London Office Crane Survey Activity rising Summer 2013 To start a new section, hold down the apple+shift keys and click to release this object and type the section title in the box below. Market overview Summer 2013 – Office space under construction Total U/C (sq ft) Let U/C (sq ft) Available U/C (sq ft) City 4,443,000 1,963,000 2,480,000 Docklands 540,000 250,000 290,000 King's Cross 800,000 455,000 345,000 Midtown 722,000 0 722,000 Paddington 0 0 0 Southbank 982,000 106,000 876,000 West End 2,256,000 432,000 1,824,000 Total 9,743,000 3,206,000 6,537,000 Office space under construction Million sq ft 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 City Docklands King's Cross Midtown Paddington Southbank West End 12 months ago (Summer 2012) 6 months ago (Winter 2012) Today (Summer 2013) 2 To start a new section, hold down the apple+shift keys and click to release this object and type the section title in the box below. Construction volumes have reached a four year high across Central London and leasing activity has increased. The total volume of space under construction reached Interestingly, the data shows that demand is currently 9.7 million sq ft at the end of Q1 2013; a rise of being driven by both the financial sector and the 8% over the last six months. This is the highest volume technology, media and telecommunications (TMT) of space underway for four years. Importantly, a third sector, each accounting for almost 30% of total of this space is pre-committed to tenants, a notable letting activity. increase on just 12 months ago. However, despite the more positive leasing data, Construction volumes continue to rise in the City the reality is that overall take-up levels remain below market and activity is flourishing in some of the smaller average with occupiers still very cautious when it comes submarket locations as well. Office development in to making relocation decisions. The pattern of recent King’s Cross has more than doubled since this time last transactions also highlights the continued attraction year and Midtown construction is up 57%. Conversely, of lower rent locations and secondhand space. This Paddington and the Southbank have seen no new is unsurprising given that our CFO Survey continues construction starts this survey, whilst the West End has to highlight ‘reducing costs’ as the top priority for seen a slight slowdown in activity, albeit following a corporates at the moment. This might be about to period of strong growth. change however with the latest CFO Survey showing a significant positive shift in corporate confidence levels Developers will be encouraged by the sharp increase in that may indicate increasing activity from occupiers in letting activity on new build schemes. Two years ago the second half of the year. just 1% of the space being built was let; this has jumped to 33% today. Market by numbers Total number of new construction development schemes 15 starts 72 of office Construction activity space under up on six months ago 9.7m sq ft construction 8% Completed office of space under space in the past 33% construction is let six months totals 1.1m sq ft Crane Survey London Office Summer 2013 3 To start a new section, hold down the apple+shift keys and click to release this object and type the section title in the box below. The City Construction activity in the City has more than doubled since the bottom of the development cycle two years ago. 4.4 million sq ft is currently under construction, up 10% over the last six months and the highest level for four years. Headline construction activity seems to suggest a One St Paul’s, EC4 is the only other scheme underway market in rude health with continued strong growth which has secured a tenant since the last survey. It is in development this survey. Active sites include the clear that landlords are still finding the environment high profile City tower schemes and, new this survey, challenging as occupier caution translates into low levels the 663,000 sq ft Bloomberg campus headquarters of leasing transactions. development. Indeed, field research for the Crane Survey has However, aside from these large-scale sites the market highlighted a number of schemes which could have remains relatively quiet. These super-sized schemes been well underway by the cut-off date for this latest flatter the data both in terms of volume being built and survey, but remain on hold as developers await stronger also the amount of new space let. While construction occupational market conditions. is up again this survey, this is almost entirely due to Bloomberg Place breaking ground. The latest data shows that this scheme was one of only three new development starts since the last survey; the lowest number of site starts for two and a half years. And, whilst leasing activity on the space currently under construction has almost doubled from six months ago, the majority of this activity is within the tower buildings located in the EC3 submarket. Development pipeline Million sq ft 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0 0.0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Completed Available U/C Let U/C 4 To start a new section, hold down the apple+shift keys and click to release this object and type the section title in the box below. However, we have noted a change in sentiment in The City – volume under construction % the City office market since the start of the year. As suggested in our previous Crane Survey, 2012 saw the lowest level of office completions in the City for over 25 years. This unprecedented low level of new supply has allowed the market balance to readjust in favour of 44% the landlord, as the supply of existing space begins to reduce. Grade A availability in the City is at its lowest 56% level for five years and tenants are increasingly finding themselves in competition for the reducing tranches of space. A number of the ‘bell-wether’ vacant schemes are now transacting, reducing the ability of potential occupiers to sit back and wait for conditions to improve. Let U/C Available U/C This is likely to add a little more urgency into the market over the next few months. The City – number of new starts per crane survey 13 9 7 5 3 0 2010 Q3 2011 Q1 2011 Q3 2012 Q1 2012 Q3 2013 Q1 Market by numbers new construction Total number of 3 starts development schemes 22 of office Construction activity space under up on a year ago by 4.4m sq ft construction 26% Completed office average size space in the past six months totals k sq ft 202k sq ft of a scheme 431 Crane Survey London Office Summer 2013 5 To start a new section, hold down the apple+shift keys and click to release this object and type the section title in the box below. West End Developers were fast to react to improving conditions following the low levels of completions in 2011 and as a result this year will see 1.6 m sq ft complete, the highest level for seven years. The latest results show that, at 2.3 million sq ft, the total Indeed, occupier demand in this submarket has been amount of office space being built in the West End has low over the last few Crane Surveys, partly due to the fallen slightly since the last survey with the volume of relatively high cost of moving to this area and partly due completions being closely matched by new starts. Five to the lack of suitable stock. With almost 400,000 sq ft schemes have commenced construction during the last completing this year it will be interesting to see how the six months, adding 359,000 sq ft to the pipeline. market responds. The vast majority of this new space (97%) is being built However, the most recent development focus remains by UK public property companies – highlighting their outside Mayfair with four of the five new starts in this continued dominance of the West End development survey being built in either the North of Oxford Street or market. The largest new start is Land Securities’ Victoria submarkets. This now means that three quarters 188,000 sq ft ‘Zig Zag Building’ in Victoria as it of the space currently under construction is being built continues to drive the regeneration of this submarket. in one of these two locations. This activity reflects the strong rental growth profiles of the West End The data from this survey shows that 2013 will see submarkets: since 2009 Mayfair has seen rental growth the highest volume of space completing in a single of 42%, whereas North of Oxford Street and Victoria year since 2005. 1.6 million sq ft is due to complete, have seen rental rises of 74% and 51% respectively. of which three quarters is available to let. Significantly, 40% of this available space is in Mayfair: the first significant quantity of space being delivered here for several years. Development pipeline Million sq ft 2.5 2.0 1.5 1.0 0.5 0.0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Completed Available U/C Let U/C 6 To start a new section, hold down the apple+shift keys and click to release this object and type the section title in the box below.