Q1 | 20171 Central London office analysis 2 3 Occupier market – in brief Welcome to GVA’s central London office analysis; our detailed view of the market in Q1 2017. Moving on up, moving on out? The mood during the first quarter was generally positive amidst strong stock market performance, robust domestic economic growth and growth in the PMI Business activity index. Despite this, the build-up to the triggering of Article 50 has led to a new wave of speculation on the businesses likely to leave London, with Goldman Sachs, JP Morgan, HSBC, UBS, AIG, Barclays, Lloyds, Citigroup, Daiwa, Nomura and the European Banking and Medicines agencies, just a few of the great and good who were linked with moving at least some of their operations outside of London. However, some large occupiers are using this time of evaluation to Patrick O’Keeffe commit once again to London, with Deutsche Bank in talks to take a 25 year lease at Land Securities’ 21 Moorfields from 2023. In another piece of Head of London Agency good news, NEX agreed to let 115,000 sq ft of Ashurst’s space at Fruit & and Investment Wool Exchange, which is due to complete in 2018. [email protected] Prime and Top 020 7911 2768 The quarter has by and large seen stable rental levels. However, in what has been a quite inconsistent quarter, there have been a few examples of record rents being achieved. At 30 Broadwick Street, GPE have achieved a new record rent for Soho of £110 per sq ft on the top floor, whilst at the Adelphi, Blackstone let the top floor to Finsbury PR at a rent in excess of £100 per sq ft. Meanwhile, Ocubis’ refurbishment of 5 St James’s Square is rumoured to have a c.2,000 sq ft unit under offer at a rent in the region of £190 per sq ft to a Canadian billionaire family, These three deals contrast enormously with the general tone of the market which has been one of stability and ‘re-based’ pricing levels, with The general tone the West End now notably cheaper than this time last year, and rent-free periods seeing an increase in almost all submarkets during this period. of the market has Where we work Last month at MIPIM I had the pleasure of launching our new report been one of stability London: where we work at the opening panel on the London Stand. The report examines how London’s workspace has changed over the last and ‘re-based’ decade and how occupiers are demanding more than ever before. pricing levels We believe that the old adage of location, location, location has now evolved into LUCK: Location, Utilisation, Cost and Knowledge. Taking into account the significant shifts in occupier demand, the report looks at the changes in the city’s submarkets and the drivers underpinning them. If you’d like to discuss anything in either this, or the above report, please don’t hesitate to get in touch. Photo on the cover: GVA disposed of 14,989 sq ft to BuzzFeed at t 40 Argyll Street (W1) 4 5 Central London Take-up Development Central London take-up for the first quarter of 2017 totalled 2 Central London Take-up City During the quarter, 22 buildings totalling 2.4 million sq ft of development Annual development completions City million sq ft, 32% down on the previous quarter, and 20% down on the West End completed, including seven buildings over 100,000 sq ft. West End five-year quarterly average of 2.5 million sq ft. Docklands Docklands 5 year quarterly average The largest building to complete in the City was Mitsui Fudosan’s Completed During the quarter the bulk of activity was in the West End fringe, which Take-up (million sq ft) 312,000 sq ft Angel Court (EC2). In the West End, work completed at Space (million sq ft) made up 677,900 sq ft and 33% of take-up. The best performer was the 4 Land Securities’ 480,000 sq ft Nova (SW1) scheme. 10 (under construction) West End core, which saw 174,100 sq ft transact, 37% up on the five-year 10 buildings totalling 1.2 million sq ft of development started during quarterly average. 9 the quarter including the 400,000 sq ft One The Thames (WC2) and The largest deal of the quarter was in the City Core to Freshfields 288,100 sq ft at 1 Braham Street (E1) in Aldgate. Work also started on 8 Bruckhaus Deringer who committed to 256,500 sq ft at 100 Bishopsgate 3 Q1 the 137,500 sq ft Bracken House, where the FT took a pre-let in the Q1 (EC3). Elsewhere, Expedia.com committed to 136,600 sq ft at The Angel Q1 previous quarter. 7 Building (EC1) and in the West End, the largest deal was to Arup who There is currently 14.7 million sq ft under construction across central took 133,000 sq ft at 80 Charlotte Street (W1). Q1 6 Q1 London, with 6.1 million sq ft (42%) due for completion before the end of Take-up of second hand grade A space made up 39% of activity for 2 Q1 2017 and a further 5.9 million sq ft (40%) due before the end of 2018. 5 the quarter, totalling 792,900 sq ft, with pre-letting on space under Of the space currently under construction, 5.7 million sq ft (39%) has construction totalling 446,200 sq ft and 22% of take-up. Take-up of already been let, leaving 9 million sq ft of available space in the pipeline. 4 newly completed space made up a further 367,100 sq ft (18%). Rental growth 3 During the quarter, 8 deals completed over 50,000 sq ft, half of 1 that seen in the previous quarter. Three of those deals were over Central London prime rents fell on average 0.7% during the quarter, the 2 100,000 sq ft. third successive quarterly decrease following 26 quarters of consecutive growth. Prime rents were down 5.8% on the year and are back to the 1 Availability same levels they were at in during Q1 2015. There is currently 10.2 million sq ft available across central London, 2012 2013 2014 2015 2016 2017 By and large, prime rents were stable during the quarter, with the fall 2012 2013 2014 2015 2016 2017 2018 2019 2020 increasing from 9.3 million sq ft as of the end of Q4 2016. Since this time Years Source: GVA / EGi / CoStar attributable to the West End which saw a fall of 1.1%. last year, the amount of available space has increased by just under Source: GVA 20%, with 1.6 million sq ft more on the market. The vacancy rate is now up to 5.3%, the first time it has been over 5% since Q1 2015, suggesting that bottom of the cycle has now passed. Central London office City Central London prime City availability rates West End rental growth West End Docklands Docklands Central London Central London Availability rate (%) Rental growth (%) 10 40 30 8 20 10 6 0 4 -10 -20 2 -30 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Years (Q1) Source: GVA / CoStar Years (Q1) Source: GVA 6 7 West End City Take-up KEY STATS THIS QUARTER Take-up KEY STATS THIS QUARTER Take-up during the quarter reached 852,100 sq ft. This was 1.2% up Take-up during Q1 2017 totalled 1.1 million sq ft, which was 38% down on on the five-year quarterly average of 837,800 sq ft and 53% up on the previous quarter, and 23% down on the five-year quarterly average. the previous quarter, despite there being a similar number of deals. The big deals in the City were Freshfields Bruckhaus Deringer taking The quarter saw occupiers committing to more space than the previous sq ft 256,500 sq ft at 100 Bishopsgate (EC3) and Amazon.co.uk taking sq ft quarter, with large deals to Mckinsey & Company at The Post Building let 89,300 sq ft at Principal Place (EC2). There were four deals in excess of take–up (WC1) for 97,000 sq ft, Arup at 80 Charlotte Street (W1) for 133,600 sq 852,100 50,000 sq ft this quarter, compared to 12 deals in the previous quarter. 1.1 m ft, and 70,000 sq ft to The Office Group at 84 Eccleston Square (SW1). 1.2% up on 5-year quarterly average Pre-letting for the quarter made up 345,900 sq ft, 31% of the total 23% down on 5-year quarterly average During Q1 2017 deals on pre-let space accounted for 323,300 sq ft take-up, with take-up of new space accounting for a further 128,500 or 38% of the total take up across the West End and 16% of sq ft (11%). Second-hand letting totalled 659,000 (58%), with second- take-up for the quarter. Take-up of second-hand Grade A space hand Grade A space making u 491,500 sq ft of this (43% of take-up). made up 273,900 sq ft of take-up, 14% of the total take-up. Availability Availability vacancy Availability increased slightly from 5.2 million sq ft to 5.6 million sq ft, vacancy Availability increased from 3.4 million sq ft to 3.8 million sq ft during with the vacancy rate increasing from 5.6% to 6.1%.