Q1 2019

CENTRAL LONDON OFFICE MARKET UPDATE

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Q1 2019 OVERVIEW

KEY STATS AT A GLANCE£2.3BN

Q1 2019 investment volumes aredown 22% on Q1 2018

£2.9BNCurrently under offer and

exchanged in Central London

£112.50/ SQ FTPrime rents in the West End have

remained static

£67.50/ SQ FTCity prime rents sustained in Q1

2019

5.5%The vacancy rate remains below

the long term average of 7.0%

17%Tenant space share of totalsupply continues to diminish

3.0M SQ FTQ1 2019 take-up is 21% below Q12018 but is largely in-line with

the long term average

18%The Serviced Office sector took

its largest share of quarterlytake-up on record

With two Brexit deadlines now passed and yet still no clarity on our departure from the European Union, it is understandable that businesses are preparing forfurther uncertainty. Recent surveys suggest falling business confidence and a sharp decrease in investment intentions over the next 12 months. On the groundtake-up is being driven by lease events, long established Central London occupiers like law firm Milbank and broker Peel Hunt have both committed to space onlong leases. Central London’s ability to retain strong covenant businesses over the long term will continue to lure investors to the capital from across the globe.

LEASING

Q1 2019 take-up levels fell 21% on the same period last year reaching 3.0msq ft. This is only marginally down (-4%) on the long term average. SMEs,continue to press ahead with relocation decisions, the <5,000 sq ft sizeband saw a 15% q-o-q increase in deal numbers.

The starkest headline from thisquarter's data is the lack of activityfrom the Banking & Finance sectorwho accounted for 10% of total take-up. The sector has reduced its shareof Central London demandconsecutively for three years now.Together with Brexit uncertainty, costreduction, increased regulation andrestructuring have all driven thisshift.

The Media Tech sector, once againdominates accounting for a 21%share of demand, closely followed bythe Serviced Office sector which takesan 18% share, its largest quarterlyshare on record.

The vacancy rate rose by 48bps to5.5%. This however is below the sameperiod last year (5.6%) and remainsbelow the long term average (7.0%).

INVESTMENTSeller caution has resulted in a lack of larger assets in particular, beingbrought to market. This combined with prolonged uncertainty has mutedvolumes. All sector volumes reached £2.3bn in Q1 2019, down 22% onQ1 2018. Encouragingly, Q2 2019 levels have received a major boost withCitigroup’s deal to buy its Canary Wharf headquarters for £1.1bn.

Office transactions of >£100m havebeen major drivers of volumes overthe last two years, however thisquarter they were noticeablysubdued. Ashby Capital's £200macquisition of 127 Kensington HighStreet, W8 and Dukelease Properties£121m purchase of Ibex House,Minories, EC3 were the largest dealsof the quarter.

54% of capital deployed in CentralLondon last quarter was fromoverseas purchasers, Middle Easterninvestors made up the majority.

Value add refurbishment andredevelopment opportunities areattracting very strong interest fromoverseas and domestic investors. Theinvestment appetite for risk isgrowing and we expect this toincrease further during Q2.

With yield hardening reported inother European cities, London stilllooks relatively attractive with primeyields remaining stable at 3.5% in theWest End and 4.0% in the City.

SUBMARKET FOCUS

CITYWEST END SOUTHBANKMIDTOWN DOCKLANDS

THE CITYE1, EC1, EC2, EC3, EC4

KEY HEADLINES

A lack of larger deals contributed to below average levels of take-up in Q1 2019 reaching1.3m sq ft. The largest deal of the quarter was Bulb Energy’s 76,000 sq ft acquisition at 155Bishopsgate, EC2.The Professional Services sector together with the Services Sector took the largest share ofdemand accounting for a 16% share each. The Serviced Office sector took a 14% share withthree deals over 30,000 sq ft from WeWork including a 50,000 sq ft acquisition at 2 MinsterCourt, EC3.The vacancy rate rose to 5.9%, up from 5.1% the previous quarter. This however is down onthe same period last year (6.2%) and down on the long term average of 7.9%.Second hand supply rose by 10% over the quarter. With nearly half of the 5.1m sq ft ofdevelopment schemes due for completion this year, this will help alleviate the pressures ofa supply constrained market.

Take-up

£67.50/ SQFT

Q1 2019 City Core rent

5.9%Q1 2019 City Vacancy rate

1.3M SQ FTQ1 2019 City take-up

Take-up by Business Sector

THE WEST ENDW1, SW1, W2, SW3, SW7, W8, NW1

KEY HEADLINES

Take-up in the West End fell to 0.8m sq ft in the first quarter of 2019, 11% down on Q12018, but has remained marginally above the long term quarterly average.The Serviced Office sector was the most active sector during the quarter, reflecting a 27%share of take-up. The largest deal to complete this quarter was to Spaces, occupying theentire building at 25 Wilton Road, SW1 comprising 78,990 sq ft.The West End vacancy rate currently stands at 4.4%, up on Q4 2018 (4.3%) but well belowthe long term quarterly average of 5.5%.We expect low vacancy rate to be a continuing trend over 2019, development pipeline totals0.6m sq ft of which 33% is pre-let. The largest schemes yet to complete this year includethe Brunel Building, North Wharf Road, W2 totalling circa 244,000 sq ft. The building is fullylet with Splunk Services occupying the last three floors in the building comprising 49,600 sqft.

Take-up

Vacancy rates

£112.50/ SQFT

Q1 2019 WE Prime rent

4.4%Q1 2019 West End

vacancy rate

0.8M SQ FTQ1 2019 West End take-up

MIDTOWNWC1 & WC2

KEY HEADLINES

This quarter take-up totalled 0.3m sq ft in Midtown, down 10% on the last quarter howeverlevels are still in-line with quarterly average levels.Similarly, to the West End market, the Serviced Office sector dominated demand in Midtownaccounting for a 20% share of take-up. Three serviced office deals above 10,000 sq ft helpedboost take-up in this market.Supply levels increased in Q1 2019 and stand at 1.0m sq ft, a 22% increase on the lastquarter (0.8m sq ft). The addition of 41,000 sq ft at 16-20 Red Lion Street and 39,000 sq ftat 1 Smart’s Place have contributed to this rise. The vacancy rate stands at 5.0% (3.9% in Q42018).The prime rent has remained stable at £65.00 per sq ft, unchanged since Q3 2017.

£65.00Q1 2019 Midtown Prime

rent

5.0%Q1 2019 Midtown Vacancy

rate

0.3M SQ FTQ1 2019 Midtown take-up

Take-Up

Take-up by Business Sector

SOUTHBANKSE1

KEY HEADLINES

Q1 2019 take-up in Southbank reached 0.4m sq ft, up 52% on Q1 2018, and up 61% on thelong term quarterly average. Q1 2019 marks the strongest quarter since Q2 2017.A large proportion of take-up in the market was attributed to deals in the<5,000 sq ft size bracket which accounted for a 75% share of take-up. The Media Tech sectorcontinues to dominate accounting for a 65% share of take-up in Southbank.The vacancy rate has increased to 2.3% this quarter up from Q4 2018 (2.0%), but remainswell below the long term quarterly average at 6.3%.0.4m sq ft is under construction in Southbank and due for completion by the end of 2019,82% has been pre-let.

£65.00Q1 2019 Southbank prime

rent

2.3%Q1 2019 Southbank

Vacancy rate

0.4M SQ FTQ1 2019 Southbank take-

up

Take-Up

Vacancy rates

DOCKLANDSE14

KEY HEADLINES

Docklands take-up reached 0.1m sq ft in this quarter, significantly above the last quarter(+91%) but remains 58% down on the long term quarterly average (0.2m sq ft).The largest deal of the quarter was to Spaces at The Cabot, Cabot Square, E14, where theserviced office provider acquired 71,000 sq ft of office space over 4 floors on a 15 year lease.As a result of this, the Serviced Office sector dominated demand accounting for a 70% shareof Dockland’s take-up.Supply in Docklands currently stands at 2.0m sq ft, 20% above the long term quarterlyaverage, this equates to a vacancy rate of 11.1%.A large proportion of this accounted for a 5 Bank Street, E14 providing 700,000 sq ft of newGrade A space will be delivered. 280,000 sq ft has been pre-let to Societe Generale, the restof the building is under offer.

£45.00Q1 2019 Canary Wharf

prime rent

11.1%Q1 2019 Docklands

vacancy rate

0.1M SQ FTQ1 2019 Docklands take-

up

Take-Up

Vacancy rates

Q1 2019 DEALS

KEY LEASING DEALSADDRESS (FLOOR) SQ FT APPROX RENT

(PER SQ FT) TERM (BREAK) TENANT LANDLORD

4 Handyside Street, N1 (1st - 6th,Part 7th)

125,000 Conf. Conf. Sony Music Argent

155 Bishopsgate, EC2 76,000 £47.50 7 years Bulb Barings

The Cabot, 25 Cabot Square, E14(Part 10th - 12th, 14th)

71,000 £47.50 - £50.00 15 years Spaces Hines Real Estate

127 Kensington High Street, W8 (G- 3rd)

69,330 Conf. 15 years Spaces Columbia Threadneedle

100 Liverpool Street, EC2 (8th -9th)

68,280 Conf. Conf.Milbank Tweed Hadley& McCloy

British Land/GIC

18-19 Hanover Square, W1 (2nd -4th)

53,900 £115.00 20 years Glencore UK GPE

1 Angel Lane, EC4 (Part 7th, Part8th)

53,010 £62.50 10 years Mastercard Nomura

2 Minster Court, EC3 (4th, 8th -10th)

50,100 £61.50 15 years WeWork Prudential

Brunel Building, North WharfRoad, W2

49,600 £74.59 12 years Splunk Derwent

The Gherkin, 30 St Mary Axe, EC3(12th)

18,400 £61.50 12 years (5) Risk Transfer Group Swiss RE

KEY INVESTMENT DEALSADDRESS LOT SIZE CAPITAL VALUE

(PER SQ FT) YIELD PURCHASER VENDOR

127 Kensington High St & KensingtonArcade, W8

£200m £1,702 2.34% Ashby Capital Colombia Threadneedle

Ibex House, 41-47 Minories £121m £634 4.97% Dukelease Properties Harel Insurance

169 Union Street, SE1 £100m £854 4.25% Brockton Capital Janus Henderson

Devonshire Quarter £95m £780 5.00% Brockton Capital Madison

Euston House, Eversholt Street, NW1 £95m £844 4.64% Arax Properties & Eurazeo Stenprop REIT

60 Charlotte Street, W1 £81m £1,682 4.40% Westbrook Partners Aberdeen Standard

11 Westferry Circus, E14 £80m £550 5.91% London & Oxford Amundi

20 St Andrew Street, EC4 £74m £1,265 4.81% National Bank of Kuwait AXA REIM

The Eastcheap Estate, EC3 £45m £1,413 4.77% Private Asian Investor Thackeray Estates

CONTACT US

Real Estate for a changing world

Folakemi DuyileResearch Analyst - Research

+44 (0)20 7338 4304

Daniel BayleyHead of City Agency+44 (0)20 7338 4444

Simon KnightsHead of West End Agency

+44 (0)20 7318 5041

Aidan MeynellHead of City Investment

+44 (0)20 7318 5018

Simon GlennHead of West End Investment

+44 (0)20 7318 5045

Kuldeep GadharyAssociate Director - Research

+44 (0)20 7338 4844

CENTRAL LONDON OFFICEMARKET UPDATE Q1 2019

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