capita symonds real estate - central london office overview q4 2012

Central London Office OverviewQ3 2012

Overview 1

City 2

West End 4

Midtown 6

Southbank 8

Docklands 10

City Fringes 12

Locations 14

Glossary 15

Contacts 16

© Capita Symonds 2013. All rights reserved. The information is for guidance purposes only and represents Capita Symonds’ general views. No liability will be accepted for loss or damage arising from its use. Formal agency advice can be provided upon request.

1Central London Office Overview

The final quarter of 2012 saw reinforcement of established trends in the central London office market rather than any fundamental shift in market sentiment. Prime areas of the West End continue to act as beacons for foreign investment while the insurance sector continues to bolster an otherwise sluggish City market. Central London rents remained stable and the technology, media and telecoms (TMT) sector is now firmly established as the most dynamic of the market.

Increasing values in Central London in 2012 were driven heavily by foreign investment and contrast starkly with a slump of around ten per cent in values across the UK as a whole. Over the last quarter, London’s status as a safe haven for overseas investors has been maintained despite the slow recovery in Britain’s public finances and some easing of the Euro crisis. This is reflected in the increased number of large investment deals especially in the West End including the £260m acquisition by US private equity company Blackstone of the 292,000 sq ft Adelphi Building. Other substantial deals featured new players in the market such as the State Oil Fund of Azerbaijan which acquired HSBC Private Bank’s headquarters at 78 St James’s Street for £177m.

Nonetheless, it is still the case that the uncertain economic climate continues to deter many businesses from going ahead with plans to move or expand within the central London market and where deals are agreed the due diligence process is often protracted. The resulting lack of take-up is most apparent in the financial districts of Docklands and the City where the Heron Tower EC2 has struggled to build on the initial lettings it achieved in 2011 while offices in other new buildings such as the Shard, just across the river, remain unoccupied. Over 4m sq ft of space is currently under construction in the City. Should general confidence not return to the market in 2013 it is likely that those occupiers committing to space will find themselves in a strong negotiating position when agreeing lease terms.

However, it is misleading to talk about the City as a single market. Prime rental levels in the City, at circa £55 per sq ft for the last two years, have been bolstered by the strength of the insurance heartland of EC3, the only part of the City attracting pre-lets. The strength of demand in EC3 was underlined in Q4 by the 286,500 sq ft letting at the St Botolph Building to insurance brokers Jardine Lloyd Thompson, the largest occupational deal in the City for two years. This trend is set to continue in EC3 into 2013 with 110,000 sq ft of the Leadenhall Building under offer to underwriters Amlin in a pre-let agreement.

For overseas investors looking to diversity their investment in the UK market the insurance industry has been seen as a safe alternative to property and equities. This investment coupled with the widespread expectation of a return to profitability in property and motor insurances has encouraged insurance companies to consolidate property holdings and improve their quality of offices, such as broker AON which has consolidated into a single building opposite the Lloyds building.

The impact of dramatic growth in the TMT sector is becoming more apparent with each succeeding quarter. Testament to the sector’s strength is that the take-up in the City Fringe, a favoured TMT location, is now exceeding its long term average while average rents there have leapt by 49% (from £23.50 to £35.00 per sq ft) over the last year.

A distinctive feature of the sector is that many TMT companies prefer areas with more character, cheaper rents and good transport connections like Shoreditch, St Giles and King’s Cross. Lettings by Capita Symonds in Q4 support these traits such as LinkedIn’s acquisition of 45,600 sq ft at Castlewood House, New Oxford Street, WC1 in St Giles, the largest deal for the quarter. Rapid growth of the TMT sector is giving a particular boost to property in well connected secondary locations, particularly around Crossrail stations. Despite the fact that values have already risen dramatically over the last 12 months these locations still look attractive investment options.

Without significant global or UK economic improvement, the signs are that 2013 will see a reinforcement of existing trends rather than any fundamental shift in market sentiment. In particular, we can expect to see:

– Increasing availability of space in the City (outside EC3) will strengthen the negotiating position for those occupiers committing to space.

– Rising prime rents in the West End as the supply of new space peaks in 2013 with little new supply in prospect after that coupled with continuing pressure for conversion of office space to residential use.

– Increasing rental levels in secondary London locations around transport hubs especially those likely to benefit from Crossrail.

– Continued office consolidation by larger companies as they seek to cut costs and improve workplace efficiency.

Overview

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Deals

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Central London Office Overview

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Deals

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6


Deals

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8


DealsDeals

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10


Deals

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Deals

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City 1 Threadneedle Street, EC2

1 Paternoster Square, EC4

9 Cloak Lane, EC4

West End 1 -5 Poland Street, W1

The Peak, 5 Wilton Road, SW1

23 Savile Row, Mayfair, W1

Midtown New Brook Buildings, 16 Great Queen Street, WC2

55 New Oxford Street, WC1

Global House, 4 Temple Place, WC2

Southbank 4 More London Riverside, SE1

Friars Bridge Court, 41-45 Blackfriars Road, SE1

8 - 20 Pocock Street, SE1

Docklands 25 Canada Square, E14

25 Canada Square, E14

Exchange Tower, 1-2 Harbour Exchange Square, E14

City Fringes 31 Clerkenwell Close, EC1

Linen Court, N1

6 - 24 Britannia Street, WC1

© 2012 Capita Symonds

Locations

15



Take-upTake-up includes all lettings, sales to owner occupiers and pre-letscompleted in the quarter.

Rental Growth12 month ERV growth figures used are based on IPD monthly data.

AvailabilityAvailability includes all developments and refurbishment projects that are scheduled to be completed within the next 12 months.

YieldWhen mentioned in the text, yield is the investment yield for a prime rack rented office building which is no more than five years old.

The data used in yield charts is the IPD Equivalent yield.

© 2012 Capita Symonds

16


Alan DornfordDirector Markets+44 (0)207 544 [email protected]

Rhodri Phillips Agency +44 (0)207 544 [email protected]

Archie Hubble Agency +44 (0)207 544 [email protected]

Andrew Mercer Investment +44 (0)207 544 [email protected]

Rob CassInvestment +44 (0)207 544 [email protected]

Contacts

mailto:[email protected]




West End125 Shaftesbury Avenue, London WC2H 8ADt +44 (0)20 7544 2000 f +44 (0)20 7544 2222

City10 King William Street, London EC4N 7TWt +44 (0)20 7544 2000 f +44 (0)20 7544 2222

capitasymonds.co.uk/realestate

Whilst we have no reason to believe that there are any inaccuracies or defects in the information and forecasts provided in this report, it is constrained by the use of information and forecasts from other persons and we cannot warrant the accuracy and completeness of such information and forecasts. The information and forecasts provided through this report are of a general property market nature although, where possible, we have attempted to take account of the nature of the relevant properties. Growth forecasts should be seen as indicativerather than definitive and we recommend that decisions should be supported by appropriate professional advice on value.

We accept no liability for any loss or damage (including consequential or indirect loss or damage which shall include but which shall not be limited to loss of property or of profit, business revenue or anticipated savings) or for any costs, claims, demands, proceedings, expenses or liability of any nature arising directly or indirectly out of the use of or access to the information and forecasts of this report and whether or not arising from our negligence nor that of our employees or agents.

©Capita Symonds 2013The copyright and all other rights of whatsoever nature relating to the information and forecasts provided in this report shall remain ours. Exception to this arises where such information and forecasts are sourced to third parties in which case they shall remain the property of such third parties. The information and forecasts provided in this report are for the sole use of the person or persons for whom the report has been prepared and therefore may not be reproduced, replicated, retransmitted or passed on to third parties whether in the form in which they are received or in any other form without our prior written consent.

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capita symonds real estate - central london office overview q4 2012

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