OnPoint. The Central London Market Q2 2014

Transcription

1 OnPoint The Central London Market Q2

2 Record level of space under offer indicates a buoyant H2 The second quarter continued to see strong occupier demand translate into solid leasing activity, with 2.7 million sq ft let across Central London. The amount of space currently under offer now standing at 3.9 million sq ft, the highest since Q2 27. This indicates that we will see a further surge of activity coming through in the second half of the year. Rising demand, a lack of new supply in the core West End market of Mayfair and St James s, and the gradual erosion of availability in other parts of the market has seen the vacancy rate drop to a low of 2.8%. After a quiet start to the year the investment market is now picking up, with 3.7 billion traded in Q2 to reach 5.6 billion in the year to date, ahead of the 5.4 billion total for the first half of 213. Prime yields remained stable at 4.5% in the City and 3.75% in the West End, although an inward bias remains. Market Indicators ( sq ft unless indicated) (QoQ) West End City Docklands Take-Up 858 ã 1,589 ã 184 ã Supply 2,946 ä 8,63 ã 1,28 ä Overall Vacancy Rate 2.8% ä 7.3% ã 5.8% ä Grade A Vacancy Rate 2.1% ä 5.2% ã 5.7% ä Occupier Demand 5,145 â 11,144 ã 3,363 ã Prime Rent 15 â 6 â 38.5 â Under Construction 2,237 ã 2,177 ä ä Investment Volumes 1,328m ã 1,591m ã 795m ã

3 Economic overview Strong and balanced growth in H1 The UK recorded GDP growth of.8% in Q1, and high frequency indicators report continued rapid expansion in Q2. Significantly, we are now witnessing a sustained rebound in business investment, which was absent from the initial phase of the recovery. This is lending the recovery more balance, with recent figures illustrating that growth is spread broadly across different sectors and regions. Such has been the strength of the upswing, that the UK is forecast to show stronger growth than all other G7 countries in. The US is also growing strongly, but bad winter weather held back production in the early part of the year, while Europe continues to experience a sluggish recovery, with business surveys pointing to much weaker activity than in the UK. Record employment growth contributing to base rate speculation Most commentators now expect rates to begin rising before the end of the year. This shift in expectations has impacted on long term rates, with the five year swap now 2.3%, up from 2.% at the end of Q1. Forecast GDP growth in 3.5% 3.% 2.5% 2.% 1.5% 1.%.5%.% UK Source: Oxford Economics US Germany Canada Japan France Italy Ongoing strong growth has been accompanied by surging employment growth, which has surprised with its pace. The ONS report shows that the number of people in work across the UK grew by 345, in the three months to April, the fastest quarterly rise since records began in The annual rate of growth is expected to hit 1.7%, the fastest since London has shown even stronger growth, with 4.4% growth in 213 the fastest since 1998, and further strong growth expected in. Recruiters are reporting strong growth in hiring and hiring intentions across financial services and a broad range of professional services, with skills shortages increasingly an issue in fast growing sectors such as digital technology. This has seen the unemployment rate fall to 6.6%, down from 7.8% in mid-213. While the Bank of England has dropped its specific reference to the level of the unemployment rate as a staging post for base rate increases, this decrease, along with the broader pace of recovery has nonetheless led to increased speculation. This has been heightened further by Mark Carney s comment in a recent speech that increases could occur sooner than financial markets expect. Total employment growth (y-o-y) % 4% 3% 2% 1% % -1% -2% -3% -4% -5% Source: Oxford Economics UK London London average UK forecast to show stronger growth than all other G7 countries in 211 OnPoint The Central London Market Q2 3

4 The Central London market Momentum maintained in Q2 Central London take-up 25 - The second quarter continued to see strong occupier demand translate into solid leasing activity, with 2.7 million sq ft let across Central London. In the year to date, 5. million sq ft has been let, broadly in line with the first half of 213. The West End market saw an increase in activity, with a number of deals commanding 1 per sq ft or higher and a total take-up of 858,4 sq ft, the highest since Q1 last year. The City market also saw a pickup after a subdued Q1, and with 2.8 million sq ft let in the first half of the year is on track to reach 6 million sq ft for the full year. millions sq ft West End City Docklands 213 Importantly, we are seeing a resurgence of demand from the financial sector, with large requirements continuing to come through in the City and higher rents being paid for the best space in the West End. The financial sector suffered heavily during the downturn, but the recent spate of large deals from the likes of Mizuho and China Construction Bank in the City, and Tudor Capital in the West End, indicates that occupier demand is now returning in line with the broader market. Record level of space under offer indicates a buoyant H2 Central London under offer millions sq ft While leasing activity has been strong in the first half of the year, net absorption of space has not yet matched the remarkable acceleration in employment growth, as evidenced by the fact that most of the large deals are still being driven by consolidation or lease events, rather than outright expansion Jun-7 Jun-8 Jun-9 Jun-1 Jun-11 Jun-12 West End City Docklands Jun-13 Jun-14 It may be the case that we are approaching a tipping point where rising headcounts, which for many firms can presently be accommodated within existing floorspace, will result in expansionary requirements, adding further momentum to the market. The current strength of occupier demand provides some support for this, with the amount of space currently under offer now standing at 3.9 million sq ft, the highest since Q2 27. This indicates that we will see a further surge of activity coming through in the second half of the year. We are seeing a resurgence of demand from the financial sector 4 OnPoint The Central London Market Q2

5 West End vacancy rate at lowest point since 21 Central London vacancy rates 25 - Rising demand, a lack of new supply in the core West End market of Mayfair and St James s, and the gradual erosion of availability in other parts of the market has seen the vacancy rate drop to a low of 2.8%. Over the last couple of years, Kings Cross has been able to cater to West End occupiers with larger requirements, but options there are now more limited, encouraging some occupiers to focus their search on the Southbank. Availability (%) of overall stock 14% 12% 1% 8% %6 4% 2% In response to tight supply, occupiers are starting to think about their options earlier than normal, as the pipeline of deliverable schemes for certain occupiers is limited. As a result, the West End is seeing a sharp rise in lettings while under construction, with 354, sq ft so far this year compared to only 75, sq ft this time last year. % Jun-5 Jun-6 Jun-7 Jun-8 Jun-9 Jun-1 Jun-11 Jun-12 West End City Docklands Central London prime headline rents 25 - Jun-13 Jun-14 In the City, vacancy rose to 7.3% in Q2, due to a spike in development completions including large schemes such as Moorgate Exchange, EC2 and 1 Finsbury Square, EC2. However, the pipeline of committed development is very limited beyond and we anticipate a tightening of supply over coming quarters. per sq ft Core City and West End rents stable in Q2 4 2 Rents in the benchmark Mayfair and core City markets were stable at 15 and 6 per sq ft respectively in Q2, but upward pressure remains and we expect growth to come through in the second half of the year along with reduced tenant incentives. Jun-5 Jun-6 Jun-7 Jun-8 Jun-9 Jun-1 Jun-11 Jun-12 West End City Docklands Jun-13 Jun-14 Rental growth has continued, however, in several London sub-markets outside of the core. The eastward migration of occupiers is putting upward pressure on rents in Shoreditch and Clerkenwell, which in turn pushes more cost-sensitive occupiers to Aldgate and Whitechapel, supporting further growth in those locations. This dynamic is part of the inevitable expansion of the London market, which we explore on page seven. In response to tight supply, occupiers are starting to think about their options earlier than normal OnPoint The Central London Market Q2 5

6 The Central London market Rise in values drawing more stock to market After a quiet start to the year the market is now picking up, with 3.7 billion traded in Q2 to reach 5.6 billion in the year to date, ahead of the 5.4 billion total for the first half of 213. The largest transaction for the quarter, and indeed the year to date, was the 795 million sale of 1 Upper Bank Street in Canary Wharf. We anticipate a strong second half of the year with several large assets expected to trade. Strong growth in values is drawing more product to market as vendors seek to capitalise on attractive pricing, and there continues to be a large pool of investors keen to deploy their capital in the expanding London market. Interest from overseas investors remains a common theme, with Chinese investors particularly strong players at present and keen to secure larger lot sizes. Strength of occupier market compressing yields Central London investment volumes 25 - billions United Kingdom Overseas Central London prime yields and the cost of money 27-8% Prime yields remained stable at 4.5% in the City and 3.75% in the West End, although an inward bias remains. Pricing for secondary assets continues to rise. With intense competition for prime stock and surging employment growth underpinning future prospects for the occupier market, value-add investment opportunities are seeing increasing competition. Investors are keen to re-develop or refurbish assets in order to deliver new supply to a market they anticipate to be undersupplied in the next couple of years. This competition is driving up values for secondary stock. 7% 6% 5% 4% 3% 2% 1% % Jun-7 Jun-8 / Datastream Jun-9 Jun-1 Jun-11 Jun-12 Jun-13 West End City 5-year swap Bank rate Jun-14 While looming base interest rate rises will generate significant attention, we expect yields to remain well supported as the year goes on. The direct impact on borrowing costs from higher long term rates is being offset by increasing competition among lenders, which has led to a significant reduction in margins. Strong growth in values is drawing more product to market 6 OnPoint The Central London Market Q2

7 Issue to watch: Expanding London A fast rising population, rapid employment growth and the restoration of confidence in the wider economy provide the backdrop for the continued expansion of the Central London office market. While the need for more houses and transport capacity will generate mainstream headlines, the need for more office space will also create a challenge for London to address. Alongside this, occupier mobility has evolved and is now a key characteristic of the Central London office market, which will enable this growth to occur. Rising demand Despite the current strength of the leasing market, large deals are still being driven predominantly by lease events and consolidation. We anticipate a further surge in demand when rapid employment growth filters through to expansionary requirements. Take-up is on track to match last year s total of 11 million square feet in Central London, and in the longer term, we estimate that the projected growth in office employment will create a need for an additional 2 million square feet over the next five years, roughly the equivalent of the current size of the Docklands market. Limited supply In our Q4 213 Issue to Watch we noted the shortfall of new supply, and this will promote the development of new markets. Following the recession, development completion levels have been well below long term averages. While the City is seeing an increase in completions in, the speculative development pipeline is very limited in 215 in both the City and the West End, with only 1. million and 8, sq ft respectively expected to be delivered. Given the current rate of take-up this is likely to be rapidly absorbed, further tightening the market next year. Taking a longer term view, the current level of development will not provide the level of stock growth that will eventually be needed to cater to the growing London office market, and this will cause a spill-over into new markets. The current committed development pipeline will see overall stock grow by around 9 million sq ft to end 218, well short of projected demand, even when allowing for more efficient use of space and rising density. Rising occupancy costs Occupiers are acutely conscious of overall occupancy costs. In addition to rents, rates are a substantial cost and can vary quite dramatically for different sub-markets in Central London. For instance rates are circa 47.5 per sq ft in West End core and 28 in Victoria, compared with 2 City core, 16 in Southbank and as low as 9 in Stratford. The impact of high business rates in the West End and increasing headline rents will lead to a significant differential between markets which will influence occupiers real estate decisions. Push versus pull Limited supply and rising rents will leave occupiers with two choices: the pull to Central London or the push out of Central London. The pull factor will win over occupiers who are focused on attracting and retaining talent, preserving their brand image and close proximity to clients and likeminded businesses. For these occupiers, budget will be adjusted to ensure they can obtain their preferred accommodation. On the other hand, the push factor will win over occupiers who are more cost conscious or have timing constraints and require larger floor plates with better efficiencies. New-builds on the periphery of Central London will generally have quicker building times and larger lot sizes enabling larger floor plates. Where next for the London office market? As a result of these forces, the CentraI London market will see continued expansion. In the near-term, sub-markets outside the traditional core such as Southbank, Victoria and Shoreditch will benefit, especially where they offer high quality new supply. In the longer term, the market will see in-fill in relatively under-developed areas such as Vauxhall, Waterloo and Aldgate. It will also expand out to the likes of Stratford, Battersea and Surrey Quays. The pace of change will be guided by the ability to attract occupiers, who will continue to seek enhanced productivity, cost efficiency, transport connectivity and amenity. OnPoint The Central London Market Q2 7

8 The West End office market Occupier take-up 858,4 sq ft was let in 52 transactions, an increase of 21% q-o-q and 4% higher than the 1 year quarterly average of 824,5 sq ft. This brings the year-to-date total to 1.6 million sq ft. A further 885,1 sq ft is under offer, unchanged q-o-q and 57% higher than the 1 year quarterly average of 566,4 sq ft, suggesting take-up in the second half of will be robust. Pre-completion lettings accounted for 25% of letting activity in Q2 and 36% of space under offer will be on a pre-completion basis signalling an improvement in occupier confidence and reinforcing a trend that emerged in 213. In contrast to recent trends where we have seen the TMT sector dominate, the leading leasing sector in Q2 was services, which represented 41% of total take-up, the largest transaction being14,488 sq ft acquired by Estée Lauder at 1 Fitzroy Place, W1 (confidential rent), followed by the TMT sector (17%) and banking and finance (16%). Other significant transactions in Q2 include: KPMG who completed on 37,838 sq ft at 2 Grosvenor Street, W1 at an overall rent believed to be 15 per sq ft, Tudor Capital let 38,177 sq ft at 1 New Burlington Street, W1 at 15 per sq ft and Lionsgate Management acquired 15,675 sq ft at Wells and More, 45 Mortimer Street, W1 at 75 per sq ft. West End take-up 25 - millions sq ft New Secondhand Under construction Off plan West End demand 25 - millions sq ft Occupier demand Overall demand remained relatively unchanged at 5.1 million sq ft, marginally below the 1 year quarterly average of 5.3 million sq ft. The TMT sector continues to drive the market, accounting for 3% of overall demand followed by the service sector (22%). Active demand stands at 3.4 million sq ft, 2% higher than the 1 year quarterly average. Active requirements include Dixons Carphone 1, 15, sq ft, Edelman 6, 7, sq ft and BlueCrest Capital 5, 7, sq ft. Existing supply and the development pipeline Total supply fell 11% q-o-q to 2.9 million sq ft, the lowest level since Q Active Potential Rolling 12 month take-up Speculative development under construction increased 11% q-o-q to 2.2 million sq ft due to 485,5 sq ft in four schemes commencing construction in Q2. Building commencements were: St James s Market, SW1 (212,8 sq ft), 12 Hammersmith Grove, W6 (165, sq ft), St Lawrence House, 26-3 Broadwick Street, W1 (83, sq ft) and Yalding House, Great Portland Street, W1 (24,7 sq ft). Overall vacancy decreased by 8 basis points to 2.8%, significantly lower than the long term average of 5.%. Grade A vacancy is 2.1%, a decrease from 2.7% in Q1 and lower than the long term average of 2.9% OnPoint The Central London Market Q2

9 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 8% year-onyear. Rent free periods remain at 16 months. Q2 has seen an increase in the number of deals in the core achieving rents in excess of the prime rent, for instance: Cain Hoy acquired 5,44 sq ft for 115 per sq ft at 33 Davies Street, W1 and Heritage Oil paid 17.5 per sq ft at 5 Hanover Square, W1 (7,983 sq ft). However, it is important to note these deals are sub 1, sq ft and generally include a tenant break. West End vacancy rates 25 - Availability (%) of overall stock 9% 8% 7% 6% 5% 4% 3% 2% 1% % Investment volumes and yields Investment volumes in Q2 rebounded following a slow start to the year. 1.3 billion was traded in 28 transactions; this is in-line with the 1 year quarterly average of 1.3 billion and brings the yearto-date total to 1.8 billion, marginally behind the equivalent period last year ( 2. billion). Larger lot sizes dominated the market in Q2, with 1 million plus lot sizes accounting for 75% of the overall total. Overseas investment represented 57% of total transactions. Whilst the proportion of overseas investment has declined from levels recently witnessed, it is in-line with the 1 year average and indicates UK investors are returning to the market. Key deals include: 33 Grosvenor Place, SW1 which was acquired by Perella Weinberg Partners from the United States for 24 million, Scottish Widows Investment Partnership (now Aberdeen Asset Management) disposed of 22 Hanover Square, W1 for 155 million to Indiabulls Real Estate and Meyer Bergman purchased New Bond Street, W1 for 122 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. Overall West End prime headline rents Prime per sq ft West End investment purchases 25 - billion Grade A Net effective Property companies Institutions Others OnPoint The Central London Market Q2 9

10 The City office market Occupier take-up 1.6 million sq ft was let in 87 transactions, well above the 1.2 million sq ft transacted in the first quarter and 23% ahead of the 1 year quarterly average. Year to date take-up is now 2.8 million sq ft, 8% lower than the half year point in 213 when 3 million sq ft had been leased. Despite the improved transaction volumes, the amount of floorspace under offer increased in Q2 and is currently 2.2 million sq ft, the highest quarterly total since Q3 27, suggesting take-up will continue to be robust in the second half of the year. Service sector companies accounted for the largest share of occupier activity, with 38% of take-up in Q2, followed by the banking and finance and professional sectors with 32% and 16% respectively. Mizuho s 192, sq ft pre-let of 2 New Ludgate, EC4 was the largest transaction of the quarter and of the year to date. Other notable transactions in Q2 include: 111 Old Broad Street, EC2 (89, sq ft) which was purchased by the China Construction Bank for their own occupation, 77, sq ft acquired by Clarksons at Commodity Quay, E1 and 51, sq ft to Salesforce at the recently renamed Salesforce Tower London, EC2 (formerly Heron Tower, EC2). City take-up 25 - millions sq ft New Secondhand Under construction Off plan City demand 25 - millions sq ft Occupier demand Overall demand increased by 11% in Q2 to 11.1 million sq ft, the highest total since Q2 28. Active demand increased by 1% to 6.9 million sq ft, compared to 6.3 million sq ft at the end of Q1 and remains well ahead (24%) of the 1 year quarterly average of 5.6 million sq ft. The service (46%), banking and finance (29%) and professional (16%) sectors account for the largest shares of active demand. Notable active requirements include: Amazon (2, 3, sq ft), Société Générale (3, sq ft) and the Financial Times (15, 2, sq ft) Active Potential Rolling 12 month take-up Existing supply and the development pipeline Total supply increased by 18% to 8.1 million sq ft, compared to 6.8 million sq ft at end Q1 and is now in line with the 1 year quarterly average. Floorspace under offer is highest since Q OnPoint The Central London Market Q2

11 The volume of Grade A supply also increased, ending the quarter at 5.7 million sq ft which equates to a vacancy rate of 5.2%. The increase in supply was driven by a raft of building completions in Q2 totalling 1.6 million sq ft, although 37% of this space has been pre-leased. Development completions include: 24 Blackfriars Road, SE1 (217,57 sq ft), Moorgate Exchange, EC2 (22,312 sq ft) and 1 Finsbury Square, EC2 (147,718 sq ft) New Fetter Lane, EC4 was the only construction start in Q2; the entire 136, sq ft scheme has been pre-let to Bird & Bird and is scheduled to complete in Q City vacancy rates 25 - Availability (%) of overall stock 14% 12% 1% 8% 6% 4% 2% % Rents Prime rents and incentives remained stable at 6 per sq ft and 24 months rents free, on an assumed 1 year term. We anticipate further upward pressure on prime rents towards the end of the year, with rents expected to reach 65 per sq ft by the end of Q4. Significantly higher rents have been achieved on the upper floors of the recently developed City Towers, notably top rents in the Shard, SE1 are now synonymous with rents in areas immediately surrounding the West End core markets, like Victoria and North of Oxford Street. Overall City prime headline rents 25 - per sq ft Grade A Investment volumes and yields 1.6 billion was traded in 24 transactions in Q2, a 23% quarteron-quarter increase but 11 % below the 1 year quarterly average. Notable transactions include: 33 Holborn, EC1, which was purchased by an overseas consortium led by Tishman Speyer for 311 million, COLI s acquisition of Carmelite Riverside, EC4 for 16 million, and Alban Gate, London Wall, EC2, which was purchased by Blackstone for 3 million. Prime yields remained unchanged at 4.5% for sub 4 million lot sizes, but trending stronger. Prime yields for lot sizes of million and above 125 million both moved in 25 basis points to 4.5% and 4.75% respectively. There is increasing evidence of investors moving up the risk curve to achieve target returns. This is partly a response to the weight of money pursuing core assets, largely driven by ongoing demand from overseas investors with lower target returns and cost of capital Prime Net effective City investment purchases 25 - billion Property companies Institutions Others OnPoint The Central London Market Q2 11

12 The Docklands & East London office markets Occupier take-up 183,5 sq ft was let in seven transactions, falling back from the 476, sq ft transacted in Q1. Year to date take-up is now 659, sq ft and has already exceeded the annual total transacted in each of the last three years. The largest transaction of the quarter was 62, sq ft acquired by International Power at 25 Canada Square, E14. Other notable transactions include: 45, sq ft to European Banking Authority (EBA) at 1 Canada Square, E14 and 21, sq ft to Network Rail at One Stratford Place, E2. There is an additional 828, sq ft under offer, the majority of which is to Financial Conduct Authority (FCA) (425, sq ft) and Transport for London (TfL) (25, sq ft) at the International Quarter, Stratford, indicating that take-up will continue to be robust in the second half of the year. to the recent increase in occupier demand and the lack of newly developed stock. Investment volumes and yields There was a single large investment transaction in Q2 : 1 Upper Bank Street, E14 purchased for 795 million by a consortium of China Life (7%) and Qatar Investment Authority (QIA) (2%) with the vendor, Canary Wharf Group, retaining a 1% share. This transaction accounts for the majority of investment turnover with 878 million in four deals transacted during the year to date. Docklands take-up Occupier demand Overall demand for office space in Docklands and East London continues to increase and is now 3.4 million sq ft, the highest total since Q3 28. The services (44%) and banking and finance sectors (36%) account for the largest proportion of overall demand. The quarterly increase in overall demand was driven by an up-take in the level of active demand which rose by 25% to 2 million sq ft. Société Générale (3, sq ft) and RBC (1, 13, sq ft) have requirements with search areas including Docklands. Existing supply and the development pipeline Total supply is currently 1.2 million sq ft, down from 1.5 million sq ft in Q1. This equates to a vacancy rate of 5.8%, the majority of which is second hand Grade A space. Following the completion of 25 Churchill Place, E14 there are now no developments under construction in Docklands and East London. Rents Prime rents remained unchanged at 38.5 per sq ft in Q2, and have been stable at this level since Q We expect to see rental growth return before the end of due millions sq ft New Secondhand Under construction Off plan Docklands demand 25 - millions sq ft Active Potential Rolling 12 month take-up 12 OnPoint The Central London Market Q2

13 Headline transactions West End 1 Fitzroy Place, W1 Area: 14,448 sq ft Tenant: Estée Lauder Rent: Confidential Building status: Under construction 2 Grosvenor Street, W1 Area: 37,838 sq ft Tenant: KPMG Rent: 15 per sq ft (overall) Building status: Under construction 33 Grosvenor Place, SW1 Area: 193,227 sq ft Purchaser: Perella Weinberg Partners Reported price: circa 24 million Est initial yield: circa 4.79% 22 Hanover Square, W1 Area: 88,181 sq ft Purchaser: Indiabulls Reported price: 155 million Est initial yield: 3.35% City 2 New Ludgate, EC4 Area: 192,935 sq ft Tenant: Mizuho Rent: Confidential Building status: Under construction Commodity Quay, E1 Area: 77,439 sq ft Tenant: Clarksons Rent: 5 per sq ft Building status: Under construction 33 Holborn, EC1 Area: 327,956 sq ft Purchaser: Tishman Speyer Reported price: 311 million Est initial yield: 4.78% Carmelite Riverside, EC4 Area: 135,773 sq ft Purchaser: COLI Reported price: 16 million Est initial yield: 4.6% Docklands & East London 25 Canada Square, E14 Area: 61,876 sq ft Tenant: International Power Rent: 33 per sq ft Building status: Secondhand 1 Upper Bank Street, E14 Area: 1,4,9 sq ft Purchaser: Consortium of China Life (7%), Qatar Investment Authority (2%), Canary Wharf Group (1%) Reported price: 795 million Est initial yield: 5.3% OnPoint The Central London Market Q2 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) 16.2% 7.9% 11.2% 12.6% 12.5% -1.1% 26.8% 18.1% 11.% City village Central Core City Midtown Eastern Eastern Fringe Northern Northern Fringe Southbank Southern Western max min % annual change (average) 6.1% 12.6% 14.8% 26.4% 1.2% 32.1% 13.7% 9.6% 9.3% 14 OnPoint The Central London Market Q2

15 Planning policy and development update The Infrastructure Bill The Infrastructure Bill, introduced during the Queen s Speech, had its second reading in the House of Lords on 18 June and is expected to come into force before the next general election. The Bill includes changes to the planning regime and the way zero carbon homes policy will be implemented. Of particular interest, the Bill will allow certain types of planning conditions to be discharged upon application if a local planning authority has not notified the developer of their decision within a prescribed time period. The Bill will also seek to speed up the time taken for sites granted planning permission to be built, reforming procedures and conditions attached to existing planning permissions. Current consultations Camden Council is currently reviewing its Core Strategy and Development Policies, a new Local Plan will be published for comments later in. The Council is also consulting on its revised community infrastructure levy (CIL) Draft Charging Schedule following an examiner s ruling that its preliminary schedule was unlawful. Islington Council submitted the CIL Draft Charging Schedule to the Secretary of State and the Planning Inspector has now found the schedule to be sound. The Council intends to adopt the CIL Charging Schedule on 1 September. Hackney Council submitted the Development Management Local Plan and the Site Allocations Local Plan to the Secretary of State and the Examination in Public is expected to commence in September. The Council is also reviewing its CIL Draft Charging Schedule and Planning Contributions Supplementary Planning Document. Applications The Secretary of State for Communities and Local Government, Eric Pickles, approved the proposal for the redevelopment of the Shell Centre on the South Bank. The scheme was submitted by Braeburn Estates, a joint-venture between Canary Wharf Group and Qatari Diar Group, and includes a mixed-use development (offices, homes and retail space) surrounding the iconic 27-storey Shell Tower. The application was approved by Lambeth Council in May 213 and by the Mayor of London in July 213, but Eric Pickles called in the planning application to assess its design and impact on the World Heritage site at Westminster. A public inquiry was held in November and December 213, with the Inspector recommending the application for approval. Westminster City Council s planning committee resolved to grant planning permission for the redevelopment of the Marble Arch Tower, located at the corner of Oxford Street and Edgware Road. The scheme, submitted by developer Almacantar, proposes the demolition of the existing 22 storey office building and the construction of two new buildings, 7 and 17 storey high, comprising 123, sq ft of offices, 37, sq ft of shops, 53 flats and a cinema. London Underground submitted a planning application for Bank Station s Over Station Development to the City of London. The scheme involves the demolition of the existing buildings and the erection of a new 6 storey building, including retail units at part ground and mezzanine levels and new office accommodation at part ground and six upper floors (approximately 174, sq ft). 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 OnPoint The Central London Market Q2 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 () The Central London Market Q2 On Point reports from JLL include quarterly and annual highlights of real estate activity, performance and specialised surveys and forecasts that uncover emerging trends. 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.