London Midtown Office & Retail Markets Q4 2013
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The London Midtown Office & Retail Markets Q4 2013 Garden Bridge In the 4th Quarter 2013 Thomas Heatherwick’s proposed ‘Garden Bridge’ received Treasury backing, pushing this visionary idea a step closer to becoming a reality and providing further impetus to both the Midtown and South Bank Office and Retail markets A member of Discover Midtown... Bloomsbury Chancery Lane Clerkenwell Covent Garden Fleet Street Hatton Garden WC1 Holborn Kingsway EC1 St Giles Strand WC2 EC4 Inside this edition... Farebrother is an established Practice of Real Estate consultants and Chartered Surveyors. The Practice’s services include Commentary 1 Corporate Real Estate, Leasing, Sales, Development, Management, Lease Advisory, Business Rates, Valuation and Investment advice. Take-up 4 Farebrother’s core market is Central London, specialising in Availability 6 Midtown and South Bank office and retail markets. Future Supply 7 Farebrother’s extensive research is aimed at providing a short, sharp insight into what are two of the most dynamic commercial property markets in the Investment 8 World. This quarterly report reviews the overall performance of the Leasing, Retail 10 Investment and Retail markets and is published alongside Farebrother’s Investment Reports, produced in partnership with IPD, together providing The Knowledge - St Giles 12 a comprehensive analysis of Midtown and South Bank markets. Definitions Midtown - WC1, WC2, EC1 (West of Farringdon Take-up - completed transactions where offices Construction start - development where the Road), EC4 (West of Farringdon Street, New are let or sold to an occupier main contract has commenced, normally Bridge Street) excluding demolition or stripping out New - brand new buildings or buildings Stock - office accommodation, excluding offices developed behind a retained façade Construction completion - development where under construction the main contract has reached practical Refurbished - buildings which have undergone completion Floorspace - net internal area, unless otherwise a major refurbishment stated Hidden Supply - space which is not currently Secondhand Grade A - previously occupied on the open market, but likely to come available Available - office space available for immediate higher quality space with features such in the near future occupation air-conditioning or raised floors Long-Term - average calculated since the Availability Rate - available offices as a Secondhand Grade B - previously occupied 1st Quarter 2005 proportion of total stock lower quality space with features such as central heating or perimeter trunking The London Midtown Office & Retail Markets Q4 2013 Commentary Leasing activity reached 612,169 sq ft in the 4th Quarter 2013, 37% higher than the 3rd Quarter and comfortably ahead of the long-term quarterly average of 500,000 sq ft, rounding off a strong year of Take-up totalling 1.94m sq ft. The rise in Take-up was the direct result of further standout deals, which included the letting during construction of the entire 133,978 sq ft at Carmelite Riverside, 50 Victoria Embankment, EC4, to publishing firm Hachette and the Pre-let of 45,167 sq ft at 98 Fetter Lane, EC4, to law firm Macfarlanes. These are the latest in a series of pre-commitment transactions signed in 2013. In addition to a number of large Pre-lets, Midtown has been characterised by a high volume of small transactions, with that trend continuing in the 4th Quarter when 66% of the 96 deals were in the 1,000-5,000 sq ft bracket. Annual Take-up in 2013 reached 1.94m sq ft, an increase of 19% on 2012 Julian Hind Head of Leasing, Sales & Development The London Midtown Office & Retail Markets Q4 2013 Midtown’s diverse Occupier-base and low Availability have combined to make it London’s most compelling Investment proposition Midtown became a two-tier market in 2013, with a high volume of small lettings alongside a small number of large Pre-lets and lettings during construction to corporate Occupiers. We anticipate the Midtown market to be buoyed by further Pre-let activity in 2014 due to a number of large requirements still active in the market, combined with the continued shortage of good quality supply and few buildings which can offer large floor plates, leaving Occupiers with little choice. Midtown has a strong underlying market, which accounts for the majority of Take-up churn, however, it continues to benefit from West End Occupiers moving East, with the likes of Hachette and Publicis moving from the West End and taking large amounts of space. In the 4th Quarter there were eight reported transactions that achieved rents in excess of £60.00 psf, two of which were above £70.00 psf. These were the 5,834 sq ft letting at Orion House, 5 Upper St Martin’s Lane, WC2, where Farallon Capital agreed to pay £75.00 psf, the highest reported rent achieved in the 4th Quarter. The second was the 4,200 sq ft letting at Tower House, 10 Southampton Street, WC2, to Global Personals who paid £70.00 psf. This confirms our view that the perception of Midtown has changed and that there is an increasing shift in Occupier perception of what they need to pay to secure good quality Midtown buildings. The Availability Rate in Midtown is currently 4.6%, the lowest in Central London. However, we anticipate the Availability Rate will increase to around 6% by mid-2014 with 445,420 sq ft of development schemes due to complete in the first half of 2014. This includes 210,000 sq ft of Kato Kagaku’s Aldwych Quarter, WC2, 295,000 sq ft development due to complete by the summer 2014. Investment turnover in the 4th Quarter 2013 reached £596m in fifteen transactions, 30% higher than the five-year quarterly average (£459m). Annual Midtown Investment turnover for 2013 reached £2.74bn, the highest Annual total since 2007. Despite the continuing trend for Overseas Investment into prime London real estate, 59% of transactions in Midtown were undertaken by UK Investors in the 4th Quarter. This reflects its potential for performance. 2 farebrother.com The London Midtown Office & Retail Markets Q4 2013 Q4 13 Overview % change on Q3 13 Total Availability 1.49m sq ft 0% Availability Rate 4.6% -0.1 pt Availability - 463,696 sq ft -9% New & Refurbished Availability - 1.03m sq ft +5% Secondhand Speculative 957,709 sq ft -14% Construction Take-up 612,169 sq ft +37% Investment £596m -37% 2013 % change on 2012 Annual Take-up 1.94m sq ft +19% Annual Investment £2.7bn +7% Source: Farebrother These are exciting times for the Midtown market, with Crossrail continuing to trigger a boom in office development. There is already considerable development activity taking place in Midtown and the surrounding areas, particularly around the Farringdon Station redevelopment where Crossrail and partners Cardinal Lysander achieved planning in the 4th Quarter 2013 for an 80,000 sq ft over station development named Cardinal Tower, 2a-12 Farringdon Road, EC1. The approval of Almacantar’s residential redevelopment of Centre Point, 103 New Oxford Street, WC1, also adds to the momentum with Midtown positioned in the centre of activity. These catalysts, coupled with an improving economy, mean we are optimistic about the market’s prospects in 2014. Orion Capital Partners and Quadrant Estate’s Refurbished Carmelite Riverside, 50 Victoria Embankment, EC4, was let during construction in the 4th Quarter 2013 to Hachette UK who will occupy the majority of the 135,000 sq ft building and will release the 1st – 2nd floors totalling 39,084 sq ft for sub-letting farebrother.com 3 The London Midtown Office & Retail Markets Q4 2013 Overall Take-up was up 37% on the previous quarter Take-up boosting Annual Take-up in 2013 to 1.94m sq ft Take-up in the 4th Quarter 2013 reached 612,169 sq ft, an Midtown still has an underlying, existing market where we see increase of 37% on the 3rd Quarter and 22% higher than the the majority of Take-up, however, a number of standout deals in long-term quarterly average of 500,000 sq ft. It was the highest 2013 demonstrate how Midtown continues to benefit from the quarterly Take-up since the 1st Quarter 2011. strong West End market with a number of Occupiers moving east due to the shortage of good quality supply and a limited Midtown became a two-tier market in 2013, with a high volume number of buildings that can provide large floor plates. of small lettings alongside a small number of large Pre-lets or With large schemes currently Under Construction in Midtown, lettings during construction, with that trend continuing in the we would expect to see more large scale pre-commitments 4th Quarter when 66% of the 96 deals were in the in 2014. 1,000-5,000 sq ft bracket Media Occupiers represented 40% of Take-up in the A total of 67,194 sq ft of New space was let in four transactions 4th Quarter 2013. When looking at 2013 overall, Media including, Macfarlanes Pre-let of 45,167 sq ft at GE Capital Real Occupiers accounted for 30% of total Take-up, followed Estate’s 57,000 sq ft development at 98 Fetter Lane, EC4. by Legal (18%) and IT, Technology & Telecoms (10%) - a trend that mirrors current levels of Occupier demand. Take-up of Refurbished space in the 4th Quarter 2013 totalled 208,800 sq ft, an increase of 22% on the 3rd Quarter which was boosted predominantly by Hachette UK’s letting during construction at Carmelite Riverside, where they took a fifteen- year lease with twenty-one months’ rent free, paying rents ranging from £52.50 psf on the 1st floor, up to £65.00 psf on the top floor. William Morris Entertainment’s letting of the part 4th and 5th floors totalling 21,639 sq ft at Hermes Real Estates’ Refurbished 100 New Oxford Street, WC1, was the third largest transaction of the 4th Quarter.