Savills Research UK Commercial
City Office Market Watch October 2014
City take-up is now 26% up on this point last GRAPH 1 year, all but confirming total take-up will exceed Serviced Office Operator take-up that of last year Supply and demand snapshot n September saw a record amount of n As previously forecasted, the City take-up in one month at 1.5m sq vacancy rate has continued to fall this ft. This has brought total take-up for month. Supply is currently at 7.9m sq the year to date to 6.29m sq ft, which ft producing a vacancy rate of 8.2%, is 26% up on this point last year. down from 8.7% last month. Supply has fallen on average 5% each month n The large take-up in September can over the last three months, and we be primarily explained through three expect this trend to continue across deals which amounted to 868,000 the next year. Source: Savills Research, N.B. 2014 data as of end September sq ft alone. Amazon completed on GRAPH 2 their 430,000 sq ft pre-let of Principal n The continued strong take-up Average Rents Place, E1 this month along with taking combined with the constraint on 115,000 sq ft of interim space at supply will have a positive effect on Leadenhall Court, 1 Leadenhall Street, rental values. We have already seen EC3. Furthermore, M&G acquired a evidence of this in that the average 322,000 sq ft pre-let at 10 Fenchurch prime rent for the City has risen since Avenue, EC3. Q1 2014 from £60.39 per sq ft, to £65.06 per sq ft for Q3 2014. n Another notable deal from September is the acquisition of 49,500 n Furthermore, the average grade A sq ft at Albert House, 1-4 Singer rent for Q1 was £47.42 per sq ft, which Street, EC2 by The Office Group at a has risen to £50.07 per sq ft for Q3. rent believed to be just under £40 per City core average grade A rent has sq ft. This deal highlights the strong risen from £46.13 per sq ft for Q3 2013 activity seen this year from serviced to £50.38 per sq ft for Q3 this year, and Source: Savills Research office operators. in the Fringe it has risen from £47.78 to TABLE 1 £49.53 per sq ft (Graph 2). n Serviced office operators have Key September stats already accounted for 260,000 sq ft n The falling trend of tenant incentives September Monthly change of take-up this year, which is a 74% provides further evidence that the stats increase on the equivalent take-up market is moving in favour of the period last year (Graph 1). If we landlord. For instance, in Q3 last year Take-up 1,543,653 sq ft consider space currently under-offer, the average amount of months given we expect the industry's total take-up rent free for a 10 year lease with no Supply 7.9m sq ft to exceed 350,000 sq ft this year, breaks was 23, this has since dropped which is roughly the same amount for to 21 months for Q3 this year. Vacancy Rate 8.2% the years 2005 - 2011 combined. The increase in demand for this type of Top rent £69.50 workspace is due to the rise of smaller, mostly technology based companies Demand 8.3m sq ft who require flexible lease lengths and a 'co-working' environment. Source: Savills Research
savills.co.uk/research 01 Market Watch | City offices Analysis close up TABLE 2 TABLE 5 Monthly take-up Supply
% chg on Vacancy Sq ft % Grade A Total % Grade A prev month rate (%)
Sep-13 506,596 43% 7,663,359 79% 1.3% 8.0%
Oct-13 431,489 70% 7,603,389 80% -0.8% 7.9%
Nov-13 354,710 66% 7,163,250 80% -5.8% 7.5%
Dec-13 1,279,021 80% 6,762,769 78% -5.6% 7.0%
Jan-14 523,894 62% 7,699,510 79% 13.9% 8.0%
Feb-14 392,845 90% 7,596,745 78% -1.3% 7.9%
Mar-14 383,818 80% 7,931,546 75% 4.4% 8.3%
Apr-14 405,984 64% 9,361,041 80% 18.0% 9.8%
May-14 777,760 90% 9,142,794 79% -2.3% 9.5%
Jun-14 861,232 89% 9,214,569 80% 0.8% 9.6%
Jul-14 933,037 70% 8,712,152 79% -5.5% 9.1%
Aug-14 467,274 78% 8,339,046 80% -4.3% 8.7%
Sep-14 1,543,653 88% 7,890,856 80% -5.4% 8.2%
TABLE 3 TABLE 6 Year to date take-up Development pipeline
% change on % Sq ft % Grade A previous year Sq ft Refurb Devs Total Pre- let Jan 13 - 4,993,232 56% 75% Sept 13 2014 2,550,877 2,903,010 5,453,887 43% 2015 832,596 2,300,272 3,132,868 56% Jan 14 - 6,289,497 26% 81% Sept 14 2016 1,573,456 2,925,654 4,499,110 21%
TABLE 4 2017 946,729 3,452,070 4,398,799 9%
Rents Total 5,903,658 11,581,006 17,484,664 31%
Average Top £ per sq ft TABLE 7 achieved Grade A Grade B Prime* Rent free** Demand & Under Offers Sep-13 £55.00 £43.35 £31.22 £57.15 23 City Potential demand (sq ft) 2,364,000 Oct-13 £70.00 £53.00 £36.50 City Active demand (sq ft) 5,968,000 Nov-13 £62.50 £49.57 £35.83 City Total demand (sq ft) 8,332,000 Dec-13 £70.00 £52.53 £35.38 £64.45 21 % change on 12 month ave 2% Jan-14 £72.50 £45.63 £39.15 Total under offer (sq ft) 2.0m Feb-14 £62.50 £46.25 £31.32 Under offer this month (sq ft) 419,667 Mar-14 £70.00 £46.56 £28.01 £60.39 19 % change on average 70% Apr-14 £63.50 £46.42 £27.92 Landlord controlled supply 76% May-14 £72.50 £48.96 £42.67 Tenant controlled supply 24% Jun-14 £80.00 £49.91 £33.22 £63.70 20 Jul-14 £65.00 £48.42 £36.16
Aug-14 £64.00 £50.65 £36.59
Sep-14 £69.50 £50.44 £36.80 £65.06 21
Completions due in the next 6 months are included in the supply figures *Average prime rents for preceeding 3 months * * Average rent free on leases of 10 years with no breaks for preceeding 3 months 02 Market Watch | City offices
TABLE 8 Significant September transactions
Rent Address Floor/s Sq ft Grade achieved Tenant Lessor
Principal Place, Shoreditch High Street, E1 1 - 15 430,917 A Confidential Amazon Brookfield
3 - 13 & Part 10 Fenchurch Avenue, EC3 Mezzanine 322,686 A Confidential M&G Generali/CORE
Leadenhall Court, 1 Leadenhall Brookfield Street, EC3 Building 115,000 A Confidential Amazon (Interim space)
Albert House, 1 - 4 Singer Street, EC2 Building 49,523 B £39.50 The Office Group A & A Investments
30 Finsbury Square, EC2 LG, 2 29,572 A £36.55 Grant Thornton Invesco
85 Fleet Street, EC4 B, 5, 6, 7 29,521 A Confidential Radcliffes LeBrasseur Norton Rose Fulbright
Land Securities/Canary 20 Fenchurch Street, EC3 24 23,876 A Confidential Vinson & Elkins Wharf
75 King William Street, EC4 G, 1 22,602 A Confidential S Three Ltd SWIP
Thames Exchange, 10 Queen Lembaga Tabung Haji/ Street Place, EC4 Part 1 21,746 A Confidential Bates Wells Braithwaite KMW
TABLE 9 Significant supply
Available Address Postcode Sq ft Comments
The Shard SE1 375,000 6,500 sq ft under offer
Aldgate Tower E1 317,000
Aldwych Quarter WC2 278,000
The Leadenhall Building EC3 270,000 24,000 sq ft under offer
71 Queen Victoria Street EC4 187,000
Cannon Place, Cannon Street EC4 125,000 65,000 sq ft under offer
120 Holborn EC1 117,000
3 Thomas More Square E1 110,000
Alphabeta Building EC2 40,000
5 Cheapside EC2 40,000
03 Market Watch | City offices
MAP 1 Savills City office market area City 2014 percentage of take-up by postcode
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