At a Glance
CENTRAL LONDON OFFICE MARKET
Q1 2015
INVESTMENT
LEASING
•
Despite persistent & robust demand for space in Central London the
first quarter of 2015 saw take-up drop 36% to 2.87 million sq ft, the
first time in eight consecutive quarters that take-up was below 3
million sq ft. The last time take-up was below this level was in Q1
2013 when interestingly, the total volume was also 2.87 million sq ft.
•
Recent history has seen the Media Tech sector driving Central
London take-up and with the sector accounting for 21% of total first
quarter take-up, the trend looks set to continue through 2015.
•
Another trend that looks set to persist over the year ahead is the
growth in prominence of serviced office operators. The sector made
up 12% of take-up during the quarter. The total amount of space
absorbed by these firms is 2 million sq ft since the beginning of 2013,
almost double the amount taken between 2005 and 2012.
•
The first quarter of the year is traditionally the quietest for take-up
but whilst there are fewer larger requirements, demand from small
and mid-sized businesses is solid. Competition for <5,000 sq ft units
is intense and rents are being forced up across the Capital, indeed a
record breaking rent of £185/sq ft was achieved in St James’s in Q1.
•
In line with the long-term trend, London economic growth is set to
outpace that of the UK overall. By 2015 the London economy is
expected to be over 25% larger than its pre-crisis peak in 2008 and
over the next 3 years London GDP is expected to increase by 10.2%.
•
Against this positive economic backdrop Central London office
investment enjoyed a healthy start to 2015. At £3.86 billion it was the
highest first quarter investment volume since 2007 (£3.87 billion).
Even more impressive considering this followed the highest 4th
quarter volume on record (Q4 2014: £8 billion).
•
At £1.72 billion the City market enjoyed it’s most active first quarter
since 2006 (£2.3 billion), making up 45% of the Central London total.
•
68% of Q1 Central London office investment involved cross-border
capital , down from 81% in Q4 2014. Overseas involvement in 6 deals
over £90 million in the City pushed foreign investment to 70%. With
fewer trophy deals in the West End than in previous quarters UK
investors saw their share of the market reach 48% across 15 deals.
•
The strong performance during the quarter ensured prime yields
remain at 3.50% and 4.00% for the West End and City respectively.
Central London take-up by sector
Central London investment volume
Source: BNP Paribas Real Estate
Source: BNP Paribas Real Estate
Key investment transactions
Central London key indicators
Q1
2015
Q4
2014
Q1
2014
Take-up (m sq ft)
2.87
4.49
3.13
Supply (m sq ft)
11.90
11.35
Vacancy rate (%)
5.39%
Investment Volume (£bn)
Property
Price Yield
(£m) (%)
Size
(sq ft)
Purchaser
Sampson & Ludgate, SE1
308
N/A
526,280
Temasek/Amcorp
The Pinnacle, EC2
300
N/A
Site
Temasek/Lipton Rogers
Queensberry House, W1
190
4.06
205,073
Norges Bank
Cannon Bridge House, EC4
170
6.50
285,580
Blackstone
-25bp
City Gate House, EC2
105
6.08
161,700
Brookfield
-50bp
1 Neathouse Place SW1
101
5.00
117,472
Threadneedle
Change
Q-on-Q
Change
Y-on-Y
-36%
-8%
16.34
5%
-27%
5.10%
7.42%
29bp
-202bp
3.86
7.99
3.23
-52%
19%
West End prime yields (%)
3.50
3.50
3.75
0bp
City prime yields (%)
4.00
4.00
4.50
0bp
Source: BNP Paribas Real Estate
Source: BNP Paribas Real Estate
CONTACTS
Dan Bayley, London Office Agency, 020 7338 4444, daniel.bayley@bnppparibas.com
Alistair Kemp, Research, 020 7338 4348, alistair.kemp@bnpparibas.com
CENTRAL LONDON OFFICE MARKET - Q1 2015
WEST END
•
The West End saw leasing transactions of 0.67m sq ft in Q1 2015.
Although 21% below the long term quarterly average, levels were on
par with take-up during the respective period of 2014. Unlike recent
quarters it was a lack of large individual deals that led to the overall
subdued levels of demand, indeed just one deal in excess of 50k was
recorded, Facebook’s 65,000 sq ft acquisition at Regent’s Place, NW1.
Compared with recent trends, Victoria saw very low levels of take-up,
which accounted for only 21,000 sq ft in 4 deals.
•
Key deals in the Media Tech sector such as the Facebook transaction
and BMG Chrysalis acquiring 23,000 sq ft at 5 Merchant Square in
Paddington, resulted in the sector accounting for 31% of total take-up
in the West End during the quarter.
•
The below average levels of take-up contributed to a 4.9% rise in
supply to 2.62m sq ft, resulting in a vacancy rate of 3.8%. Despite this
rise, a fall in vacancy rates over the course of 2015 is still expected
due, in a large part, to the restrained development pipeline. 1.48m
sq ft of office space is due for completion this year, 15% of which has
already been pre-let. It is also worth noting that approximately 50%
of the 2015 development pipeline is classified as “extensive
refurbishment”, leaving only 0.71m sq ft as new build development
space.
•
The low vacancy rate in the West End has continued to place
upwards pressure on prices with the current prime rent now standing
at £120 per sq ft. A new record high rent of £185/sq ft was achieved
at 8 St James’s Square, providing further evidence that tenants are
prepared to pay a substantial premium to secure the best space.
•
Mirroring the occupational market, investment activity was also
more muted when compared against a strong Q4 14. Investment
volumes reached £1.05bn, 51% below the previous quarter. The lack
of larger lot size opportunities was a major contributor to the
subdued investment volume. Norges Bank’s £190m purchase of
Queensbury House, Old Burlington Street in Mayfair was the largest
transaction of the quarter.
•
Despite this, appetite remains strong for West End assets, against a
backdrop of extremely low levels of supply, prime yields could
potentially see further compression during the course of 2015.
West End take-up
Source: BNP Paribas Real Estate
West End rents and vacancy rate
Source: BNP Paribas Real Estate
Market statistics (W1, W2, W8, SW1, SW3, SW7, NW1)
Major office lettings
Demand & Supply
Sq ft
(000s)
Sq m
(000s)
Take-up
671
62
Availability
2.62
244
Vacancy
% of stock
Property
Size
(sq ft)
Rent
(£/sq ft)
Tenant
Regent's Place, NW1
65,000
Conf.
Facebook
1-2 Stephen Street, W1
34,152
£65.00
The Office Group
Paddington Central, W2
23,773
£52.50
Vertex Pharmaceuticals
Vacancy rate
3.8
5 Merchant Square, W2
23,077
£57.50
BMG Chrysalis
Prime Rents
£/sq ft
£/sq m
8 St James's Square, SW1
7,836
£150.00
SG Hambros
Mayfair/St James’s
120.00
8 St James's Square, SW1
2,949
£185.00
Helly Nahmad Gallery
Victoria
Change
Q-on-Q
Change
Y-on-Y
-35.3%
-3.7%
4.9%
-35.1%
-19bp
-200bp
1,290
2.1%
9.1%
77.50
834
0.0%
4.7%
Soho
80.00
861
0.0%
3.2%
North of Oxford Street (East)
75.00
807
0.0%
15.4%
North of Oxford Street (West)
92.50
996
0.0%
0.0%
Source: BNP Paribas Real Estate
CONTACTS
Nick Rock, London Office Agency, 020 7338 4485, nick.rock@bnppparibas.com
Steven Skinner, Investment Agency, 020 7338 4229, steven.skinner@bnpparibas.com
Colin Mumford, Lease Advisory, 020 7338 4279, colin.mumford@bnpparibas.com
CENTRAL LONDON OFFICE MARKET - Q1 2015
City
•
Take-up hit 1.67m sq ft in the first quarter of 2015, despite being 6%
below Q4 14 take-up, the figure was still 13% ahead of the five year
quarterly average of 1.48m sq ft. Deloitte’s 275,000 sq ft pre-let at
Land Securities’ 1 New Street Square provided the largest boost to
the overall take-up figure. As the supply and demand imbalance
becomes more pronounced we anticipate a further increase in the
amount of pre-letting activity over the course of 2015.
•
The Professional Services sector helped drive demand over the
quarter, largely as a result of Deloitte’s acquisition, which in itself
accounted for a quarter of total Q1 2015 take-up. Continuing on from
the trend set in 2014, the Serviced Office sector’s appetite for
significant chunks of prime space in the City continued into 2015,
with WeWork’s 168,000 sq ft deal at the recently completed Moor
Place taking the sector’s share of overall take-up to 12%.
•
Supply levels continued on a downward trend with only 5.32m sq ft
of available space recorded at the end of the quarter. Availability is
now fast approaching the previous historic low of 5.16m sq ft
recorded in 2006 and the current vacancy rate of just 6.0% is one of
the lowest on record. Can the City development pipeline offer any
reprieve to the tight level of supply?
•
With an average of 3.3m sq ft per annum due for completion over the
next three years (2015-17), the talk of a ‘supply crunch’ in the City
perhaps looks baseless. However, on closer inspection, it becomes
evident that a third of the total development and refurbishment
space scheduled for completion over the next three years has already
been pre-let. In addition, with refurbishments stripped out, there is
just 3.05m sq ft of new office development, an average of only 1.13m
sq ft per annum over the next three years. A continued high level of
take-up will ensure further downward pressure on the vacancy rate
over the next 12 months.
•
These favourable landlord conditions continue to squeeze rents
upwards, with prime rents now at £64.00/sq ft, up from £62/sq ft in
Q4 14.
•
The positive rental growth story over the next five years should
encourage developers to focus on delivering new stock but with
limited sites currently available we foresee strong competition for the
opportunities that do exist. Indeed there was a flurry of investment
activity in Q1 2015 with volumes reaching £1.7bn, 35% ahead of the
respective period in 2014.
City take-up & vacancy rate
Source: BNP Paribas Real Estate
City development pipeline
Source: BNP Paribas Real Estate
Major office lettings
City prime rents and vacancy rate
Property
Size
(sq ft)
1 New Street Square, EC4
274,766
Moor Place, Fore Street, EC2
Rent
(£/sq ft)
Tenant
Demand & Supply
Sq ft
(000s)
Sq m
(000s)
Conf.
Deloitte
Take-up
1,67
155
-5.7%
45.0%
167,913
62.00
WeWork
Availability
5,32
494
-5.7%
-26.4%
1 Aldermanbury Square, EC2
68,803
Conf.
Hewlett-Packard
Vacancy
% of stock
30 Gresham Street, EC2
61,190
59.50
Investec
Vacancy rate
6.00
-27bp
-228bp
Willis Building, Fenchurch Street,
EC3
52,361
52.50
Deutsche Bank
The Leadenhall Building, EC3
11,475
75.00
Ipsoft
Nexus Place, 25 Farringdon
Street, EC4
8,355
65.00
Baker Tilly & Co
110 Bishopsgate, EC2
6,383
69.12
Trailstone UK
Change
Q-on-Q
Change
Y-on-Y
Prime Rents
£/sq ft
£/sq m
Non-towers
64.00
689
3.2%
9.4%
Towers
75.00
807
1.4%
7.1%
Source: BNP Paribas Real Estate
CONTACTS
Fred Hargreaves, London Office Agency, 020 7338 4430, fred.hargreaves@bnppparibas.com
Richard Garside, Investment Agency, 020 7338 4034, richard.garside@bnpparibas.com
Colin Bell, Lease Advisory, 020 7338 4098, colin.bell@bnpparibas.com
CENTRAL LONDON OFFICE MARKET - Q1 2015
MIDTOWN
DOCKLANDS
•
Following the trend seen across Central London office markets, takeup in Midtown struggled to match the buoyant level recorded during
the previous quarter. Take-up reached 219,000 sq ft in Q1 15
compared with 345,000 sq ft in Q4 14. The largest deal was 40,090 sq
ft at 80 Stand which was let to marketing & analytics firm Aimia.
•
Encouragingly, we are currently tracking 412,000 sq ft of space under
offer, 280,000 sq of which is under offer to King’s College at Aldwych
Quarter. We understand that the University is close to agreeing a 50
year lease. The buildings will be occupied on a phased basis we
believe some space will be offered on subleases after completion.
•
Q1 2015 take-up was 117,236 sq ft, 69% lower than the previous
quarter and less than half the 10 year quarterly average. However,
with a market that relies mainly on large corporate deals to boost
performance we anticipate that supply constraints in other London
submarkets should see increasing demand for the high quality,
economical space that is available within the Canary Wharf location.
•
The largest deal of the quarter saw MasterCard taking 26,811 sq ft on
the 17th floor of 10 Upper Bank Street. We understand that a rent of
£38/ sq ft was achieved on a nine year lease with a break option
included halfway through the term.
•
The addition of The Adelphi and Aldwych House to our supply figures
pushed up availability by 22% to 1.19m sq ft, a vacancy rate of 6%.
Despite this, the vacancy rate is still below the average of 6.5%.
•
The vacancy rate jumped 172 bps to 9.04% during the quarter, but
with around 230,000 sq ft of space currently under offer, the rate
could return to the Q4 2014 level just as quickly as it moved out.
•
Of the 836,500 sq ft of developments due to complete in 2015 50% is
pre-let suggesting occupiers looking further ahead to fulfil their
property requirements.
•
Although we have witnessed both a drop in take-up and a rise in
availability, rental evidence still supports prime rents of £40/ sq ft in
Canary Wharf, whilst rents in Rest of Docklands, nudged up to £28.
Market statistics (E14, E16)
Market statistics (WC1, WC2)
Demand & Supply
Sq ft
(000s)
Sq m
(000s)
Change
Q-on-Q
Change
Y-on-Y
Demand & Supply
Sq ft
(000s)
Sq m
(000s)
Change
Q-on-Q
Change
Y-on-Y
Take-up
219
20
-36.3%
-21.2%
Take-up
117
10
-68.6%
-74.6%
Availability
1.19
110
21.6%
-15.5%
Availability
1.73
160
23.7%
0.0%
Vacancy
% of stock
Vacancy
% of stock
Vacancy rate
5.99
172bp
-29bp
Prime Rents
£/sq ft
£/sq m
Holborn
62.50
673
0%
0%
Covent Garden
75.00
807
0%
3.4%
115bp
-83bp
Vacancy rate
9.04
Prime Rents
£/sq ft
£/sq m
Canary Wharf
40.00
431
0.0%
6.7%
Rest of Docklands
28.00
301
1.8%
7.7%
Midtown take-up and vacancy rate
Docklands take-up and vacancy rate
Major office lettings
Major office lettings
Property
Size (sq ft)
Rent (£/sq ft) Tenant
Property
Size (sq ft)
Rent (£/sq ft)
Tenant
80 Strand, WC2
40,090
60.00
Aimia
10 Upper Bank Street, E14
26,811
38.00
Mastercard
1 Kingsway, WC2
13,740
65.00
LSE
5 Churchill Place, E14
26,056
32.50
Ipagoo
6 Agar Street, WC2
13,615
64.00
Natural Motion
5 Churchill Place, E14
24,975
Conf.
JP Morgan
1 Kingsway, WC2
13,430
60.00
Uniqlo
3 Harbour Exchange Sq, E14
8,428
28.00
Ciegtel
2,719
70.00
The Platform Ltd
40 Bank Street, E14
1,331
45.00
Pension Service Online
115 Shaftesbury Avenue, WC2
All sources: BNP Paribas Real Estate
All sources: BNP Paribas Real Estate
CONTACTS
Chris Williams-Ellis, London Office Agency, 020 7338 4442, chris.williams-ellis@bnppparibas.com
Paul Henwood, Investment Agency, 020 7338 4391, paul.henwood@bnpparibas.com
Nick Jones, Lease Advisory, 020 7484 8137, nick.jones@bnpparibas.com
WEST END RETAIL MARKET - Q1 2015
WEST END RETAIL MARKET Q1 2015
PRIME RETAIL RENTS/ VACANCIES
OCCUPIER MARKET
•
The London retail occupier market has continued to strengthen in the
first quarter of 2015. Vacancies have remained particularly low in
several key submarkets. To the untrained eye, vacancies on Bond
Street, Oxford Street and Covent Garden appeared to be far higher,
though this was due to refurbishment works rather than stores lying
empty.
•
Achieved rents have remained stable throughout Q1. A lack of suitable
stock has meant that the West End has not witnessed the same level
of occupier turnover as in previous years. The recent Links of London
letting at 199 Regent Street at a record £750 psf ZA, demonstrates
considerable upward pressure on rents for the best units. The high rent
on this particular space was exacerbated by it being a small unit.
•
There remains a plethora of luxury retailers who do not have a
presence in London. A recent BNPPRE Research sample of some of the
top luxury brands within the global market showed that 31% were not
currently present in London, compared to 21% in Paris, indicating that
the market still has considerable scope for growth. As a result, we are
anticipating further rental growth within the West End, at around 5.5%
this year.
INVESTMENT MARKET
•
West End retail investment in Q1 stood at £237.8m, representing a
31% increase for the same period in 2014. However, the level of
investment into retail fell considerably below the long run average for
the second quarter running. Similarly to the occupier market, this has
been due to a lack of suitable opportunities as opposed to a lack of
demand. We anticipate that this trend will continue throughout 2015.
•
Overseas money continued to flow into the sector in Q1 and
represented 38% of the total volume transacted. Whilst still a
considerable sum, it does mark a slight decline in foreign involvement
compared to the last few quarters.
•
The lack of availability on prime retail pitches has resulted in average
prime yields for the West End, namely Bond Street and Knightsbridge
sharpening to 1.9%.
INVESTMENT VOLUMES
•
This level was surpassed in Q1 with the purchase of 100 Knightsbridge
by a private Saudi Arabian investor for £22.5m, which represented a
yield of 1.7%; the prime unit is currently tenanted by Rolex.
•
Prime yields on Oxford Street are now established at 2.5%. The sale of
175-179 Oxford Street to a private Hong Kong investor for £58m
achieved 2.43%. Significantly, the unit is located towards the lesser
eastern end of the street. With the construction of Crossrail due to
complete in late 2017, the prime section of Oxford Street will extend
further down towards Tottenham Court Road.
KEY DEALS
Address
Price
(£m)
Yield
(%)
Size
Purchaser
Vendor
100 Knightsbridge
22.50
1.7
2,777
Private
Saudi
Arabian
175-179 Oxford Street
58.00
2.43
21,233
Private
Hong Kong
NFU
Mutual
42-60 Kensington High Street
50.00
3.46
88,000
Grosvenor
Fund Mgmt
Lum Chang
129-137 & 151-161
Kensington High Street
55.40
4.04
35,981
DTZ
Investors
Aviva
Investors
19 Marylebone High Street
9.51
2.93
2,651
UK Charity
Undisclosed
CONTACTS
Steven Skinner, Investment Agency, 020 7338 4229, steven.skinner@bnpparibas.com
Rob Hargreaves, Retail Agency, 020 7338 4490, rob.hargreaves@bnppparibas.com
Nick Robinson, Research, 020 7338 1016, nick.robinson@bnpparibas.com
Williston
Properties