WEST END FLOOR REVIEW A floor-by-floor analysis of the West End office market Q4 2015 QUARTERLY SUMMARY Supply increases 15% following the addition of several developments due to complete in H1 2016 This improves the outlook for take-up in 2016 particularly in Victoria Banking & finance was the most active occupier sector in Q4 2015 Volume of space under offer rises 45% Prime rents rise again to 125 per sq ft Positive outlook for both the banking & finance and TMT sectors in 2016
FOURTH QUARTER REVIEW THE QUARTER IN NUMBERS Q ON Q Y ON Y COMMENT 533 floors available, totalling 2.59 million sq ft -6% by floors (+15% by sq ft) -10% by floors (-14% by sq ft) The volume of space on the market rose by 15% following the addition of several developments which are due for completion in H1 2016. The combined total of all new space entering supply through the development pipeline was close to 1 million sq ft. This total includes buildings with large floorplates such as Nova South and Portland House in Victoria and The Adelphi in Covent Garden, but also smaller buildings such as 48-49 Pall Mall in St James s. 236 floors taken-up during Q4, totalling 0.9 m sq ft 25% by floors (-36% by sq ft) 33% by floors (-21% by sq ft) Take-up was driven by significant relocations from the banking and finance sector in Q4, including Deutsche Bank taking 87,500 sq ft at the Zig Zag building in Victoria and the Carlyle Group signing up to 63,500 sq ft at the St James s Market scheme. Although WeWork let 61,500 sq ft at Fox Court on Gray s Inn Road, and MP & Silva let 15,000 sq ft at Park House in Mayfair, it was a subdued quarter for the TMT and serviced office sectors. 32% of take-up accounted for by the Banking & Finance sector 11% in Q3 2015 26% in Q4 2014 The West End market relied on its traditional occupier base during Q4 as companies in the asset management, private equity, banking and finance sector committed to high quality space. Point72 Europe took the 7,116 sq ft first floor at 8 St James s Square at a reported headline rent of 147.50 per sq ft, and Vision Capital Group signed up to the fifth floor at 55 St James s Street at a reported rent of 120 per sq ft. 31 floors Over 10,000 sq ft in size taken-up during Q4 29 floors 23 floors Deals on large floors at Park House in Mayfair, by Centrica, Coller Capital and MP & Silva, and at 2 Fitzroy Place in Fitzrovia & Bloomsbury by Lendinvest and Volterra Fietta increased activity levels on the largest floors. The largest single floor transacted during Q4 was Pret a Manger taking the 30,839 sq ft first floor at the Verde scheme in Victoria. This activity pushed the average size of deal transacted to 3,819 sq ft. 198 floors under offer at the end of Q4, totalling over 800,000 sq ft 122 floors (557,000 sq ft) 194 floors (704,000 sq ft) The amount of space under offer rose by 45% during Q4 as several smaller floors in Mayfair and several larger floors in Marylebone were put under offer. Over half of this space is either new or refurbished, with an average floor size of 4,071 sq ft as occupiers look to secure the best quality space available to them. 125 per sq ft Mayfair and St James s prime rent 120 per sq ft 115 per sq ft Private equity and hedge fund occupiers continue to compete for the best space in Mayfair and St James s and prime headline rents have increased by 10% during 2015. The shortage of occupier choice is forcing occupiers to agree pre-lets earlier and earlier in the construction process and we are seeing increased rental levels agreed. www.geraldeve.com
2015 REVIEW 2015 was defined by strong demand, historically very weak levels of supply and double-digit rental growth. We are now seeing increased levels of speculative development which will help support take-up during 2016 as more good quality space becomes available particularly in Victoria, which is already attracting high profile banking and finance occupiers. Paul Pride, Partner As we enter a new year, now is a good time to take stock of what has happened over the last twelve months. Several records have been set during the year and here we outline some of the landmark achievements of 2015. Most active occupational sub-market Highest headline rent Largest single occupational transaction With 294 floors totalling 1.27 million sq ft taken-up during 2015, it was a very active year for this sub-market. Headline deals in the technology sector including Facebook pre-letting 230,000 sq ft at 1 Rathbone Square were complemented by serviced office providers such as WeWork, The Office Group, Open Offices and Regus together committing to over 200,000 sq ft of space. The agreement of a 15 year lease on the 2,959 sixth floor at 8 St James s Square to the Helly Nahmad Gallery in Q2 2015 was the highest rent ever paid for an office in the UK. The letting by Point72 Asset Management of the first floor of the same building at a headline rent of 147.50 was the another high rent achieved in the year. The agreement by Kings College London to take almost 300,000 sq ft over 44 floors and four buildings at the Aldwych Quarter development in Covent Garden was the largest single deal of the year. The deal was reported to be signed on a 50 year lease at a headline rent of 57.50 per sq ft. Largest single floor let Most active occupier sector Largest investment transaction The sub-letting from Pearson PLC to Aimia Foreign Holdings UK Ltd of the 40,090 sq ft fifth floor at Shell Mex House at 80 Strand in Covent Garden was the largest single floor transacted in 2015. The building is also home to London s largest clock face, at 7.62 metres in diameter! Both the banking & finance and the TMT sectors each committed to around 750,000 sq ft of West End office space during 2015. However, it was the TMT sector which accounted for slightly more at 19% of all take-up. Software and game developers and digital media organisations combined with high profile lettings from the likes of Facebook, Microsoft and Warner Brothers to make this the most active occupier sector of 2015. A GAW Capital-led consortium s 498.5 million purchase of 123-151 Buckingham Palace Road from Divco West was the largest single investment deal of 2015. The 480,000 sq ft interlinked office development was purchased at a yield of just over 5% and is let to tenants including Google, PA Consulting Eni and Sky Media.
2016 OCCUPIER OUTLOOK We saw an even balance of finance and banking and technology and media companies taking space in 2015 and certain parts of the West End are gradually reweighting away from finance to a more digital occupier base. The amount of space being developed speculatively, particularly in Victoria, will add much needed supply to the West End in 2016 and is expected to draw finance and banking occupiers back west given the supply constraints in other parts of central London. Banking & Finance 724,000 sq ft Volume of space taken-up (2015) Technology, Media & Telecommunications 734,000 sq ft Financial companies searching for large floorplates in central London such as Deutsche Bank and more recently Moneycorp have taken space at new developments in Victoria and many of these schemes are almost fully-let soon after completion. We expect that the new supply coming on line in 2016 will allow for increased levels of take-up, and (albeit to a lesser extent than in 2015), further growth in rents. We also expect that the traditional finance and the growing technology firms will continue to be the most acquisitive occupier sectors which battle it out for the space in 2016. Each sector has slightly different prospects, attributes and occupational preferences which we outline here. Victoria 21% 133 5,440 sq ft Deutsche Bank, Carlyle Group, PJT Partners, Coller Capital, TPG capital, Advent International, Mediobanca, Canada Pension Plan Investment Board, Point72 Europe, Amicus Mayfair & St James s 55% of all activity from this sector is in these locations An additional 1,300 employees 3.1% * Number of floors taken-up (2015) Average size of floor taken-up (2015) Companies taking space (2015) Preferred sub-markets Employment growth (2015) 125 5,943 sq ft Facebook, King Digital, Aimia, Chime Communications, Microsoft (Dell), MP & Silva, Space Ape, NaturalMotion, the7stars, Gtech, Cirrus Logic, Deliveroo, BuzzFeed, Warner Brothers of all activity from this sector is in these locations ** Fitzrovia & Bloomsbury 48% 1.7% Covent Garden 19% An additional 1,500 employees An additional 2,800 employees by 2020 1.7% * Average annual employment growth (2016-2020) ** 1.2% An additional 3,900 employees by 2020. Annual growth 4.1% * Average forecast growth in GVA (2016-2020) ** 4.0% Annual growth * Financial and Business Services (Westminster) ** TMT (Westminster) SERVICED OFFICE PROVIDERS CORPORATES PROFESSIONAL SERVICES ASSOCIATIONS U UNDERCARD D Sources: Gerald Eve, Experian Economics www.geraldeve.com
DEFINITIONS Availability Marketed floorspace over 500 sq ft in size and available to move into within 6 months that may or may not be vacant but which is actively marketed by an appointed agent. We monitor available floorspace 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 floors 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 available 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 10 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 available, we also monitor the number of floors 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 floors available 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.
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 (www.geraldeve.com) or contact the following people direct. WEST END Lloyd Davies Head of West End Transactions Tel. +44 (0)20 7333 6242 Mobile +44 (0)7767 311 254 ldavies@geraldeve.com Paul Pride Office Agency Tel. +44 (0)20 7333 6249 Mobile +44 (0)7584 213455 ppride@geraldeve.com Graham Foster Lease Consultancy Tel. +44 (0)20 7653 6832 Mobile +44 (0)7774 823663 gfoster@geraldeve.com CITY Simon Prichard Senior Partner Tel. +44 (0)20 7653 6827 Mobile +44(0)7796 930334 sprichard@geraldeve.com Fergus Jagger Office Agency Tel. +44 (0)20 7653 6831 Mobile +44 (0)7787 558756 fjagger@geraldeve.com Mark Lethbridge Office Agency Tel. +44 (0)20 7653 6833 Mobile +44 (0)7710 618022 mlethbridge@geraldeve.com PLANNING & DEVELOPMENT Hugh Bullock Head of Planning and Development Tel. +44 (0)20 7333 6302 Mobile +44 (0)7831 172974 hbullock@geraldeve.com Lisa Webb Planning Tel. +44 (0)20 7333 6225 Mobile +44 (0)7747 607309 lwebb@geraldeve.com Nick Brindley Planning Tel. +44 (0)20 7333 6 362 Mobile +44 (0)7944 584743 nbrindley@geraldeve.com GERALD EVE S UK OFFICE NETWORK London (West End) 72 Welbeck Street London W1G 0AY Tel. +44 (0)20 7493 3338 London (City) 46 Bow Lane London EC4M 9DL Tel. +44 (0)20 7489 8900 Birmingham Bank House 8 Cherry Street Birmingham B2 5AL Tel. +44 (0)121 616 4800 Cardiff 32 Windsor Place Cardiff CF103BZ Tel. +44 (0)29 2038 8044 Glasgow 140 West George Street Glasgow G2 2HG Tel. +44 (0)141 221 6397 Leeds 1 York Place Leeds LS1 2DR Tel. +44 (0)113 244 0708 Manchester No1 Marsden Street Manchester M2 1HW Tel. +44 (0)161 830 7070 Milton Keynes Avebury House 201-249 Avebury Boulevard Milton Keynes MK9 1AU Tel. +44 (0)1908 685950 West Malling 35 Kings Hill Avenue West Malling Kent ME19 4DN Tel. +44 (0)1732 229423 For more information on any of the facts and figures in this publication, please contact: Steve Sharman Tel. +44 (0)20 7333 6271 ssharman @geraldeve.com 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. 01/16 www.geraldeve.com