Research Office Analysis uarter 1 8449 gva.co.uk
Patrick O Keeffe Head of Prime Rental Growth, 199 to present Agency and Investment pok@gva.co.uk 79 768 4% % take-up Source: EGI/GVA % year quarterly average 6,, % -%,, -%,, -4% 8 1 1 1,, 8 1 1 office availability rates Source: GVA, Focus 1 16% 7,, 14% 1% % 6,, 6% 4,, (%) 4% % %,, We have seen a very active quarter, with take-up the highest since the final quarter of and activity for the first three quarters of 1 at 8. million sq ft already in excess of the annual take-up of the last two Incentives are key years. With a Prime Rental Growth, 199 to present Despite plenty of recent activity large amount of there is currently 7% more space space currently there available than was during under offer, we 4% the peak of the market in. envisage that take-up for the year Consequently, despite headline should be close to%levels last seen rents being close to peak levels, in. rent free periods are substantially % Tenant requirements have higher than they were during become increasingly foot loose, with incentives being used % with occupiers more open to a to attract and retain tenants and choice of locations%than they maintain headline rents. traditionally have been, with the With flexibility highly coveted, building now more important -% breaks are also very desirable than the location. for occupiers. A good example -% Tenants who are wedded to core is the recent letting activity at locations and the best of the The Point in Paddington where -% best increasingly have to enter more than, sq ft has bidding wars to acquire their been let in the last six months, -4% 8 9 example 1 preferred building, an 1 with breaks. Contrast to all that in the being Noble Oil Paddington where breaks paying 1 per sq ft with no have not been conceded and break at Devonshire House in there has been no recent letting Mayfair due to high interest from activity, although the new owners other parties. At King Street in St British Land may take a different James s Temasek paid in excess approach, as Facebook are of per sq ft in order to secure rumoured to have had a lease the top floors. Whether these 1 break on their deal at Regent s super-prime deals on the best Place, also owned by British Land. space will drag16% up rents on lesser In the coming months we will see space remains14% to be seen. if these changes are just part of a Prime rents in the last six cyclical trend, or if there has been 1% months have seen sharp a structural change in the market. % where increases in areas demand is far in excess of top quality supply such as North of Oxford Street and 6% Fitzrovia. In the, after a sustained period of Patrick O Keeffe stability, there is 4% rental growth -% 4,, (%) Take up (sq ft),, % In essence, what we are seeing is a wide divergence of rents across central with second hand Grade A space heavily discounted compared to newly completed buildings, with a further difference in rents achievable on the best floors even within the same buildings. It will be interesting to see if this price gap narrows over the next quarter as availability decreases further. 4 6 7 8 9 1 1 1 1 1 Occupier market take-up for the quarter totalled. million sq ft, the highest quarterly take-up since 4, 4% up on the previous quarter and 4% up on the five-year quarterly average. As of the end of 1, 1. million sq ft was available throughout central, equating to a vacancy rate of 6.%, down from 7.% at the end of 1, with availability decreasing across all submarkets (see individual market sections). This is the first fall in central availability in a year as a substantial amount of new build and good quality second hand space either let or went under offer. A very strong quarter means that take-up for the first three quarters of 1 totalled 8. million sq ft, already up.4% and 6.% on annual take-up figures for 1 and respectively. With another quarter left of the year, and space under offer in the region of. million sq ft across central, annual take-up should total well over million sq ft, compared to the ten-year annual average of 9 million sq ft. 1. million sq ft of development started during the quarter, the largest being Land Securities 48, sq ft New Ludgate (EC4) scheme. This means that there is currently 1.6 million sq ft under construction across central, with 9.1 million sq ft (9%) of this due for completion before the end of 14. year quarterly average Across central, take-up on newly completed space made up 9% of,, activity, with a further 6% of lettings on buildings under construction meaning that % of 4,, lettings were on brand new buildings. Second hand grade B space accounted for only of take-up.,, 8 1 1 office space under construction Source: GVA 7,, 6,, 4,,,, 1 prime rental growth Source: GVA 4% % prime rents grew by.% during the quarter, with the and growing by.% and 1.4% respectively. Prime rents across decreased by 6.7%. Annually, prime rents across central are up 7.9% on the corresponding period in 1. 14 Prime Rental 1 16 Growth, 199 to present 6, year quarterly average %, % 4, %, -%, -% 1, -% 8 1,, During the quarter there were nine,, over, sq ft, deals completed four of which were over, sq ft, with three in the and one 1,, in.,,,, During the quarter, 1.8 million sq ft of development completed, of which over % had already been let. The largest building to complete was Sellar s The Place (SE1), which was let during the quarter to News International. Five of the buildings completed during the quarter were over, sq ft. Once again, the busiest business sector was TMT, accounting for 7% of take-up, with Finance and Banking accounting for %, and the Legal sector a further 9%. 4,, In what was an active quarter across all submarkets, the Fringes saw the most activity, accounting for 4% of take-up and indeed the two largest deals, on the Southbank, accounted for 67, sq ft and 1% of total central take-up for the quarter. 6,,,, Take up (sq ft) Market comment across most sub-areas, with 7 per sq ft being achieved on tower space. million Welcome to GVA s brand new Office Analysis report, a detailed account of our view of the market in 1. A tiered market emerging Take up (sq ft) year quarterly average 6,, 1 1-4% 8 9 1 7 4 6 8 1 1 1 1 1 1 % 1 14 1 16 % 1 1 8 office analysis 1 I 7,, 1
4% % Welbeck Street, W1 % % % 6,, -% 4,, -% 8 1 1 Justin James Senior Investment % The optimism in the occupier market is having a Justin.james@gva.co.uk 79 678 1 14 1 positive effect on the investment market with strong % 1 1 8 prospects meaning that refurbishment for rental growth 16 1 investment transactions Source: GVA, PropertyData 16% year quarterly average 14% 6, 1%, % % 1, 1 1 8 8 1 1 Source: GVA...7 6. Frin East din gto n Frin North Pad Vic toria No r t Stre h Ox et / ford Fitz rov ia Soh Co o ven / tg ard en Sou thw ark or n 4.7 Holb Ma Jamyfair / es's St Co re 4.7 The was the most active submarket, with.8 billion transacted, the highest investment figure that we have on record. The 4.7 4.7 saw.1 billion.7 worth of deals. totalled million, 1% down on the five-year quarterly average. In keeping with recent trends, overseas investors were the most active in the market accounting for 9% ( billion) of purchases and 4 (.4 billion) of sales across central. UK property companies were the second most active purchasers, with 1. billion spent during the quarter (4%). Meanwhile institutional investors were net dis-investors, involved in 46 million of purchases, and 1. billion of sales. yields.7 Kingdom Street (W), with British Land paying 4 million representing a yield of.%. In the, Samsung SRA AM bought Gresham Street (EC) from GIC for million at yield of just over %. Of the two deals completed in, the largest was Canary Wharf Group s purchase of 1 Westferry Circus (E14) from administrators for 18 million. Yields...7 6. Prime yields across most submarkets this quarter remained stable, with the only movement coming in the Core and Holborn, where yields came in basis points. Vic toria No Strerth Ox et / ford Fitz rov ia Soh Co o ven / tg ard en Sou thw ark 4% orn 6%, Holb million (%) 4, Transaction volumes investment for the quarter totalled over billion, the busiest quarter since the peak of the market in mid-, with the total investment 4% higher than the figure, and % above the five-year quarterly average., % opportunities are especially attractive at the moment. The office to residential conversion market, particularly in Westminster and other resi friendly boroughs, continues apace with strong competition for suitable opportunities. Frin East din gto n N Frin orth The big news stories of the quarter were Sirosa s off-market purchase of Shell-Mex House for 6 million, 6 million more than had been 6% paid by Westbrook Partners in. In the GIC went under offer on Blackstone s share of the Broadgate Estate 4% for 1.7 billion. Pad During the quarter we have seen only a few large lots actively 1% marketed and these have attracted strong levels of interest from a variety of domestic and international investors. Achieved sales prices have % reflected this imbalance between supply and demand. Investment market,, GVA acted on behalf of Hines to acquire,6 sq ft of Grade A space 14% -% -4% 1 we have now seen well over billion transacted After a record in 1 so far, with overseas money still prevalent. Some UK institutions 16% are now back in the market with a weight of available funds, and for core products they are competing strongly against each other. (%) Ma Jamyfair / es's St Co re 7,, Prime yields in Mayfair and St James s remain at.7%, with the Core now at 4.7%, the lowest since. During the quarter there were 1 purchases of over million, with six of those in excess of million. After Sirosa s purchase of Shell Mex House (WC), the second largest deal in the was at and office analysis 1 I
Occupier market Occupier market 1.% rental growth year-on-year 7. per sq ft prime rents 89, sq ft let 67.7% up on last quarter During 1, take-up across the totalled 89, sq ft, 6 up on the previous quarter and 4% higher than the five year quarterly average. for 1 therefore stands at.9 million sq ft, already in excess of the.8 million sq ft transacted during 1, with one more quarter of the year left. The largest deal to complete during the quarter was at Greater House, Hampstead Road (NW1) where ASOS.com took 9, sq ft. At British Land s recently completed Brock Street, Regent s Place (NW1), Facebook took 88, sq ft, with the remaining, sq ft in the building currently under offer, with an additional 1, sq ft available in the neighbouring Brock Street, part of the same scheme. Deals on newly completed space accounted for of take-up across the, with Schlumberger and Rolls Royce taking 64, sq ft and 7, sq ft respectively at 6 Buckingham Gate (SW1), making the Land Securities development now % let. The TMT sector accounted for 4% (187,4 sq ft) of lettings this quarter, with manufacturing the second most active sector accounting for 19% of lettings (168, sq ft). decreased marginally during the quarter from 4. million sq ft to 4.4 million sq ft, with the vacancy rate now at.4%. At the peak of the market in, the vacancy rate was much lower, at.%. 9, sq ft of developments completed across the during 1, of which only 4, sq ft is available space, as the remaining, sq ft is already let. The largest buildings to complete were the, sq ft Brock Street, Regent s Place (NW1), and 6, sq ft 6 Buckingham Gate (SW1). The largest wholly available office development to complete was Africa House (WC), where 9, sq ft remains available., sq ft of developments went under construction during the quarter, meaning that there is currently.8 million sq ft of development activity in the. After a very strong 1, where rents increased 8.4%, rental growth slowed down considerably to 1.4% during the third quarter. However, prime rents across all areas are still up 1.% for the year. The big movers during the quarter were Knightsbridge and Chelsea which both saw increases of per sq ft to 7 per sq ft and 7 per sq ft respectively. Prime rents in the core markets of Mayfair and St James s increased from per sq ft to 7. per sq ft, only.% down on the peak. Having said that, typical incentives are 17 months rent free, compared to 7 months during the peak of the market. At the super-prime end of the market, Temasek signed at in excess of per sq ft at King Street, St James s (SW1). Another strong quarter in the saw take-up of million sq ft, its highest since 1, 61% up on the fiveyear quarterly average and a slight increase on what was a very active 1. for 1 currently stands at 4.8 million sq ft, already higher than the annual take-up for 1. Once again TMT was the dominant sector, accounting for 44% of activity during the quarter. Law and Finance & Banking accounted for 1% each. During the quarter there were three deals done of over, sq ft with Cameron Mckenna taking 14, sq ft at Cannon Place (EC4), Ogilvy Group letting 6, sq ft at Sea Containers House (SE1) at 4 per sq ft, and News International taking the entire 4, sq ft at The Place (SE1). These three deals accounted for 41% of take-up in the for the quarter. 9% of activity during the quarter was on new build or pre-let space, with second-hand grade A space making up the remainder. Interestingly in the Core, 46% of lettings were in new buildings with key lettings done in Cannon Place (EC4), The Walbrook (EC4), where Vanguard took 49, sq ft and 199 Bishopsgate (EC) where Allianz let 9, sq ft. in the saw a substantial fall, coming down from 7. million sq ft to 6. million sq ft, with the vacancy rate now at 7.1%. The Walbrook is now over let or under offer, with availability also reducing in The Shard (SE1) and Aldermanbury (EC). At the end of the quarter, 8.1 million sq ft was under construction across the and its fringes. 94, sq ft completed during the quarter including 4, sq ft at The Place (SE1) and 17, sq ft at 1 Bridge (SE1). Of all the space that completed during the quarter, % is still available. Construction got underway at five buildings totalling 1. million sq ft during the quarter, with the largest being Land Securities 48, sq ft New Ludgate (EC4) and CIT s, sq ft Southbank Tower, both of which are due for completion in 1. During the quarter prime rents across all sub areas rose.%, the largest quarterly increase since 1 1. This means that prime rents are up.4% annually, after three quarters of negative or very weak rental growth. The TMT sector continues to underpin rents in the fringes and record rents are being achieved in a number of locations including Clerkenwell, Southwark and eastern fringes where prime rents rose from per sq ft to 4 per sq ft with 4 months rent free, on a ten year lease, based on evidence in St Katharine Docks. In the Core, prime rents rose to 7. per sq ft with 4 months rent free. Rents on tower floors in The Shard and Heron Tower are achieving 7 per sq ft. Over the last, a large amount of good quality second hand Grade A space that has been on the market has acted as a barrier against rental growth. With a large amount of this space being let, and with a relatively small development pipeline, there is an increasing upward pressure on prime rents. million sq ft takeup 61% up on five year average 1. million sq ft of development starts 44% of take-up accounted for by TMT sector 7.1% vacancy rate office analysis 1 I 7
Occupier market Upper Bank Street, E14 GVA are marketing up to, sq ft on behalf of Clifford Chance, sq ft let to kpmg vacancy rate 7.9% 1.4 million sq ft potential size of office element at heron quays west 1, sq ft of lettings 1% up on five year average The big news of the quarter was KPMG s taking, sq ft across eight floors at Fimalac s North Colonnade (E14). for the quarter totalled, sq ft, the highest quarterly take-up since. The erratic nature of the market means that take-up was 67% up on the previous quarter, but only.% up on the five-year quarterly average. Other notable deals were at One Canada Square (E14) where an undisclosed occupier took 4, sq ft, and at 4 Bank Street (E14) where Shell and i Offices acquired 8, sq ft and, sq ft respectively. At Canada Square (E14), Skrill took 16, sq ft across one floor at a rent of. per sq ft. Available space decreased during the quarter, mainly due to the KPMG letting and now totals 1. million sq ft, down from 1.7 million sq ft the previous quarter. The vacancy rate stands at 7.9%. Churchill Place remains under construction, although works are nearing completion. The building should finish early next year. 4, sq ft was pre-let by EMA in, with the remaining space still available, although Rabobank is reportedly looking at the building, amongst others. Canary Wharf Group received planning permission this quarter for 1.4 million sq ft of offices and 9, sq ft of retail at Heron uays West (E14). Prime rents decreased for the first time since 1 1. Prime rents are now at. per sq ft, with months rent free, although there is wide disparity between occupier and landlord space. In the fringes, rents have stayed stable at 7. per sq ft with months rent free. prime rents per sq ft office analysis 1 I 9
Rental map Camden King s Cross Euston Regents Park Marylebone North of Oxford street Eastern Fringe Noho Covent Soho Garden Paddington Mayfair Green Park Belgravia / Knightsbridge Chelsea Midtown St James s Hyde Park Kensington Hammersmith Clerkenwell Bloomsbury Bridge Wapping Canary Wharf Waterloo Victoria Vauxhall Fulham Battersea Area Area Prime rent Rent free period Business rates Total occupancy costs (inc. service charge and building insurance) Prime rent Rent free period Business rates Total occupancy costs (inc. service charge and building insurance) Battersea 7. 4 months 14.8. Belgravia/Knightsbridge 7. 9.7 4.9 Bloomsbury (WC1). months. 87. Camden. months 14. 9. Core 7. months 17.9 8.6 Chancery Lane / Midtown 7. 4 months 1.4 89.1 Chelsea 7. 8. 8. Eastern Fringe 4. 4 months 14.7 64.9 Covent Garden 67..7 1.4 Northern Fringe 47. 4 months 1. 7. Euston 6. months 1. 9.8 Insurance Sector. 4 months 17. 8. Fitzrovia 7. 18..8 Bridge/More 46. 4 months 16. 7.7 Fulham. 1.9 9.1 Waterloo/Bankside 47. 4 months 14. 7. Hammersmith 6. 1 months 1. 6. West 7. 4 months 18. 86. Kensington 47.. 88. Shoreditch 7. 1 months 8. 6. King's Cross 7. months 1. 88.8 Clerkenwell. 1 months 1. 7.7 Mayfair 7. 17 months 4. 18. Mayfair "Super-Prime" Area Prime rent Rent free period Business rates Total occupancy costs (inc. service charge and building insurance) 1. 19 months 4. 17. North of Oxford St/Marylebone 9..6 16. Paddington 7. months.4 91.1 Soho 8..8. 19.8 7. 17 months 4. Canary Wharf. months 14. 9. St James's Vauxhall 7. months 14.8 6. Other 7. months. 48.8 Victoria 7. months..7 office analysis 1 I
Belfast Birmingham Bristol Cardiff Dublin Edinburgh Glasgow Leeds Liverpool Manchester Newcastle Agency Patrick O Keeffe Head of Agency and Investment 79 768 pok@gva.co.uk Maxim Vane Percy 79 771 mvp@gva.co.uk James Fairweather 79 77 james.fairweather@gva.co.uk Charles Walker Graduate Surveyor 79 687 charles.walker@gva.co.uk Published by GVA Stratton Street, W1J 8JR 1 Copyright GVA GVA is the trading name of GVA Grimley Limited and is a principal shareholder of GVA Worldwide, an independent partnership of property advisers operating globally gvaworldwide.com Investment Justin James Senior 79 678 justin.james@gva.co.uk Chris Strong Associate 79 8 christopher.strong@gva.co.uk This report has been prepared by GVA for general information purposes only. Whilst GVA endeavour to ensure that the information in this report is correct it does not warrant completeness or accuracy. You should not rely on it without seeking professional advice. GVA assumes no responsibility for errors or omissions in this publication or other documents which are referenced by or linked to this report. To the maximum extent permitted by law and without limitation GVA exclude all representations, warranties and conditions relating to this report and the use of this report. All intellectual property rights are reserved and prior written permission is required from GVA to reproduce material contained in this report. GVA is the trading name of GVA Grimley Limited GVA 1. and Agency Tony Joyce Head of Agency and Regional Senior 79 861 tony.joyce@gva.co.uk Charlie Senior Senior Surveyor 79 417 charlie.senior@gva.co.uk Jeremy Prosser 79 86 jeremy.prosser@gva.co.uk Rupert Parker Surveyor 79 796 rupert.parker@gva.co.uk Rod Parker Consultant 79 87 rod.parker@gva.co.uk Fiona Chatham Graduate Surveyor 79 41 fiona.chatham@gva.co.uk Investment Ollie Slack 79 1 oliver.slack@gva.co.uk Nick Swabey Consultant 79 86 nick.swabey@gva.co.uk Research Daryl Perry Senior Researcher 79 4 daryl.perry@gva.co.uk Hilary Meanchoff Research Assistant 79 6 hilary.meanchoff@gva.co.uk 8449 gva.co.uk