The London Office Market Q1 2021 a Guide to Rents, Rent Free Periods & Market Trends

RESEARCH

THE LONDON OFFICE MARKET Q1 2021 A GUIDE TO RENTS, RENT FREE PERIODS & MARKET TRENDS

Is the office, as a place to operate a work, the office, indicates that a of their training, are likely to be less “LANDLORDS OF OFFICE Artificial Intelligence: Friend premises will take time – which business, dead? How is the London return to the 9 – 5 five days a week suited to the Google and Facebook BUILDINGS SHOULD NOT or Foe? should enable the London office office market going to respond work routine is unlikely for many approach to workforce management. UNDERESTIMATE THE Job creation is the key driver of market to adjust accordingly. to the post pandemic structural businesses. As a consequence, there are likely LONGER-TERM IMPACT OF demand for office space. Advances changes in occupier demand? to be fewer opportunities for ARTIFICIAL INTELLIGENCE. in artificial intelligence are beginning such businesses to adopt working These are the questions that I “OCCUPIERS ARE RE- AI IS LIKELY TO SHAPE to reach a point where they are A Bright Future In The am increasingly being asked by THINKING THE WAY THAT practices that would necessitate less THE FUTURE PATTERN likely to have a negative impact on Medium Term journalists, landlords and tenants. THEY USE THEIR OFFICE floor space. OF OFFICE DEMAND employment growth, particularly 2021 will continue to be a year of IN FAVOUR OF THOSE SPACE – WITH GREATER in areas such as law, banking and lower rents and longer rent free REQUIRING SPACE EMPHASIS ON THE financial services where routine tasks periods, rising vacancy, greater FOR CREATIVE AND The Office: A Focal Point WORKFORCE UTILISING A Trend Towards Needing can be carried out more cheaply and choice for footloose tenants and COLLABORATIVE For Business IT AS A HUB, WHEN Less Space efficiently by machines. weak demand, as structural changes PURPOSES – AREAS OF My answer to the first question is REQUIRED, FOR SPECIFIC On balance, however, the current Indeed those, like me, who work in occupier requirements result in BUSINESS WHERE THE simple. No. The feedback that I and PROJECTS THAT REQUIRE trend across London is for occupiers the need for less office space. APPLICATION OF AI in the property profession are not the other members of the Carter TEAMS TO COLLABORATE to require less floor space, reflecting immune from the impact of the However, in the medium term, AND INNOVATE.” IS LIKELY TO BE LESS Jonas Tenant Representation Team the desire to reduce operating costs, EFFECTIVE.” AI revolution: machines are now the London office market has, in my are receiving from occupiers is as well as the increasing adoption being employed to read leases and view, a bright future. The capital is a As ever, the “tech-giants”, very clear: businesses recognise of new working practices and, in undertake valuations. In the medium pre-eminent global technology and including Google and Facebook, the importance of the office as a some cases, headcount reductions. to long term AI is likely to have a financial services hub, underpinned appear to be leading the way in focal point for team collaboration, The experience of Carter Jonas’ depressing effect on the demand by its language, laws and culture. developing workplace strategies to innovation, training and mentoring. Workplace Consultancy Team is office accommodation – to reduce for office space. Landlords of office Overseas investment in London accommodate new ways of operating. Working from home cannot properly that the extent to which a particular their workforce’s exposure to using buildings should not underestimate based businesses will translate into Both companies are introducing address these important issues business can reduce its property passenger lift facilities. the longer-term impact of AI which an increased rate of job creation what are, in effect, “spoke and hub” that are key to fostering business footprint will be directly correlated Tower buildings were written is likely to shape the future pattern over the medium term and increased accommodation models. These development. to headcount and the new operating off as redundant status symbols of of office demand in favour of those demand for office space. are predicated on their employees The negative impact of prolonged practices that it decides to adopt. property developers with big egos requiring space for creative and working from home on the basis periods of working from home immediately after the terrorist attacks collaborative purposes. These that they will be required to attend on the mental health of some is on the World Trade Centre in New York are areas of business where the Tenants will be the key beneficiaries the office on specified days to also now well documented. Most The Death Of The Office Tower on 11 September 2001, on the basis application of AI is likely to be in the London office market over participate in collaborative projects. employers and employees alike Building? that no responsible employer would less effective. the next year or so but landlords of The UK government, the Nationwide are becoming increasingly aware expose their workforce to such risks. good quality, well located, buildings Building Society and outsourcing Will office tower buildings become of the importance of the office to Since then key cities across the world will ultimately benefit from positive firm, Capita, are just a few examples increasingly unlettable? This was promote social interaction, underpin have seen new, and ever taller, tower More London Decentralisation returns over the medium term. of major employers that have a question that was put to me personal wellbeing, productivity and, buildings added to their skyline. London recently announced a shift to more at a recent presentation on the The BBC’s recent announcement that ultimately, profitability. is no exception – witness the recent flexible operating models, based on London office market. Certainly, it is to relocate up to 400 London completion of 22 Bishopsgate which, at employees working for a significant passenger lifts represent a significant jobs to the regions by 2027 comes a 62 storeys, currently holds the record part of the week from home. “bottleneck” in tower buildings, year after the Government unveiled Structural Changes In Occupier for the tallest office building in the City This operating model may work if social distancing measures its plans to similarly relocate up to Behaviour of London. well for some businesses but not for are to remain the norm for the 22,000 Civil Service jobs from the Despite depressed demand, energy The answer to the second question all. Commodities trading companies foreseeable future. I am aware of capital over the next 10 years as part company Dtek reportedly paid a record is not so clear cut and will ultimately that rely on very close co-operation two major international businesses of its “Levelling-up” agenda. City rent of just under £110.00 per sq ft be influenced by the extent to and rapid exchange of information that are currently reviewing their The impact of the decision of per annum for the 7,000 sq ft top floor which occupiers adopt new, post- between team members, and real estate portfolios, with a view both organisations to broaden their in the 48 storey Leadenhall Building at pandemic, working practices. The professional services businesses, to consolidating some of their investment in jobs more equitably the end of 2020. It is therefore too early Michael Pain evidence that is gradually gathering, including law firms, where junior London and regional offices, and across the regions will, necessarily, to write off the traditional City tower Head of Tenant as employers plan returning their employees are required to “shadow” both have stated that they will only be a phased process – recruitment Representation Team building as a place to host businesses. workforces to their usual place of more senior staff as an essential part consider ground and first floor and the procurement of suitable 07715 001013 [email protected]

1 2 RENTS AND SUMMARY OF RENT FREE PERIODS FORECAST MARKET TRENDS

Advertised Rents Advertised Rents Forecast During the remainder of 2021 the following trends are likely to become Advertised rents for new more widely established in the London office market: Table 1 – Forecast Decline, By Sub-Market, In Landlord’s Advertised Rents and refitted Grade A space have ( To Q1 2022 ) remained largely unchanged since the New and refitted mid-rise Grade A space over 5,000 sq ft first quarter of 2020. However, it is Advertised Rents Office Vacancy Sub-market Forecast Decline likely that widespread reductions will • a decline in advertised rents of 10 – 15% • a rise in the vacancy levels of begin to manifest themselves over the City of London – Bank, Leadenhall Street, Blackfriars, Aldgate 10.0 – 15.0% in the City of London, Docklands and previously occupied landlord- next 3 – 6 months, dragged down by controlled space as some tenants City Fringe North – Shoreditch, Clerkenwell, Farringdon 7.5 – 12.5% West London office markets by Q1 increasing competition from tenant 2022 for both new and refitted space cease trading and disclaim leases controlled space. Please refer to Table City Fringe East – Aldgate East, Spitalfields 7.5 – 12.5% • advertised rents in the West End, • an increase in new Grade A space

1 which provides a twelve month South Bank – Southwark, London Bridge 7.5 – 12.5% Midtown, City fringes, South Bank vacancy as developments that advertised rent forecast. and Stratford sub-markets are forecast were started during the 2018 / 19 East London – Canary Wharf, Crossharbour 10.0 – 15.0% to decline by 7.5 – 12.5% over the construction cycle reach completion East London – Stratford 7.5 – 12.5% same period • a continued rise in the quantum of available tenant-controlled space, Rent Discounts & Midtown – Holborn, Bloomsbury, King’s Cross, Covent Garden 7.5 – 12.5% Rent Free Periods Rent Discounts as occupiers downsize and offload West End – Mayfair, Marylebone, Fitzrovia, Soho, Paddington, Victoria 7.5 – 12.5% surplus accommodation Ready fitted out, plug in and go, • The rent discounts that can be • the emergence of the availability of tenant-controlled space, that requires West London – Hammersmith & White City 10.0 – 15.0% negotiated on advertised rents are new, previously unoccupied, surplus, little or no capital expenditure on the likely to stabilise at their current level Source: Carter Jonas Research Grade A space being offered by part of the incoming tenant, represents of 5 – 10%, reflecting the anticipated tenants that, prior to the COVID-19 significant competition for landlords. widespread discounting of advertised pandemic, entered into pre-letting Landlords are responding by offering rents Rent Free Periods agreements on buildings that were longer rent free periods (see Table 2) under construction and deeper rent discounts of, typically, Table 2 – Comparison of Typical Rent Free Periods Q1 2020 vs Q1 2021 Rent Free Periods 5 – 10% on advertised rents. • a further widening in rent free period Q1 2020 Q1 2021 Office Relocation Activity incentives • a gradual increase in the number of City, West End, Midtown, South Bank, Stratford & West London Ready Fitted Out Space – tenants that are facing break options 5 year lease 9 – 12 months 12 – 16 months Lease Length A Challenge For Landlords and lease expiries proceeding with 10 year lease 20 – 24 months 25 – 29 months • continued demand for greater lease their plans to relocate – driven by a Traditionally, landlord space has been flexibility – shorter leases and more Docklands desire to downsize and / or move offered on the basis that the incoming frequent break options to higher grade office space that tenant would fit the space out, at 5 year lease 12 – 14 months 14 – 18 months reinforces employee wellbeing and the tenant’s expense, to render it 10 year lease 24 – 27 months 26 – 31 months Downsizing ESG policies operational for its particular purposes. Source: Carter Jonas Research • a continuing trend towards businesses However, an increasing number of downsizing their real estate footprint, landlords are now fitting out vacant Serviced Offices reflecting the adoption of new floor space speculatively with meeting • a short term improvement in operating practices and reduced rooms, kitchen and reception area demand for serviced and co-working “LANDLORD’S ADVERTISED headcount, in order to reduce real facilities – in order to compete with space from those tenants with lease RENTS FOR NEW AND estate costs available ready fitted out tenant- REFITTED GRADE A expires and break options seeking controlled space. to downsize and requiring “stop-gap SPACE ARE LIKELY TO The Bargaining Position of Tenants The trend towards landlords offering BE UNDERMINED IN THE accommodation” before a move space to a “Cat A+” finish began COMING MONTHS AS • a continued shift in favour of to more permanent space, until before the pandemic, in response to COMPETITION FROM GOOD tenants in the bargaining position the business climate becomes competition from serviced offices, QUALITY, READY FITTED in lease negotiations more certain and is now being underscored by the OUT, PLUG-IN-AND-GO, increasing availability of fitted out sub- TENANT-CONTROLLED let space. SPACE INCREASES.”

3 4 “LANDLORDS ARE RESPONDING TO WEAK DEMAND AND INCREASING OFFICE VACANCY Table 3 – The London Office Market – Typical Landlord’s Advertised Rents Q1 2021 BY OFFERING DISCOUNTS OF, TYPICALLY, £ per sq ft per annum | space over 5,000 sq ft | UF= Upper Floors

5 – 10% ON ADVERTISED RENTS.” Location Grade A Grade B

New/Refitted Refurbished Refurbished

City

Prime – Bank, Leadenhall Street £62.50 – £75.00 £50.00 – £65.00 £40.00 – £49.50 (UF = £77.50 – £97.50) (UF = £67.50 – £85.00)

Secondary – Blackfriars, Aldgate £57.50 – £68.50 £45.00 – £57.50 £38.00 – £45.00 (UF = £70.00 – £85.00) (UF = £65.00 – £77.50)

City Fringe

North – Shoreditch, Clerkenwell £65.00 – £75.00 £55.00 – £65.00 £38.00 – £55.00 (UF = £75.00 – £90.00)

North West – Farringdon, Smithfield £70.00 – £85.00 £57.00 – £68.50 £40.00 – £56.00 (UF = £87.50 – £92.50)

East – Spitalfields £60.00 – £75.00 £48.00 – £60.00 £37.50 – £46.50

East – Aldgate East, Wapping £50.00 – £59.50 £38.00 – £48.50 £34.00 – £37.00 (UF = £60.00 – £69.50) GRADES OF OFFICE

South Bank ACCOMMODATION

Waterloo, Southwark, London Bridge £67.50 – £75.00 £52.00 – £66.50 £39.50 – £52.50 (UF= £76.50 – £92.50) (UF = £67.50 – £75.00) For marketing purposes office accommodation is generally Battersea, Nine Elms, Vauxhall £55.00 – £67.50 £45.00 – £53.50 £37.50 – £43.00 categorised into Grades which East London are defined as follows: Docklands Prime £50.00 – £57.50 £32.50 – £42.50 £27.50 – £35.00 – Canary Wharf & Wood Wharf (UF = £58.50 – £62.50) (UF = £45.00 – £50.00) Grade A Docklands Secondary – Crossharbour £32.50 – £39.50 £27.50 – £32.50 £22.50 – £27.50 Space fitted with air Stratford £45.00 – £49.50 £35.00 – £45.00 £22.50 – £29.50 conditioning & passenger lift West End facilities & fully accessible

Central – Mayfair, St James's (Prime) £105.00 – £125.00 £85.00 – £105.00 £65.00 – £77.50 raised floors for data / (UF= £130.00 – £140.00) telecoms cable management Central – Mayfair, St James's (Secondary) £87.50 – £100.00 £72.50 – £88.50 £62.50 – £72.50

North – Euston £65.00 – £78.50 £55.00 – £65.00 £42.50 – £52.50 Grade B Accommodation that typically North East – Fitzrovia £78.00 – £90.00 £63.00 – £78.50 £48.00 – £62.50 incorporates under floor or North West – Marylebone £78.00 – £92.50 £65.00 – £78.50 £50.00 – £62.50 perimeter trunking for data / (UF = £95.00 – £110.00) telecoms cable management, South – Victoria, Westminster, Haymarket £72.50 – £85.00 £57.50 – £72.50 £45.00 – £55.00 rather than raised floors, and / (UF = £87.50 – £92.50) or air cooling facilities, instead South West – Knightsbridge £82.50 – £95.00 £72.50 – £80.00 £60.00 – £70.00 of an air conditioning system East – Soho, Regent Street, £82.50 – £97.50 £67.50 – £82.00 £50.00 – £66.00 that dehumidifies & draws Leicester Square (UF = £95.00 – £110.00) fresh air in to the building West – Paddington £70.00 – £78.50 £55.00 – £66.50 £42.50 – £52.50 (UF = £82.50 – £90.00) Refitted space Midtown Accommodation where the North – King’s Cross £72.50 – £87.50 £60.00 – £72.50 £47.50 – £57.50 entire building, including South – Covent Garden £70.00 – £82.50 £55.00 – £69.50 £47.50 – £55.00 the common parts, has been (UF = £83.50 – £88.50) refitted and is “as new”, East – Holborn £62.50 – £70.00 £52.00 – £62.50 £40.00 – £50.00 incorporating new building (UF = £72.50 – £80.00) services, including lighting, air West – Bloomsbury £75.00 – £90.00 £60.00 – £72.50 £45.00 – £55.00 conditioning and passenger South West London lift facilities Chelsea £75.00 – £87.50 £62.50 – £72.50 £47.50 – £60.00

West London Refurbished space Kensington £55.00 – £65.00 £45.00 – £53.50 £32.50 – £45.00 Premises where the existing

Hammersmith £52.00 – £59.50 £40.00 – £50.00 £35.00 – £42.50 building services have been (UF = £55.00 – £57.50) overhauled, rather than

White City £45.00 – £55.00 £40.00 – £45.00 £32.50 – £40.00 replaced with new systems

Chiswick £47.50 – £55.00 £37.50 – £46.00 £32.50 – £37.50

Ealing £40.00 – £50.00 £36.50 – £42.50 £29.50 – £36.50 Source: Carter Jonas Research

5 6 THE LONDON OFFICE MARKET HACKNEY STRATFORD The London office market is formed of a series of sub-markets each having quite different supply and demand dynamics, which are reflected in the differing levels of rent and rent free periods that characterise each location. ISLINGTON Office Occupancy Costs BOW Table 4 of this document provides a summary of the typical rent, business rates and service charge occupancy costs KING’S CROSS associated with each sub-market for new and refitted, mid-rise, Grade A office space over 5,000 sq ft. SHOREDITCH EUSTON CLERKENWELL Rent Free Periods CLERKENWELL Table 2 of this document provides a summary of typical rent BLOOMSBURY free periods for 5 and 10 year leases, by sub-market. FARRINGDON

FITZROVIA LIVERPOOL STREET WHITECHAPEL

MARYLEBONE SPITALFIELDS PADDINGTON HOLBORN CITY OF LONDON POPLAR SOHO COVENT GARDEN ALDGATE MAYFAIR EAST

ST JAMES’S SOUTHWARK CANARY WHARF/ WOOD WHARF SUB-MARKETS & POSTCODES LONDON BRIDGE WATERLOO West End W1, W2, SW1, NW1 Midtown WC1, WC2, Part N1/EC1/EC4

City EC2, EC3, Part EC1/EC4 CROSSHARBOUR

City Fringe North Part EC1/N1 WESTMINSTER City Fringe East E1, E2 South Bank SE1, SW8 London Docklands E14 VICTORIA Stratford E15, E20 Elizabeth Line/Crossrail route Denotes National Rail station CHELSEA

GREENWICH

ELIZABETH LINE ROUTE

MAIDENHEAD EALING

SLOUGH BATTERSEA READING FULHAM HEATHROW

CLAPHAM

PUTNEY 7 8 The principal annual outgoings PRINCIPAL OFFICE associated with occupying multi-let SUPPLY AND DEMAND office space are rent, business rates and building service charge. OCCUPATION COSTS Table 4 provides a comparison of the typical rent, business rates and service charge costs associated with mid-rise new and refitted Grade A office space Office Vacancy Continues To Rise Protecting The Workforce over 5,000 sq ft, located in each of the key Central London office sub-markets. During the first quarter of this year, the Recent Carter Jonas Research volume of Grade A tenant-controlled shows that employers are acutely office space being brought to the aware that if they are to succeed in market by those businesses eager to reassuring their workforce that it Table 4 – Comparison Of Rent, Business Rates and Service Charge Costs By Sub-Market – Q1 2021 reduce their exposure to real estate is safe to return to the usual place Typical costs per sq ft per annum for new and refitted mid-rise Grade A space over 5,000 sq ft costs has continued to rise. This trend of work, they must offer a bright, Sub-market Rent Business Rates Service Charge Total is likely to continue for attractive, vibrant work environment the rest of the year, adding to vacancy in a building with an air conditioning City of London – Bank, Leadenhall Street £70.00 £28.00 £11.50 £109.50 levels across London and offering system that, fundamentally, underpins City Fringe North – Shoreditch, Clerkenwell £68.50 £22.00 £11.00 £101.50 footloose tenants more choice and the wellbeing of their employees and

City Fringe North – Farringdon £85.00 £23.50 £11.00 £119.50 a stronger bargaining position in provides protection against the spread lease negotiations. of COVID-19. City Fringe East – Aldgate East £56.50 £21.00 £11.00 £88.50

City Fringe East – Spitalfields £65.00 £24.00 £11.00 £100.00 The Impact Of The Serviced Office An Increasingly Environmentally South Bank – Southwark, London Bridge £72.50 £24.50 £11.50 £108.50 Sector On Office Vacancy Aware Business Community East London – Canary Wharf £52.50 £17.25 £16.25* £86.00 During the last few months reports The flight to quality office space East London – Crossharbour £35.00 £12.50 £12.00 £59.50 have increased indicating that the is a trend that has continued to woes of the co-working and serviced gather pace during Q1 2021 and is East London – Stratford £47.50 £12.50 £10.00* £70.00 office sector are far from over. Most being underpinned by an increasing Midtown East – Holborn £70.00 £28.00 £11.50 £109.50 recently, serviced office operator IWG desire by businesses to demonstrate

Midtown West – Bloomsbury £85.00 £31.25 £11.50 £127.75 is understood to have notified the their “green” credentials by moving landlords of the twenty plus office to buildings that are energy efficient, Midtown North – King’s Cross £85.00 £32.00 £11.00 £128.00 buildings occupied in London by its have a low carbon footprint and Midtown South – Covent Garden £77.50 £32.25 £11.50 £121.25 “Spaces “ brand that it will require its have been constructed from

West End Central – Mayfair, St James’s £110.00 £52.00 £12.50 £174.50 tenancies to be restructured or else be sustainable materials. forced to disclaim leases. West End North – Fitzrovia £92.50 £35.95 £11.50 £139.95 Landlords could therefore be facing West End North – Marylebone £95.00 £40.50 £11.50 £147.00 the prospect of no rental income and the need to find replacement tenants West End South – Victoria, Westminster £77.50 £35.25 £11.50 £124.25 in a market characterised by weak West End West – Paddington £77.50 £26.00 £11.50 £115.00 demand. Defaults in the serviced office

West End East – Soho £92.50 £40.50 £11.50 £144.50 sector are therefore likely to increase vacancy levels of landlord-controlled West London – Hammersmith £57.50 £22.50 £10.50 £90.50 space, adding further to the total stock “THE FLIGHT TO West London – White City £52.50 £18.75 £11.00 £82.25 of vacant office space across London. QUALITY OFFICE SPACE CONTINUES AS South West London – Battersea, Nine Elms £62.50 £21.00 £10.00 £93.50 EMPLOYERS RECOGNISE Source: Carter Jonas Research The Flight To Quality Continues THE IMPORTANCE OF CREATING AN The first quarter of 2021 has witnessed Please refer to the map overleaf which illustrates the various London office ATTRACTIVE WORK an improvement in the turnover of sub-markets. “IN A WORLD WHERE ENVIRONMENT THAT PROFITABILITY IS UNDER lettings in the London office market REINFORCES EMPLOYEE Notes THREAT, BUSINESSES (see table 5), from a very low base, WELLBEING. THIS as some occupiers take advantage • Rents are typical landlord’s advertised rents and exclude the value of rent ARE BECOMING TREND IS BEING of break options or lease expiries to free periods INCREASINGLY UNDERPINNED BY THE CONSCIOUS OF downsize and / or trade up into better NEED FOR BUSINESSES • Business rates cost estimates include the Crossrail levy THEIR REAL ESTATE quality space. TO DEMONSTRATE THEIR • * includes estate charge OUTGOINGS WHICH Very significantly, the majority of “GREEN” CREDENTIALS • Total costs are estimates and exclude building insurance and utilities costs TYPICALLY FORM THE lettings that have taken place during BY MOVING TO Q1 2021 are of new and refitted Grade • Rents for the upper floors of tower buildings will command a premium of SECOND HIGHEST BUILDINGS THAT A space, rather than low cost, lower circa 15 – 25% above those illustrated in the table OPERATING COST AFTER HAVE A LOW CARBON SALARIES.” quality, floorspace. FOOTPRINT.”

9 10 KEY LEASING TRANSACTIONS DURING Q1 2021

The turnover of lettings in the London office market is at historic lows, reflecting the current economic climate, with much of the letting activity confined to the sub 25,000 sq ft market segment – in sharp contrast to market trends a year earlier. The table below provides a summary of key Q1 2021 lettings over 10,000 sq ft.

Table 5 – Key Office Lettings Over 10,000 sq ft – Q1 2021

Sub-market Tenant Business Sector Property Floor Area (sq ft)

City of London Donnelly Financial Financial services 138 Cheapside, EC2 10,007

HKA Business services 100 Victoria Embankment, EC4 10,150

Plexus Law 40 Gracechurch Street, EC3 12,970

J M Finn Financial services 25 Copthall Avenue, EC2 26,500

International Dispute Business services 100 St Paul’s Churchyard, EC4 46,250 Resolution Service

AllianceBernstein Financial services 60 London Wall, EC2 52,800

Latham & Watkins Law 1 Leadenhall Street, EC3 200,000

North City Fringe – Farringdon TikTok Information Technologies Media / Technology Kaleidoscope, 4 Lindsey Street, EC1 88,500

Midtown – Covent Garden MSQ Partners Media / Marketing 34 Bow Street, WC2 20,315

Midtown – Aldwych Forrester Business services – research 61 Aldwych, WC2 17,702

Midtown – King’s Cross Gyroscope Therapeutics Biotechnology Rolling Stock Yard, 188 York Way, N7 23,800

Source: Carter Jonas Research

“THE TURNOVER OF LETTINGS ACROSS THE LONDON OFFICE MARKET IS LIKELY TO REMAIN LOW DURING 2021 REFLECTING THE UNCERTAIN ECONOMIC CLIMATE AND THE DESIRE OF SOME BUSINESSES TO EXTEND EXISTING TENANCIES TO CONSERVE WORKING CAPITAL, RATHER THAN EXPENDING IT ON A CASH-HUNGRY OFFICE RELOCATION.”

11 12 THE SERVICED OFFICE & CENTRAL LONDON – CO-WORKING SECTOR INVESTMENT OVERVIEW

Why Move To Serviced & • Short form service agreement that The Central London investment bidding process. In the end Lever Co-working Space? can be issued and signed within a market has remained relatively Street sold to Merseyside Pension For those occupiers facing an imminent matter of hours – no complicated, subdued during Q1 2021. This Fund and Broadway is at the lease expiry or break option there is lengthy, real estate lease requiring has been caused, in the main, time of writing going through a certainly merit in considering serviced the advice of a real estate lawyer by a lack of available buying bidding process. Also of interest and co-working space, particularly as a opportunities rather than a lack in the market is the Scouts’ • No stamp duty land tax payable short-term stop-gap measure, pending of investor demand. The general Association Baden-Powell House on the grant of the service a later relocation to longer-term, perception in the market is that in South Kensington, offering a agreement conventional, office space, when the there is significant pent up buyer wide variety of end uses such as appetite from both UK and residential, educational and hotel. economic climate is a little more certain. However, serviced / co-working office overseas investors as they await It is understood that at least 40 space is not suitable for all businesses, a combination of the easing of separate parties have expressed especially those that require a high travel restrictions and increase in interest and the bidding process Serviced / Co-working Office degree of data security such as private availability and deliverability of should demonstrate a broad Space – The Pros & Cons client wealth managers and law firms, good quality assets. spectrum of investor appetite. The key advantages of serviced / co- or those businesses that wish to stamp Having said that, there has Looking to the future, buyers working office space are that it is “cash- their own brand on their office space. been some, principally ‘off are generally feeling bullish about flow friendly” and offers a high degree market’, activity in both the West the prospects for an economic of lease flexibility – enabling a relocation End and City. In excess of £650 recovery in a relatively short to more permanent accommodation to million has been transacted in time frame. The success of the be effected at short notice. those combined markets during vaccination programme and the In detail, serviced / co-working space “LEASING ACTIVITY IN February and more completions ongoing roadmap out of the offers the following advantages: THE SERVICED OFFICE SECTOR HAS IMPROVED are expected before the end of lockdown offer genuine reasons • Ready fitted out with data / DURING Q1 2021 AS the Quarter, albeit volumes are for optimism to occupiers and telecoms infrastructure and SOME OCCUPIERS WITH generally around 50% down on investors alike and should enable furniture – therefore little or no LEASE BREAK OPTIONS the same period last year. Those a swift return to relative normality capital expenditure required AND EXPIRIES ON few sales that have been openly in the office sector. In terms of CONVENTIONAL SPACE marketed, such as Amshold’s investment, best in class assets • A quick, plug in and go, PAUSE TO REASSESS Lever Building in Clerkenwell and will remain the profile of choice, accommodation solution THE IMPACT OF THE Tellon’s 40 Broadway development particularly those assets with PANDEMIC ON THEIR site have attracted strong levels robust income, although there will • Typically no dilapidations BUSINESSES BEFORE of interest, although only UK and continue to be interest in value-add / repairing / exit costs – a COMMITTING TO LONGER- overseas buyers with a presence situations where the underlying real contribution to which is usually TERM LEASES ON NON- in London have realistically estate fundamentals are strong. reflected in the rent payable SERVICED SPACE.” been able to engage fully in any

13 14

THE TENANT KEY CONTACTS REPRESENTATION TEAM Michael Pain Partner Head of Tenant Representation Team Our tenant representation services include: 07715 001013 [email protected]

• Serviced & co-working • Relocation budgeting Justin James Partner property searches and & planning London Office Investment Team negotiations • Lease & rent 07971 529508 [email protected] • Break option linked lease review negotiation re-negotiation • Repairs/dilapidations cost Daniel Francis Head of Research • Workplace design & assessment & negotiation 07801 666137 floorspace re-configuration • Building, air conditioning [email protected] • Marketing & leasing services – & passenger lift surveys Ed Caines Associate Partner surplus space • Business rates analysis 07966 188632 • Conventional office space & appeal [email protected] search & cost appraisal • Service charge audit • Office move management Georgia Eckert Associate 07826 884704 [email protected] For more data on the London office market, office availability, rents & rent free periods, market trends & information on Anders Horwood Surveyor budgeting & planning for a lease renewal, rent review or office 07836 246049 relocation please contact one of the team. [email protected]

One Chapel Place, London W1G 0BG

OUR EXPERIENCE 17,500 sq ft Lease negotiations and relocations 10,000 sq ft+ Hackett Limited The Clove Building, SE1

43,000 sq ft UK Payments Administration 16,000 sq ft 2 Thomas More Square, E1 Circle Housing Two Pancras Square, N1

39,000 sq ft Care Quality Commission 15,000 sq ft 151 Buckingham Palace Road, SW1 Hitachi Rail Europe 40 Holborn Viaduct, EC1

28,000 sq ft Warner Bros/Shed Media 11,000 sq ft 85 Grays Inn Road, WC1 Salamanca Group 50 Berkeley Street, W1

27,000 sq ft The data in this document is provided to illustrate the key trends in the London office market. We recommend that the advice of an experienced Reinsurance Group of America property consultant is sought where a specific property transaction is 22 Bishopsgate, EC2 being contemplated before any irreversible decisions are made.