupied or pre-let (Midland Goods Yard, N1 and 7-1 Hanover Square, W1). Speculative starts included Eastbourne Terrace, W (93,5 sq ft), 9-3 St James s Street, SW1 (14, sq ft) and The Department, 5 Wilton Road, SW1 (1,85 sq ft). West End vacancy rates 5 - Q3 Availability (%) of overall stock 9% 8% 7% 6% 5% 4% 3% % 1% % Rents Prime rents remained stable at 15. per sq ft (assuming a 1, sq ft floor plate and a 1 year term); an increase of 5% year-on-year. Rent free periods remain at 16 months. Overall Grade A West End prime headline rents 5 - Q3 1 Investment volumes and yields 1.8 billion was traded in 34 transactions, 4% higher than the 1 year quarterly average. This brings the year-to-date total to 3.7 billion, below the equivalent period last year ( 4.4 billion). West End assets remain attractive to overseas investors, who accounted for 54% of total investment volumes, whilst UK investors represented 76% of the number of deals completed. This indicates that overseas money is targeting larger lot sizes. There were four deals in Q3 that exceeded 1 million representing 5% of total investment. Key deals include: The Pollen Estate, W1, acquired for 381 million in a joint venture between Norges Bank Investment and The Crown Estate, New Bond Street, W1 purchased for 3 million in a joint venture between Oxford Property and Richemont, and The Point, Paddington Basin, W which was acquired by a joint venture partnership lead by Tishman Speyer for 1 million. The weight of money (both UK and overseas) looking to invest in the West End market, coupled with forecast rental growth is continuing to place pressure on pricing and yields. Yields remain unchanged at 3.75% for sub 1 million, 4.% for 1 to 8 million lot sizes and 4.5% for lot sizes over 8 million, but are trending stronger. per sq ft Mar-4 Mar-5 Mar-6 Mar-7 Mar-8 Mar-9 Mar-1 Mar-11 Mar-1 Prime Net effective West End investment purchases 5 - Q3 billion Property companies Institutions Others Mar Mar-14 Central London Office Market Report Q3 9

10 The City office market Occupier take-up.3 million sq ft was let in 6 transactions, the highest quarterly total since Q4 6 and 75% ahead of the 1 year quarterly average. Year to date take-up is now 5.1 million sq ft which is in line with the equivalent period in 13. Take-up was boosted by two large pre-let transactions which accounted for around a third of quarterly take-up: M&G Investments have pre-let 317,9 sq ft at 1 Fenchurch Avenue, EC3 and Amazon have pre-let 445,47 sq ft at Principal Place, E1. Other notable transactions completing in Q3 include: Africa House, WC where Mishcon de Reya have acquired the entire building (87,853 sq ft); 33,814 sq ft acquired by Franklin Templeton Investments at Cannon Place, EC4 and 45,1 sq ft pre-let to Ropes & Gray at 1 New Ludgate, EC4. The volume of floorspace under offer fell 6% as a result of strong take-up but remains 4% ahead of the equivalent period in 13 and as such we expect strong leasing volumes to continue in the final quarter of. Service industries accounted for nearly half (46%) of quarterly leasing activity with banking and finance and professional services occupiers accounting for 4% and 6% respectively. Occupier demand Overall demand increased 4% in Q3 despite the strong take-up and is now 11.6 million sq ft; the highest total since Q4 7. The quarterly increase was driven by an 8% increase in active requirements which ended the quarter at 7.5 million sq ft, compared to 6.9 million sq ft in Q. The service (43%), banking and finance (%) and professional (1%) sectors account for the largest shares of active demand. Notable active requirements include The Royal Bank of Canada (1, 3, sq ft), Expedia (, sq ft) and Ashurst (, sq ft). Existing supply and the development pipeline Overall supply decreased 14% to 6.9 million sq ft, compared to 8.1 million sq ft at end Q and has now fallen below the 1 year average of 7.8 million sq ft. City take-up 5 - Q3 millions sq ft City demand 5 - Q3 millions sq ft New Secondhand Under construction Off plan The quarterly fall was driven by a % fall in secondhand supply, while the volume of new stock remained unchanged due to 1.4 million sq ft of development completions. Development completions in Q3 include: Bush House and Strand House, Aldwych Quarter, WC (, sq ft); The Leadenhall Building, EC3 where 54% of the 593, sq ft has been pre-leased; and 71 Queen Victoria Street, EC4 (187, sq ft) Active Potential Rolling 1 month take-up 1 Central London Office Market Report Q3

11 Rents In line with the improving leasing market, prime headline rents increased to 61.5 per sq ft, up from 6. per sq ft at the end of Q. Incentives remained stable at 4 months rents free, on an assumed 1 year term. Rental growth in has been limited by above average development completions which have maintained a healthy balance of supply and the recent tendency of large occupiers to pre-let rather than take existing stock. Moving into 15, the supply pipeline is more restricted and we expect to see the Grade A vacancy rate fall which will support rental growth. Prime rents are forecast to increase by 5% to 75. per sq ft between now and 17. City vacancy rates 5 - Q3 Availability (%) of overall stock 14% 1% 1% 8% 6% 4% % % Overall City prime headline rents 5 - Q Grade A 1 13 Investment volumes and yields. billion was traded in 51 transactions in Q3, a 36% quarter-on-quarter increase and % ahead of the 1 year quarterly average. The three largest transactions of the quarter involved foreign buyers who have a preference for larger lot sizes located in core locations: Blackstone have purchased 15 Old Broad Street, EC for 3 million; Woolgate Exchange, EC1 was acquired by Taiwanese insurance company Cathay Life for 31 million, whilst a 5% stake in MidCity Place, WC1 was purchased by Singaporean sovereign wealth fund Temasek for 186 million. UK buyers accounted for 5 of the 51 transactions in Q3 but their lower average deal size means UK purchasers account for only 5% of quarterly investment turnover. We expect the weight of capital seeking City opportunities to remain high with strong demand for both value-add opportunities and larger lot sizes with longer income. Prime yields moved in 5 basis points to 4.5% for sub 4 million lot sizes and 4.5% for lot sizes of 4 to 15 million and above 15 million. per sq ft Prime City investment purchases 5 - Q billion Net effective Property companies Institutions Others Central London Office Market Report Q3 11

12 The Docklands and East London office markets Occupier take-up 153, sq ft was let in seven transactions, a 16% quarter-on-quarter fall on the 183,5 sq ft transacted in Q. Year to date take-up is now 81, sq ft, already 5% higher than the 55, sq ft leased in 13 and the highest annual total since 1 when take-up reached. million sq ft. The largest transaction of the quarter was the 59,896 sq ft acquired by Truphone at 5 Canada Square, E14. Other notable transactions include: 39,73 sq ft to GFK at 5 Canada Square and,43 sq ft to the Nursing & Midwifery Council at One Stratford Place, E There is an additional 765,58 sq ft under offer, the majority of which is to the Financial Conduct Authority (45, sq ft) and Transport for London (5, sq ft) at the International Quarter, Stratford. More favourable terms are available for larger units of second hand space, while smaller units are in short supply and attract a premium. Investment volumes and yields There were two investment transactions in Docklands in Q3 totalling 356 million: Exchange Tower, E14 purchased by The Korean Teachers Credit Union for 191 million and 5 North Colonnade purchased by Blackstone for 165 million. Year to date investment turnover is now 1. billion, the highest since 7, albeit this includes the sale of 1 Upper Bank Street, E14 for 795 million. Docklands take-up 5 - Q3 Occupier demand Overall demand for office space in Docklands and East London increased for the fifth consecutive quarter and currently stands at 3.7 million sq ft. The quarterly increase in overall demand was driven by an uptick in the level of active demand which rose by 9% to.6 million sq ft. Banking and finance (38%) and services sectors (3%) account for the largest proportion of active demand. New active requirements with search areas including Docklands include Trinity Mirror (7, 1, sq ft), Booking.com (6, sq ft) and Funding Circle (3, 7, sq ft). millions sq ft New Secondhand Under construction Off plan Existing supply and the development pipeline Total supply fell 3% to 1. million sq ft, equating to a vacancy rate of 5.6% which is the lowest level since Q1 9. Following the completion of 5 Churchill Place, E14 in Q there are no developments under construction in Docklands and East London. There is potential for significant development at major schemes in Docklands and Stratford, notably Wood Wharf (circa 4 million sq ft) in Docklands and the International Quarter in Stratford (circa 4 million sq ft), both of which require pre-lets. Docklands demand 5 - Q3 millions sq ft Rents Prime rents increased to 4. per sq ft from 38.5 per sq ft where they have remained since Q 11, driven by tightening supply Active Potential Rolling 1 month take-up 1 Central London Office Market Report Q3

13 Headline transactions West End 3 Pancras Square, N1C Area: 164, sq ft Tenant: Havas Rent: 6. per sq ft (average) Building Status: Pre-let 5 Howick Place, SW1 Area: 81,374 sq ft Tenant: DONG Energy Rent: circa 67.5 per sq ft Building Status: New The Pollen Estate, W1 Area: 73, sq ft Purchaser: Norges Bank Investment Management & The Crown Estate Reported Price: 381 million Est Initial Yield: 1.5% New Bond Street, W1 Area: 5,4 sq ft Purchaser: Oxford Properties/Richemont Reported Price: 3 million Est Initial Yield:.5% City Principal Place, E1 Area: 445,47 sq ft Tenant: Amazon Rent: Confidential Building Status: Pre-let 1 Fenchurch Avenue, EC3 Area: 317,9 sq ft Tenant: M&G Investments Rent: Confidential Building Status: Pre-let Woolgate Exchnage, EC1 Area: 35,9 sq ft Purchaser: Cathay Life Reported Price: 31 million Est Initial Yield: 5.1% 15 Old Broad Street, EC Area: 38, sq ft Purchaser: Blackstone Reported Price: 3 million Est Initial Yield: 4.98% Docklands & East London 5 Canada Square, E14 Area: 59,896 sq ft Tenant: Truphone Rent: 31. per sq ft Building Status: Secondhand Exchange Tower, E14 Area: 49,179 Purchaser: Korean Teachers Credit Union Reported Price: 191 million Est Initial Yield: 6.81% Central London Office Market Report Q3 13

14 Rental conditions across Central London West End village Belgravia & Knightsbridge Covent Garden Marylebone & Euston Mayfair North of Oxford Street Paddington Soho St James s Victoria Max min % annual change (average) 18.5%.%.% 5.%.% -1.7% 14.3% 5.%.% City village Central Core City Midtown Eastern Aldgate Northern Shoreditch Clerkenwell Southbank Southern max min % annual change (average) 5.1% 9.1% 4.5% 5.% 4.5% 18.8% 15.8% 15.% 9.5% 14 Central London Office Market Report Q3

15 Planning policy and development update Office to residential permitted development rights On 1st August the Government published a consultation document called Technical consultation on planning. One of the key proposals of this consultation is to make permanent the office-to-residential permitted development rights, with the exemption areas granted to Local Authorities no longer applying. Whilst this new legislation is prepared, the Government is also consulting on the extension of the above permitted development rights from 3 May 16 to 3 May 19. The consultation ended on 6 September and the responses received are now being considered. The Mayor of London and London Councils, including Westminster, have formally written to the Government objecting to plans to remove exemptions that prevent the conversion of offices to homes without the need for planning permission in parts of London. Local policy update Westminster City Council is consulting on its Community Infrastructure Levy Charging Schedule until 31 October. Proposed charging rates have been set out depending on whether a development schemes is within the Prime, Core or Fringe zone. Islington Council and the Government have agreed the extent of the area within the London borough which will be protected from the conversion of offices to homes under permitted development rights. Applications Westminster City Council has resolved to grant planning permission for developer Derwent London s office-led mixed-use development at 5-33 Berners Street. The proposal includes the demolition of three offices and the erection of a single eight storey building with basement. A total of 13,3 sq ft of office space is proposed, together with 4,3 sq ft of retail space (restaurant and shops) on part of the ground and basement levels. Camden Council has resolved to approve detailed proposals for Three Pancras Square, a new 11 storey office building in King s Cross. The scheme was submitted by developer Argent and includes 5, sq ft of offices and 15,1 sq ft of flexible retail space at ground floor. The proposal forms part of the King s Cross Central development that was granted outline permission in December 6. Lambeth Council has resolved to grant planning permission for the redevelopment of the New Bondway site in Vauxhall, to provide two linked buildings of 4 and 5 storeys. Developers Citygrove and McLaren Property submitted plans for this mixed-use development providing 55,7 sq ft of office space, 7,8 sq ft of ground floor retail space and 45 homes. Tower Hamlets Council has resolved to grant permission for the mixed-use redevelopment of Wood Wharf, submitted by Canary Wharf Group. The outline permission with all matters reserved is for a scheme that includes a range of 1.8 million sq ft to 3.8 million sq ft of office floorspace, 1,7 to 3,61 homes and a range of other uses. To discuss how these changes may affect your development, contact Guy Bransby on or Jeff Field on Definition of Terms Floorspace Threshold Data refers to office floorspace in units of 5,38 sq ft and above. Grading A subjective assessment taking into account specification, floorplate efficiency and image. Take-Up Floorspace acquired for occupation by leasing, pre-leasing or purchasing a freehold or long leasehold interest. Supply Floorspace which is on the market and available for occupation. Floorspace which is under offer prior to a contractual commitment is included. Speculative development prior to practical completion is excluded. Speculative Development Floorspace under construction or comprehensive modernisation which will be available for speculative letting (or sale). The forecast of development completions relates only to developments currently under construction. Net Absorption a measure of the change in occupied stock between periods. Demand Some applicants search across two or three market areas. In such cases their demand appears in the total for each area. However, when calculating total Central London demand, duplicates are eliminated. Active Demand Organisations with a declared requirement for office accommodation which are actively in the market to acquire floorspace in the short term. Potential Demand Organisations with a potential requirement for office accommodation, but without a finalised brief in terms of timing. Prime Rent An opinion of the highest rent (excluding incentives) achievable upon a letting agreed at the quarter-end of a notional 1, sq ft unit of the best quality office space in a prime location. Net effective rents are calculated against our prime headline rent values and assume a 1-year term, a notional three month fit-out period and amortisation over 1 years. In practice net effective rents are subject to far more variability related to the specific characteristics of the individual premises. Prime Yield An opinion of the yield which would be appropriate for a freehold Grade A office investment in a prime location let at a current market rent to a tenant with a strong financial covenant. Investment Turnover Capital transactions comprising freehold and long leasehold acquisitions Central London Office Market Report Q3 15

16 Contacts LEASING Neil Prime Director Head of UK Office Agency +44() Adrian Crooks Director West End Agency & Development +44 () Dan Burn Director City Agency +44 () CAPITAL MARKETS Damian Corbett Director Head of London Capital Markets +44() Julian Sandbach Director West End Investment +44 () Chris Northam Director City Investment +44() RESEARCH Jon Neale Head of UK Research UK Research +44() Ben Burston Head of UK Office Research UK Research +44 () Alex Hodge Associate Director UK Marketing +44() Central London Office Market Report Q3 Front cover image: Three Pancras Square, King s Cross, N1C, developed by King s Cross Central Ltd Partnership. jll.co.uk COPYRIGHT JONES LANG LASALLE. This publication is the sole property of Jones Lang LaSalle IP, Inc. and must not be copied, reproduced or transmitted in any form or by any means, either in whole or in part, without the prior written consent of Jones Lang LaSalle IP, Inc. The information contained in this publication has been obtained from sources generally regarded to be reliable. However, no representation is made, or warranty given, in respect of the accuracy of this information. We would like to be informed of any inaccuracies so that we may correct them. Jones Lang LaSalle does not accept any liability in negligence or otherwise for any loss or damage suffered by any party resulting from reliance on this publication.