sign in sign up
<<
Home , Sampson House, Shell Centre, Southbank Centre, South Bank

The Office & Retail Markets Q4 2013

A different view of South Bank More Depth, More Insight

A member of Discover South Bank On pages 6 to 9, we outline the exciting change in Farebrother’s South Bank research, breaking down and digging further into ’s most Waterloo dynamic market. Borough West

Bermondsey

Vauxhall

BURGESS PARK

VAUXHALL PARK

Oval PARK

y rcial Wa Nay Comme

St. Gilles Road Havil St Way Commercial Elmington St

Medlar St

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. The Transformation Farebrother’s core market is Central London, specialising in of London’s South Bank 4 Midtown and South Bank office and retail markets. A Different View of South Bank 6 Farebrother’s extensive research is aimed at providing a short, sharp insight Stock 10 into what are two of the most dynamic commercial property markets in the World. This quarterly report reviews the overall performance of the Leasing, Take-up 12 Investment and Retail markets and is published alongside Farebrother’s Availability 14 Investment Reports, produced in partnership with IPD, together providing a comprehensive analysis of Midtown and Southbank markets. Future Supply 16 Investment 18 Retail 22

Definitions

South Bank - SE1 Take-up - completed transactions where offices Construction start - development where the are let or sold to an occupier main contract has commenced, normally - office accommodation, excluding offices Stock excluding demolition or stripping out under construction New - brand new buildings or buildings developed behind a retained façade Construction completion - development where - net internal area, unless otherwise Floorspace the main contract has reached practical stated - buildings which have undergone Refurbished completion a major refurbishment Available - office space available for immediate Hidden Supply - space which is not currently occupation - previously occupied Secondhand Grade A on the open market, but likely to come available higher quality space with features such - available offices as a in the near future Availability Rate air-conditioning or raised floors proportion of total stock Long-Term - average calculated since the - previously occupied Secondhand Grade B 1st Quarter 2005 lower quality space with features such as central heating or perimeter trunking The London South Bank Office & Retail Markets Q4 2013

Commentary

South Bank’s record year of Take-up and Investment turnover is expected to continue into 2014, but concerns over sustaining mid-long term growth persist

South Bank has had an exceptional year of Take-up following With the Occupier demand still high, rents of £45.00 to £50.00 numerous high profile lettings throughout the year reaching a psf are being achieved more frequently, particularly in New, total Annual Take-up of 1.64m sq ft in (164) deals; levels not Refurbished and Secondhand Grade A Supply. The highest seen since 2007. reported rent achieved in 2013 was £55.00 psf at 1 London Bridge. There is currently circa 160,000 sq ft under offer in The South Bank market continues to go from strength to South Bank so strong levels of Take-up are expected to strength, and shows no signs of weakening, at least not in the continue through 2014. short-term. The 3rd Quarter was dramatically highlighted by two major deals, the letting of the entire 430,167 sq ft at The Place Availability fell 12% on the 3rd Quarter 2013 from 1.42m sq ft to to News UK and Ogilvy & Mather’s letting of 226,343 sq ft at 1.25m sq ft lowering the Availability Rate from 7.2% to 6.4%, Sea Containers, Upper Ground. however, Supply increased marginally on the year by 5%. It is worth mentioning that without the 514,342 sq ft available at The Take-up in the 4th Quarter 2013 totalled 337,416 sq ft, and Shard, South Bank’s Availability Rate would in fact be a very low though down on an exceptional 3rd Quarter, was 59% higher 3.8%. than the five-year quarterly average (212,259 sq ft) rounding off a standout year for South Bank. New and Refurbished buildings account for 66% of current Availability making it a very top-heavy market which traditionally Unlike the 3rd Quarter, the largest letting in the 4th Quarter was has a good churn of secondary space. just 30,000 sq ft and in line with the current trend for South Bank; demonstrating remarkable strength with a high volume of mid-sized transactions completed by a range of Occupiers taking space in a variety of both New, Refurbished and Julian Hind Secondhand buildings. This reinforces the rise of this vibrant Head of Leasing, market. Sales & Development

New and Refurbished space accounted for 62% of lettings in 2013, levels last seen in 2007 when PWC Pre-let the entire 376,000 sq ft in 7 More London and Council Pre-let 185,000 sq ft at 160 Tooley Street.

South Bank’s Take-up has been predominantly Secondhand until recently since the completion of in the 3rd Quarter 2012. Prior to this there was a lack of any New or Refurbished Availability in South Bank. The London South Bank Office & Retail Markets Q4 2013

The hugely exciting and visionary ‘’ project designed by Thomas Heatherwick will provide further impetus to South Bank

Secondhand Grade A space is currently at the lowest level UK Investors represented 99% of the 4th Quarters turnover, on record (58,757 sq ft). Reinforcing the view that Occupiers however, 2013 was driven in equal measure by Overseas and consider South Bank as a credible and cost-effective Central UK Investors, which sets South Bank apart from the other London location, pulled into focus by high-quality New Central London markets. With the impending sale of More buildings which can command high rents. This in turn is London in the 1st Quarter 2014 for £1.7bn, the record will be putting pressure on the supply of good quality Secondhand superseded once more, reinforcing South Bank’s emergence Grade A space which continues to let well. as one of the key Central London markets.

While we expect the market to enjoy a prosperous 2014, the Investment activity in the 4th Quarter 2013 reached £615m in paucity of New stock coming on to the market combined with nine transactions, making it a record quarter and rounding off the lack of mid-long term pipeline is a concern and will a record year with an Annual Investment turnover of £1.3bn. potentially hinder the current growth. This is four times higher than the five-year Annual average of £347m. We are delighted to publish for the very first time, a new detailed and in-depth set of research, breaking the South Bank down into five constituent and diverse parts. Farebrother research has changed to meet the challenges and diversity of Central London’s most exciting market.

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

2 farebrother.com The London South Bank Office & Retail Markets Q4 2013

Q4 13 Overview

% change on Q3 13

Total Availability 1.25m sq ft -12% Availability Rate 6.4% -0.8% pt Availability - New & Refurbished 830,206 sq ft -14% Availability - Secondhand 423,479 sq ft -7% Speculative Construction 407,382 sq ft -6% Take-up 337,416 sq ft -61% Investment £615m +259%

2013 % change on 2012

Annual Take-up 1.64m sq ft +123% Annual Investment £1.3bn +280%

farebrother.com 3 The London South Bank Office & Retail Markets Q4 2013

The transformation of London’s South Bank

Over the last twenty years, South Bank has established itself as Over the last fifteen years South Bank has been the focus of one of Central London’s most dynamic commercial and cultural some of the largest regeneration projects in Central London, hubs, offering a unique mix of new large scale office gathering momentum when More London completed. This developments right alongside trendy warehouse conversions, multi-building campus development spread over 13 acres museums, galleries and a large residential population. attracted big names into the area, adding to South Bank’s already diverse Occupier mix. Over 150 million passengers pass through Waterloo and London Bridge annually. South Bank includes some of the most visited This combined with the opening of the extension in attractions in the UK, including The which 1999 has proved to be the catalyst for an influx of tenants such attracts over 22 million visitors each year and as, PWC, RBS and the GLA to South Bank. Occupiers have which sees 5.3 million visitors a year. This combined with a relocated from London’s traditional cores in search of a higher number of independent retailers, food markets and fine quality working environment without the need to compromise on restaurants make South Bank an attractive and vibrant Central build quality. South Bank, which can provide large amounts of London market over seven days, not just an office location. cost effective New and Refurbished space, has recently benefitted from the supply constrained markets in the rest of South Bank, which was once derided as London’s ‘back-office’ Central London. playing host to a majority Occupier base of Associations, Charities and QUANGO’s, is now a popular destination for an impressive list of blue-chip companies who are headquartered there.

1980s 1990s

Isolated, single building Dearth of activity development Catalyst for development London Bridge City The Globe Borough High Street Jubilee Line Tate Modern

4 farebrother.com The London South Bank Office & Retail Markets Q4 2013

Large scale development Striking architecture More London Infrastructure Palestra Global buildings Bankside 1, 2 & 3 London Bridge Quarter 160 Tooley Street Square

2000s 2010s

More recent development schemes building on the success of South Bank has unrivalled transport links with nine mainline and More London and Bankside 1, 2 & 3 include London Bridge underground stations including Waterloo station, the UK’s Quarter, a mixed-use scheme including over 1m sq ft of offices busiest with an estimated 94 million passengers a year. and incorporating the world-renowned 72 storey “Shard”, the Commuters are well served by a variety of transport options via tallest building in Western Europe and the “The Place” which was the Jubilee, Northern and Waterloo & City lines through the chosen destination for News UK to relocate and consolidate Southwark, Waterloo and London Bridge underground stations. their subsidiaries under one roof in the 3rd Quarter 2013. London Bridge Station is to be completely re-built by the end of As well as commercial success, South Bank offers a world- the decade, increasing capacity from 60 million to 75 million beating array of cultural and artistic attractions such as, passengers. On completion, the concourse will be the largest in the Shakespeare’s Globe Theatre, The , Borough UK, creating 66% more space with new retail and station facilities. Market and The , allowing South Bank to continue to benefit enormously as an alternative to the West End South Bank is a truly mixed-use market, set apart from its and City markets as Occupiers seek a more vibrant working neighbours North of the river and home to an impressive list of environment, enhanced by a rich blend of restaurants, retail and Global Occupiers just as diverse as the buildings that contain contemporary culture. them. South Bank is very much a two-tier market where Occupiers can find large amounts of New and Refurbished cost effective space or small cheap units of Secondhand space ideal for start-ups and not for profit enterprises.

farebrother.com 5 The London South Bank Office & Retail Markets Q4 2013

A different view of South Bank

Bankside

London Bridge Waterloo

Borough West

Bermondsey

VauxhallVauxhaVVauxhVauxauxxhahall

BURGESSBURGESS PARK

VAVAUXHALLAUXHALLUXHUX L PARKP

OvalOvvalva KENNINKENNINGTONNGTNGTON PARKK

The South Bank market has evolved considerably in recent of Take-up, Availability, Future Supply and Investment over the years and has enjoyed a record breaking 2013 in terms of last five years. Furthermore, we have examined the building stock l W NayloNa Commercialom Way Investment turnover and office Take-up. As the provider of in South Bank to uncover any trends within the five submarkets dedicated analysis of the South Bank market, Farebrother and analysed the age, grade and quantity of the stock. recognise the need for a more analytical approach to offer a deeper insight into this rapidly growing market which identifies South Bank is the most diverse 19.7m sq ft of stock in Central business opportunities and threats for our clients and local London ranging in specification from large scale New builds like the stakeholder communities. towering steel and glass of The Shard, sitting alongside Victorian warehouse conversions and the village community atmosphere of One common observation which was borne out by an The Cut and . This gives South Bank its remarkable independent Perception Study of South Bank commissioned by character which visitors and Occupiers alike love about the area, Farebrother. The challenge has always been how to monitor the setting it apart from any other Central London market. performance of high-quality Riverside developments versus the rest of South Bank. South Bank is a key Central London market for Investors and Occupiers and deserves a deeper analysis. South Bank is the most In response to this feedback, we have decided to split the existing SE1 boundary into five submarkets; Bankside, London diverse office market in Bridge, Waterloo, Borough West and Bermondsey enabling us Central London, in which to deliver the most detailed research on one of the capital’s fastest growing destinations, with an unprecedented analysis five distinct submarkets have emerged

6 farebrother.com The London South Bank Office & Retail Markets Q4 2013

Bankside is truly a seven day district with popular attractions such as Tate Modern, Borough Market and The Globe Theatre which are easily accessible through excellent transport connections from the two stations ‘bookending’ the submarket, Southwark and the rejuvenated Blackfriars with its new Southern entrance. Bankside would benefit from more retail to push the river facing success backwards.

The Blue Fin Building, 90-110 (left) and Palestra, 197 Blackfriars Road (below) are examples of high-profile buildings found in Bankside, both of which were Pre-let by IPC Media (2004) and Transport for London (2006) respectively.

Bankside is a high profile, predominantly mixed-use destination and with 29% of the total stock in South Bank it is the largest of the five submarkets. Although it is one of the smallest submarkets by square footage, it is the most developed with 5.6m sq ft of stock encompassing much of the active and development pipeline stock, having already been a successful Pre-let territory.

London Bridge has 5.1m sq ft of stock The river fronting London Bridge City development making it the second largest South Bank submarket with 26% with the 87-storey Shard towering behind which forms part of the London Bridge Quarter development. The of its total stock. London Bridge is the highest profile submarket first ever Shangri-La Hotel in London is due to open in and has experienced three waves of office development, 2014 occupying the 34th -52nd floors of the tallest building in Western Europe increasing in size and ambition each time.

The area is fundamentally controlled and influenced by three very different organisations (Network Rail, St Martins Properties and Borough Market Trustees) It is frequently compared to the City office market due to more relevance and reference as it is only a short distance to the City Core via London Bridge. The next stage for London Bridge is to improve the stock South of the station and fronting Borough High Street. The wharves east of which are not in residential use do offer a strong secondary market. The London South Bank Office & Retail Markets Q4 2013

Waterloo is London’s gateway from the South and development schemes such as the redevelopment of Elizabeth accounts for 25% of South Bank’s total stock. Waterloo is House and The are subject to frustrating delays and different to other submarkets in that it falls within the borough of stalled consents. whereas the rest are in Southwark. Although centrally located with the UK’s busiest railway station. The recent rejuvenation of Waterloo Station has been boosted by the retail offer in the area and should attract further It is one of London’s poorest quality office markets. Change of Investment, however, the next stage has to be improvements land use has influenced the market more than any other factor, through to York Road as this area will soon act as the gateway with loss of B1 space around Waterloo undermining the area’s to Nine Elms and the Embassy Quarter. potential as a thriving work location. Much needed office

Aerial view of Waterloo, highlighting the railway station and the two potential development campuses at Elizabeth House and The Shell Centre, either side of York Road London Southbank University is one of the largest occupiers in the has 10% of South Bank’s stock but Borough West submarket Bermondsey with no distinct office market or location. It is predominantly characterised by warehouse and period building conversions. Change of use to residential has been a major factor. An expanding and diverse creative and design led hub situated around Bermondsey Street highlights the type of Occupiers that could relocate to South Bank and is already home to cultural offerings with galleries such as the White Cube. Some of the largest office buildings in Bermondsey are, 99-101 Newington Causeway, which is a Secondhand Grade B 80’s building totalling 120,000 sq ft and The Leathermarket, 10-13 Weston Street, which is a Victorian warehouse conversion which totals 114,000 sq ft and epitomises the style of buildings that characterise the Bermondsey submarket.

Top White Cube Gallery on Bermondsey Street Bottom Woolyard, Bermondsey Street, is a part new, part refurbished former Victorian warehouse which epitomises the style of buildings found in the Bermondsey submarket

Above The Headquarters, 169 Union Street. Originally built as a Post Office sorting office in 1905, it then underwent refurbishment in 2000 and is currently one of the largest office buildings in the Borough West submarket

Borough West is arguably South Bank’s most important future market, linking Waterloo and Bankside to Elephant & Castle, accounting for 10% of total stock in South Bank. It is made up predominantly low rise office schemes with generally small floor plates of 1960’s and 1970’s blocks. South Bank University is an important Occupier of much of the Southern portion of the submarket, with residential Local Authority and Housing Association type stock dominating the remaining area. Southwark Council’s redevelopment plans for Blackfriars Road should dramatically improve the amenities and public realm of the area, particularly towards the Southern end near Elephant & Castle. farebrother.com 9 The London South Bank Office & Retail Markets Q4 2013

Stock

Fig.1 South Bank Submarket stock by Grade - 4th Quarter 2013

million sq ft 6

5

4

3

2

1

0

Bankside London Bridge Waterloo Borough West Bermondsey

New Refurbished Secondhand Grade A Secondhand Grade B

Source: Farebrother

South Bank stock is comprised predominantly of Secondhand however, neighbouring Waterloo has no Refurbished stock and buildings, in particular Secondhand Grade B accounting for 69% just a small amount of Secondhand Grade A resulting in 95% of of total stock. The majority of Secondhand Grade A stock can Waterloo stock being Secondhand Grade B. Borough West and be found in Bankside and London Bridge in buildings such as, Bermondsey are both majority Secondhand Grade B markets The Blue Fin Building, 90-110 Southwark Street, Bankside 2 & 3 with a small amount of New and Refurbished stock. and the More London campus. There is 1.2m sq ft of New stock in South Bank but this is largely at The Shard and The Place, There is 19.7m sq ft of office stock in South Bank, of which 28% is that form London Bridge Quarter. ranged 1,000-5,000 sq ft in 175 buildings. The majority of these buildings are in Bermondsey situated along Long Lane, Supply of New stock is practically nonexistent in Bankside and Bermondsey Street and Old Kent Road. At the larger end of the Waterloo. Bankside has a small amount of Refurbished stock scale there is a total of forty buildings which are larger than 100,000 from recent development works at The Harlequin Building, 65 sq ft, 15 of which are in Bankside and 12 are in London Bridge. Southwark Street and The Crane Building, 22 Lavington Street,

The river fronting Fig.2 South Bank Submarket submarkets, stock by Age - 4th Quarter 2013 million sq ft Bankside, London 6 5 Bridge and 4 3

Waterloo hold the 2 majority (80%) of 1 0

Bankside London Bridge Waterloo Borough West Bermondsey

South Bank stock Pre WW2 WW2 - 1979 1980’s - 1990’s 21st Century

Source: Farebrother

10 farebrother.com The London South Bank Office & Retail Markets Q4 2013

90% of South Bank stock is Secondhand

Bankside has a total of 151 buildings making it the second Bermondsey has a total of 164 buildings which is the largest submarket by number of buildings. The majority (26%) of largest proportion in South Bank, however the majority (40%) of buildings within Bankside are 5,000-10,000 sq ft, however, 10% stock is between 1,000-5,000 sq ft and predominantly low-rise. of Bankside stock is over 100,000 sq ft. Bermondsey has the potential to be a thriving seven day district similar to the likes of some City Fringe destinations. Bermondsey London Bridge has a total of 119, 34% of which are Street is already home to a number of Creative Occupiers and has 1,000-5,000 sq ft and 5% are over 100,000 sq ft. Since London Arts and Cultural offerings with galleries such as the White Cube. Bridge City was developed in the 1980s, London Bridge has predominantly been an office led submarket. Recent The majority of South Bank stock (36%) was built in the 21st developments have transformed the submarket, however, the Century, 82% of which is in Bankside and London Bridge, main problem now is increasing connectivity between the shiny however, only 7% of buildings in Waterloo were built in the 21st new London Bridge Quarter development and Borough Market, Century, making it the submarket with some of the oldest one of the largest and oldest food markets in London. buildings in South Bank. 55% of stock in Waterloo was developed in the period WW2-1979 which is largely accounted for in two Waterloo has a great cultural offer and excellent positioning buildings, Elizabeth House and the Shell Centre, York Road. and connectivity within Central London but is lacking good quality office stock. Waterloo should have large high profile There is a pronounced imbalance between the most mature buildings just like its neighbours, Bankside and London Bridge, markets at London Bridge and Bankside, which are already however, B1 stock has disappeared over the years due to attracting companies from The City, West End and Canary significant amounts of change of use. There are 61 buildings in Wharf - and Waterloo, Bermondsey and Borough West, where Waterloo making it the smallest submarket by number of fundamentally, it is a shortage of good quality office space that is buildings, evenly spread across the size bands. Compared to preventing the growth of this business district southwards. the other submarkets, all of which have over 100 buildings, it is clear to see the disadvantage Waterloo already faces in terms of There is a tremendous opportunity for landlords to unlock the actual building stock available to redevelop. demand from Occupiers across these areas. They key will be appropriateness: while Waterloo could support the type of office Borough West has 123 buildings, 74% of which are sub development we have seen at London Bridge and Bankside; 30,000 sq ft making it a predominantly low-rise submarket. Bermondsey and Borough West require smaller, flexible space There are only two buildings over 100,000 sq ft. designed for the SME community, as has been delivered in the City’s fringe locations.

Lack of office space could The vibrancy of South Bank borne out of the mix of retail, residential and office space, the cultural heritage and nightlife, prevent growth of South Bank means it will continue to attract occupiers, but only if the right business district southwards space is available.

Grade (sq ft) New Refurbished Secondhand Grade A Secondhand Grade B Total

Bankside 5,597 150,035 1,592,936 3,866,949 5,615,517

London Bridge 1,028,136 577,362 1,959,254 1,511,476 5,076,228

Waterloo 8,375 0 246,198 4,704,892 4,959,465

Borough West 56,554 30,471 136,864 1,802,615 2,026,504

Bermondsey 63,612 46,627 241,296 1,656,440 2,007,975

Total 1,162,275 804,495 4,176,548 13,542,371 19,685,689

Source: Farebrother

farebrother.com 11 The London South Bank Office & Retail Markets Q4 2013

Take-up

South Bank has had an exceptional year of Take-up following numerous high profile lettings throughout the year. A further A record year of Take-up in 337,416 sq ft let in the 4th Quarter 2013 resulting in total Annual South Bank totalling 1.6m sq ft, Take-up reaching 1.64m sq ft in 164 deals; levels not seen since more than double the five-year 2007. New and Refurbished stock accounted for 62% of total Take-up in 2013 in 31 lettings which was more than double the Annual average of 706,521 sq ft levels seen in 2012.

Fig.3 Annual Take-up by Age Fig.4 Annual Take-up by Submarket 2009 – 2013 2009 – 2013

million sq ft million sq ft 1.8 1.8

1.5 1.5

1.2 1.2

0.9 0.9

0.6 0.6

0.3 0.3

0.0 0.0 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 Bankside London Bridge Waterloo Borough West Bermondsey Pre WW2 WW2 - 1979 1980’s - 1990’s 21st Century

Source: Farebrother Source: Farebrother

The disparity in the quality of office space available across the The lack of good quality stock in Waterloo stands out when five South Bank submarkets has meant a different occupier looking at total Take-up in the last five years, totalling just 343,617 profile has emerged at each. sq ft. Despite accounting for a quarter of office stock, Waterloo is the smallest submarket in terms of Take-up representing just 10% A total of 1.32m sq ft has been let in Bankside since 2009 of South Bank’s total Take-up over the past five years. making it the submarket that has had the most Take-up in the last five years, 60% of which has been to Occupiers from the Waterloo has become a hub for non-profit organisations, with TMT sector (Technology, Media and Telecoms). Of this Take-up 44% of the 343,000 sq ft of office space let over a five year the top three largest Occupiers by sq ft in Bankside are all from period occupied by charities, associations and QUANGOs, who the TMT sector, Ogilvy & Mather who leased 226,343 sq ft at are drawn to the cheaper, lower grade space and excellent Sea Containers, 20 Upper Ground in the 3rd Quarter 2013, transport links. United Business Media who took a Pre-let of 103,452 sq ft at 240 Blackfriars Road in the 1st Quarter 2012 and Detica who A total of 435,361 sq ft has been let in Borough West and took 40,322 sq ft at The Blue Fin Building, 90-110 Southwark 593,359 sq ft in Bermondsey over the last five years with the Street in the 3rd Quarter 2011. TMT sector being the driver for leasing activity in both submarkets accounting for 35% and 18% of total Take-up There has been 1.28m sq ft of lettings in London Bridge respectively. Given that the vast majority of office buildings in making it the submarket with the second largest Take-up since these markets are in the 1,000-5,000 sq ft size brackets, these 2009, with an Occupier base predominantly made up of TMT, markets are more attractive to growing companies in this sector accounting for 50% of total Take-up. However, London Bridge rather than mature corporates. has a large Professional occupancy due to a number of firms such as PWC, Lawrence Graham and EY having a number of Borough West is also home to a significant number of Charities & holdings in More London and London Bridge City. Associations (17%), while Bermondsey shows a relatively even spread between the TMT (18%), Legal (16%) and Professional (15%) sectors.

12 farebrother.com The 23,648 sq ft letting during construction to Boodle Hatfield was the second reported deal at Great Portland Estates’ 240 Blackfriars Road

Selected office lettings in South Bank – 4th Quarter 2013

Occupier Address Sq ft Grade Reported Rent £psf

Network Rail Cottons Centre, Hay's Lane 30,000 Refurbished 45.00

Cheil Europe Ltd The Crane Building, 22 Lavington Street 28,443 New Conf.

Guy’s & St Thomas’ NHS Foundation Trust 200 Great Dover Street 25,223 Refurbished 32.50

Boodle Hatfield 240 Blackfriars Road 23,648 New 50.00

Puma Sea Containers, 20 Upper Ground 23,319 Refurbished 45.00

Zoopla The Harlequin Building, 65 Southwark Street 14,591 Refurbished 41.00

ATG Media The Harlequin Building, 65 Southwark Street 13,228 Refurbished 43.50

The Challenge Network (MTV) Elizabeth House, 39 York Road 13,094 Secondhand Grade B Conf.

Addison Design & Associates 49 Road 11,590 Refurbished 38.70

Fieldglass 1 Valentine Place 7,020 New Conf.

Source: Farebrother

Fig.5 Annual Take-up by Grade 2009 – 2013

million sq ft 2.0

1.5

1.0

0.5

0.0 2009 2010 2011 2012 2013 2014 (projection) Pre-lets New Refurbished Secondhand Grade A Secondhand Grade B

Source: Farebrother The London South Bank Office & Retail Markets Q4 2013

Availability

Supply remains stable, without the Shard it would have the lowest Availability Rate in Central London, at 3.8%

Overall Availability at the end of the 4th Quarter 2013 fell by 12% The lack of Secondhand Grade A supply has always been a on the 3rd Quarter, falling from 1.42m sq ft to 1.25m sq ft, which problem in South Bank, as the demand is high for good quality equates to a decrease in the total South Bank Availability Rate secondary space. from 7.2% to 6.4%. The decrease was primarily due to there being no development completions during the 4th Quarter, New Availability accounts for 44% of total South Bank supply, combined with another strong quarter of Take-up. 93% of which can be found in London Bridge largely due to the 514,312 sq ft available at The Shard, which, if excluded would The Availability of New and Refurbished space fell 14% in the result in South Bank’s overall Availability Rate being 3.8% and 4th Quarter 2013 due to a handful of lettings including, a total of thereby the lowest in Central London. 39,286 sq ft at The Crane Building, 22 Lavington Street, two lettings totalling 27,819 sq ft at The Harlequin Building, 65 Southwark Refurbished stock accounts for 22% of Availability where the Street and two lettings at 33,757 sq ft at Cottons Centre. majority can be found in London Bridge in two recently refurbished buildings, 1 London Bridge and Cottons Centre, Secondhand Availability decreased by 7% from 456,844 sq ft in Hay’s Lane. Secondhand Grade B accounts for 29% of the 3rd Quarter 2013 to 423,479 sq ft in the 4th Quarter, with a Availability with the largest proportion in Waterloo. significant reduction in Secondhand Grade A supply, down 67% down on the 4th Quarter 2012. It is currently at the lowest level on record with just 58,757 sq ft available.

Fig.6 South Bank Annual Availability by Grade

million sq ft 1.5

1.0

0.5

0.0 2007 2008 2009 2010 2011 2012 2013 2014 (projection) New Refurbished Secondhand Grade A Secondhand Grade B

Source: Farebrother

14 farebrother.com The London South Bank Office & Retail Markets Q4 2013

Fig.6 South Bank Availability by Submarket – 4th Quarter 2013 Fig.7 South Bank Availability by Submarket – 4th Quarter 2013

million sq ft 0.9 0.8 0.7 0.6 0.5

0.4 0.3 0.2 0.1 0.0

Bankside London Bridge Waterloo Borough West Bermondsey

New Refurbished Secondhand Grade A Secondhand Grade B

Source: Farebrother

London Bridge accounts for 65% of total South Bank Availability

Fig.8 South Bank Availability by Age – 4th Quarter 2013

1.0 million sq ft

0.8

0.6

0.4

0.2

0.0

Bankside London Bridge Waterloo Borough West Bermondsey

Pre WW2 WW2 - 1979 1980’s - 1990’s 21st Century

Source: Farebrother

farebrother.com 15 There is currently 407,382 sq ft of space Under Construction, with the current pipeline reaching its end in 2015, the big question is where the next wave of development will be provided?

CIT and joint venture partner Saudi-based Jadwa Investments’ mixed-use scheme, , due for completion in the 3rd Quarter 2015 will deliver circa 225,000 sq ft of office space and 191 luxury apartments. The scheme also includes 36,000 sq ft of retail which will cover the majority of the perimeter of the site

16 farebrother.com The London South Bank Office & Retail Markets Q4 2013

Future Supply

After a recent wave of Pre-lets and lettings during construction Ground and 240 Blackfriars Road, which both complete in the of New and Refurbished stock in South Bank the question 1st Quarter 2014, have both experienced strong Occupier causing concern is whether the development pipeline can interest and let large amounts of space before completion. sustain this level of demand. South Bank Tower which is positioned directly behind Sea Containers is also underway and will deliver 224,784 sq ft in the There is currently 407,382 sq ft speculative development Under 3rd Quarter 2015. Construction in South Bank, of which 182,598 sq ft is expected to complete in the 1st Quarter 2014. The remaining 40,412 sq ft There is a real asset management opportunity for landlords to at Sea Containers, Upper Ground is already under offer, leaving exploit the South Bank’s renaissance by investing in existing only 120,254 sq ft at 240 Blackfriars Road and 21,932 sq ft at stock to increase income. Good examples of where this strategy Friars House, 160 Blackfriars Road. is reaping attractive rewards are Cottons Centre, Sea Containers the Harlequin Building and the Crane Building.. If strong Take-up levels continue into 2014 as we anticipate this will put pressure on South Bank’s rapidly decreasing Availability Major development is desperately needed around Waterloo Rate of 6.4% as there are no more development completions where 95% of stock is of substandard Secondhand Grade B. expected for the remainder of 2014. Much needed mixed-used schemes such as The Shell Centre and Elizabeth House redevelopment on York Road are The first wave of regeneration to Blackfriars Road is already encountering frustrating planning delays which would totally underway and making good progress. Sea Containers, Upper transform Waterloo if approval were granted.

Fig.9 Development Activity in South Bank

sq ft 900,000

800,000

700,000

600,000

500,000

400,000

300,000

200,000

100,000

0 2000 200 1 2002 2003 200 4 2005 2006 2007 2008 2009 20 1 0 20 11 20 1 2 20 1 3

Completed Pre-let Under Construction

Source: Farebrother

There were no completion in the 4th Quarter 2013 – the next wave of new schemes will be delivered in the 1st Quarter 2014 from the remainder of Sea Containers and 240 Blackfriars Road

farebrother.com 17 The London South Bank Office & Retail Markets Q4 2013

Investment

Alastair Hilton

A record year of Investment turnover in South Bank totalling £1.3bn

Whilst South Bank is the smallest of the four recognised Central £18bn in terms of value turnover, which reflects, its highest level London markets, its position within the context of Central London since 2007. The drivers behind this are well publicised, with is now well established. As a result, market activity across Central Overseas Investors becoming the dominant Investors, however, London will have a very direct influence on South Bank. Capital you will see from the figures below that South Bank still holds a inflows and therefore trading for Central London finished at circa significant attraction to UK Investors.

Fig.10 Investor Breakdown - 4th Quarter 2013 Vs. Total 2013

£609m UK vs £5.2m Overseas £859m UK vs £345m Overseas

Investment Source % by Value in Q4 2013 Investment Source % by Value in 2013

UK Fund

1 1 UK Private / Other 9 1 7 5 UK Property Company 3 Overseas European Total Total 32 58 17 44 Overseas Middle Eastern £615m £1.3bn Overseas Far Eastern

Overseas Other 6 Owner Occupier

16 Undisclosed

Source: Farebrother

18 farebrother.com The London South Bank Office & Retail Markets Q4 2013

Selected Investment Transactions in South Bank

Address Sq ft Vendor Purchaser Reported Price £m

Bankside 2 & 3 453,904 Land Securities M&G Real Estate 315.00

Elephant & Castle Shopping Centre, New Kent Road 327,000 St Modwen / Salhai Real Estate Delancey / APG 80.00

Camelford House, 87-89 240,000 Marcol Thames Water 70.00

185 Park Street 80,000 Reuben Brothers Delancey 55.00

The Harlequin Building, 65 Southwark Street 53,847 Rockspring / Moorevale Scottish Widows (HIFML UK Property Fund) 40.00

Brandon House, 180 Borough High Street 42,229 Chantrey Ltd Crest Nicholson Ltd 29.30

22-26 Albert Embankment 20,290 Imperial Resources SA Berkeley Homes (St James Group) 20.00

Source: Farebrother

The largest transaction of the 4th Quarter 2013 was M&G Real Estates’ purchase of 453,904 sq ft of offices at Bankside 2 & 3 for £315m from Land Securities farebrother.com 19 The London South Bank Office & Retail Markets Q4 2013

Fig.11 Vendor Breakdown – 4th Quarter 2013 Vs. Total 2013

£589m UK vs £0m Overseas £1.1bn UK vs £158m Overseas

Vendor Source % by Value in Q4 2013 Vendor Source % by Value in 2013

UK Fund 64 1 6 UK Private / Other 12 30 UK Property Company Overseas European Total Total Overseas Middle Eastern

£615m £1.3bn Overseas Far Eastern 3 Overseas Other 48 Owner Occupier 89 Undisclosed

Source: Farebrother

There is still strategic value to be had, when put alongside the Investment activity in the 4th Quarter 2013 reached £615m in other markets, however, due to the limited size of the market, its nine transactions, making it a record quarter and rounding off a values are moving ahead quickly. Furthermore, whilst the general record year with an Annual Investment Turnover of £1.3bn in 35 perception has been that South Bank has had a way to go in transactions. UK Investors represented 99% of the 4th Quarters terms of its evolution, if you consider the high profile occupational turnover, of which more than half was UK Institutional money transactions, plus the numerous capital projects, then one can with the M&G Real Estate purchase of Bankside 2 & 3 argue that it has now reached a maturity comparable with the dominating. Institutional support for the South Bank market is other markets. This is confined to the river facing areas, so there therefore significant. remains considerable scope for the market to evolve southwards. With the impending sale of More London, the record will be superseded once more in the 1st Quarter 2014, reinforcing South Bank’s emergence as one of the key Central London markets.

UK Investors account for 66% of total Investment in 2013 compared with 26% from Overseas Investors. We are starting to see more Overseas interest in South Bank, however, and that should continue to show into 2014

20 farebrother.com The London South Bank Office & Retail Markets Q4 2013

Whilst the 4th Quarter itself was dominated by UK Institutional Waterloo is the second largest submarket in terms of Investment activity, if you look at turnover throughout the year it was driven in since 2007 with £963m invested, accounting for 28% of total equal measure, by Overseas and UK Investors. This sets South South Bank Investment. Two of Waterloo’s largest transactions Bank apart from the other Central London markets, it is likely that were the sale of the Shell Centre, York Road in the 2nd Quarter the Overseas Investor will continue to raise its profile and become 2011 for £300m and more recently the sale of the IBM Building, the dominant Investor in South Bank. Looking ahead we 74-78 Upper Ground from AMSProp to Cordea Savills for £120m anticipate more of the same, with illiquidity in the market, having a which took place in the 3rd Quarter 2013. The remaining three positive effect on pricing. submarkets, London Bridge, Borough West and Bermondsey combined represent the final 25% of South Bank Investment.

Whilst the 4th Quarter itself was dominated by UK Institutional activity, if you look at turnover throughout the year it was driven in equal measure, by Overseas and UK Investors

Fig.12 Annual Investment Turnover by Submarket 2007 – 2013

Annual Turnover £ m £m 1400 425 350 78 401 562 344 1,307

1200

1000

800

600

Five Year Annual Average 400

200

0 2007 2008 2009 2010 2011 2012 2013 Bankside London Bridge Waterloo Borough West Bermondsey

Source: Farebrother

farebrother.com 21 The London South Bank Office & Retail Markets Q4 2013

Retail

Josephine de Castro

South Bank has the potential to become one of London’s premium leisure, shopping and dining destinations

South Bank is becoming a vibrant destination, with international The future pipeline will increase the quantity and quality of the tourist presence and expanding office and high-end residential retail stock, making it possible to attract a very different type of developments that continue to grow the area’s footfall. Retail in retailer whose requirements historically have not been met. With South Bank has great potential over the next ten years as the the completion of London Bridge station in 2018 and the majority of future development schemes are mixed-used, opening of three 5* hotels, The Mondrian at Sea Containers, The incorporating retail and hotel usage. Shangri-la at The Shard and the Hilton London Bankside, visitor numbers in South Bank are expected to rise further. Previously, neglected ground floor spaces and a lifeless streetscape in various areas of South Bank have been both an eyesore and an unexciting shopping experience for visitors.

South Bank is, however, beginning to find its identity. Proposed plaza and public realm at Sampson and Ludgate House which will be lined with retail, include dedicated play areas for children and possibly commissioned public art

12 farebrother.com Southwark Council and Network Rail are consulting on Team London Bridge’s proposition to open up the Victorian arches and tunnels surrounding London Bridge station. Team London Bridge are currently in collaboration with Southbank University examining the feasibility of creating an arts, crafts and technology cluster within these unique spaces, utilising this landmark feature to compliment the flourishing communities that surround it

Bankside is South Bank’s largest submarket in terms of London Bridge has undergone significant office stock and encompasses much of the active and future redevelopment in recent years, drastically enhanced by the development pipeline. Plans for Bankside are centered around London Bridge Quarter redevelopment which has boosted the the regeneration of Blackfriars Road, proposing a cluster of tall retail offer in the area. There are, however, to include a new office buildings at the Northern end which comprise five schemes underground shopping mall linked by escalators to a piazza. The fronting the river. There are eleven planned schemes in total, London Bridge Station concourse, which on completion in providing circa 75,000 sq ft of new retail space, the largest of 2018, will be the largest in the UK, will be delivering 66% more which is Southbank Tower, a residential led mixed-used scheme space including new retail and station facilities. undergoing extensive redevelopment with a total of 36,000 sq ft of restaurants and retail space being delivered in 2015. The London Bridge regeneration challenge is to fully integrate the station and The Shard with the surrounding area. In the 1st Quarter 2014, the first Mondrian Hotel in Europe is Improvements have already involved cutting new viaducts due to open in Sea Containers, 20 Upper Ground with through Borough Market and improving street space for stall approximately 360 rooms. This luxury hotel from the New York holders and shoppers and Southwark Council and Network Rail based Morgan’s Hotel Group, is also expected to feature two are now consulting on Team London Bridge’s proposition to riverside restaurants and a modern rooftop bar. open up the derelict railway arches and tunnels that form part of the Listed Victorian viaduct along Crucifix Lane to link Hay’s The recently approved Ludgate and Sampson House Galleria and Bermondsey Street. development schemes will offer 25,000 sq ft of retail space, which will be delivered in phases from 2015 until early 2023. The arches and tunnels could be transformed to create active Proposals include a large plaza that allows for pedestrian flow street frontages and provide access to the cavernous space from Blackfriars station in a space that will be lined with retail beyond which offers opportunities for a multitude of uses. providing access to the viaduct retail arcade. St. Thomas Street, Holyrood Street, Druid Street and Crucifix Lane have the potential to become thriving high streets both day and night with an offering of retail, leisure and creative art type Occupiers because of the plans for the arches and tunnels.

The future pipeline will increase the quantity and quality of the retail stock, making it possible to attract a very different retailer

farebrother.com 23 Recent lettings at Waterloo station have boosted the retail offer in the area and should attract further Investment

Waterloo is already an established centre for arts and culture An additional 30,000 sq ft of retail space will be delivered across but it continues to lag behind its counterparts, London Bridge and three proposed schemes, Elizabeth House, 39 York Road, Station King’s Cross when it comes to office space and retail. The recent House, 158 Waterloo Road and residential scheme The Corniche, lettings at Waterloo Station have significantly boosted the retail 20 Albert Embankment. Further opportunities for retail offer in the area and should attract further Investment but the development will arise as the location becomes more known and concourse and immediate vicinity around the station look tired established as a destination. and in desperate need of renovation. The next stage has to be the linkage through to York Road, however, Waterloo faces continued stalled progress with the proposed redevelopment of Borough West will be a key market in South Bank’s the Shell Centre and Elizabeth House. future as it links Bankside and Waterloo to Elephant & Castle where large regeneration works are planned. Retail in Elephant & If the Shell Centre redevelopment plans receive approval it is set Castle is already taking a similar approach to the City Fringe to see strong interest from a wide variety of local and international where planning was approved for a pop-up style retail facility on retailers, with surrounding retail parades such as Lower Marsh Lend Leases’ Heygate Estate, similar to that of the ‘Boxpark’ in and The Cut also set to register a significant increase in retailer Shoreditch. demand. Proposals include 64,000 sq ft of retail space with a public plaza and a new route connecting Waterloo station to the The proposals involve forty-eight empty shipping containers . This scheme alone is likely to transform the whole which will be cheaply available to let for a maximum of five years Waterloo submarket with its much needed commercial space allowing a variety of tenant uses including, studio, gallery, retail making it a more desirable place to live, visit and work. and restaurant space. Borough West is dominated by residential areas with not much retail currently on offer. The existing retail element is poor and lacks any real active frontage.

A temporary facility named ‘Artworks Elephant’ is expected to open in 2014 on Lend Lease’s Heygate Estate in Elephant & Castle. The facility will be formed of forty-eight recycled shipping containers providing low-cost retail space for local companies and start-ups on leases for up to a maximum of five years The London South Bank Office & Retail Markets Q4 2013

Bermondsey has plans for retail improvements around Delancey, in partnership with Oakmayne Properties, acquired Borough High Street that will ensure the street continues to be the cleared site as part of a consensual deal with Royal Bank a hub of activity and to keep its high street appeal. Plans include of Scotland. Work has started on site and will be complete in making it easier to walk along and across the street through a 2016 delivering, 373 private apartments, 272 student residences, range of streetscape improvements, including improved shop 13 new retail units, a four-screen cinema, three restaurants fronts, better paving, reduced clutter and widened pathways. and a 17,000 sq ft Sainsbury’s supermarket. There will also There will be a range of shops, facilities and services to meet be a ”Market Square”, which will form a focal point for the the needs of local people, office workers and visitors. development and the wider Elephant & Castle regeneration zone.

Bermondsey is another key submarket in South Bank’s future Furthermore, in the 4th Quarter 2013, developers Delancey as just like Borough West, it will benefit from the regeneration and APG purchased the Elephant & Castle Shopping Centre in Elephant & Castle which took a major step forward in 2012, and plan to redevelop the 3.5-acre site replacing the existing when Lend Lease signed a regeneration agreement and centre with up to 500,000 sq ft of retail space and more than submitted three planning applications to incorporate 3,000 1,000 flats above. Delancey will combine the new retail and new homes, new retail, business space and a new park. residential with its existing Tribeca Square scheme to create a wider development called South Village. With work under way The site situated on the corner of Old Kent Road formerly on a range of schemes, a new leisure centre, and improved known as Tribeca Square, is one of the mixed-used public spaces the entire area will be transformed into a 24-hour developments that sit within the heart of the Lend Lease vibrant place for people living in the area to enjoy. and Southwark Council regeneration area in Elephant & Castle.

Delancey and Oakmayne Properties’ development site in Elephant & Castle, formerly known as Tribeca Square will have a four-screen cinema, a 17,000 sq ft Sainsbury’s supermarket, 13 new retail units and three restaurants farebrother.com 25 Farebrother Key Contacts Office & Retail Market

Farebrother 27 Bream’s Buildings London EC4A 1DZ

For further information please call +44 20 7405 4545 farebrother.com Alistair Subba Row Alastair Hilton Senior Partner, Investment Investment +44 20 7855 3555 +44 20 7855 3535 [email protected] [email protected] Follow us on

Working in Partnership

Julian Hind Charlie Thompson Office Leasing & Residential Office Leasing, Sales & Development Sales & Development +44 20 7855 3554 +44 20 7855 3558 [email protected] [email protected]

Other Research available

The London Midtown Malcolm Brackley Jeff Norris Office & Retail Markets Q4 2013

Lease Advisory, Valuation Business Rates 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 +44 20 7855 3566 +44 20 7855 3593 South Bank Office and Retail markets [email protected] [email protected]

A member of

London Midtown Farebrother IPD London Office & Retail Market Midtown & Southbank Quarterly Reports Investment Reports

This research is available in PDF format. Please Andrew Glover Josephine de Castro email [email protected] to receive a copy. Property Management Retail Leasing, Sales & Development +44 20 7855 3580 +44 20 7855 3595 [email protected] [email protected] This publication has been carefully prepared and it is intended for general guidance only. No responsibility is accepted by Farebrother for any errors or omissions. The information contained herein should not be relied upon to replace professional advice on specific matters and is not, in whole or in part, to be published, reproduced or referred to without prior approval. Information may be subject to revisions in subsequent editions. ©2014 Farebrother. All rights reserved.

Julian Chappell Victoria Shreeves Corporate Real Estate Research +44 20 7855 3533 +44 20 7855 3532 [email protected] [email protected]

Designed and Produced by Sears Davies 020 7633 0939 searsdavies.com