central london office report 2q 2011
TRANSCRIPT
CENTRALLONDONOFFICESQ2RESEARCH & FORECASTING UK
www.colliers.com/uk
Central London Highlights •NetstockabsorptionofofficespaceacrossCentralLondonreached1.8millionsqftinH12011,
resultinginariseinoccupancyacrossallcorelocations.TheWestEndsawsixmonthoccupancyriseatitsfastestratesincepre-creditcrunchinH22005.GradeAabsorptionremainsstrong(seeFigure 1)butH12011showslevelsslowing,primarilyduetobelowaveragetake-upintheCity.
•CentralLondonavailabilityfelltoa30monthlow,drivenbyafallinCentralLondonGradeAavailabilityof17%inthepast12months.IntheWestEndmarket,GradeAavailabilityhasfallenevenmoresharply,downby44%inthepastsixmonths.
•Take-upoftopqualityproducthasbeguntopeakduetothelackofnewspacebeingdeliveredontothemarket.TheCentralLondonofficemarketsawquarterlytake-uprisebyjust7%,asoverallavailabilityfellby10%.
•ThelackofGradeAavailabilityisstartingtohaveasignificantimpactuponheadlinerents,specificallyacrosstheWestEndmarket.Somesubmarketshavealreadyseendoubledigitgrowthin2011todate.
•WhilecompetitionforGradeAcontinuestodriveupheadlinefigures,thesecond-handmarketisalsobeginningtoseesignificantfallsinvacancyascostconsciousoccupierslookforalternativeoptionsinthecorelocations.Second-handavailabilityisdownby19%sincethestartof2011.
FIGURE1:CITYANDWESTENDGRADEAABSORPTION
CENTRAL LONDON
ABSORPTION
AVAILABILITY
TAKE-UP
RENTS
CITY
ABSORPTION
AVAILABILITY
TAKE-UP
RENTS
WEST END
ABSORPTION
AVAILABILITY
TAKE-UP
RENTS
SUMMER 2011 | CENTRAL LONDON OFFICES Q2
“TheWestEndmarketsawover1.2millionsqftofabsorptionduringthefirstsixmonthsof2011causingaveragerentstoriseby11%sinceDecember2010.”
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H1 2007 H2 2007 H1 2008 H2 2008 H1 2009 H2 2009 H1 2010 H2 2010 H1 2011
sq ft
(mill
ion)
West End City
Source:ColliersInternational
City•Aspredictedinpreviousreports,absorptionof
officespaceintheCityofLondonisbeginningtoslow(see Figure 2).Take-upofbuiltofficespace,whichplaysakeyroleinabsorption,hasbeenbelowaverageintheCityin2011todate.Overthepastdecadeaverageannualtake-upintheCitymarkethasbeen5.7millionsqft.Inthefirsthalfof2011,transactionlevelshavereachedjust2.5millionsqft,over9%belowthelongtermaverage.
•Nevertheless,CityQ2take-uproseto1.4millionsqft,upfrom1.1millionsqftinQ12011(seeFigure 3).Aspredicted,thefirstofthenextwaveoflargepre-letshaverecentlybeensigned.Aonhassignedforapre-letof191,000sqftatBritishLand’sLeadenhallBuilding(Cheesegrater),whichislargelyresponsibleforthequarteronquarterriseintransactionlevels.Elsewhere,furtherdealsatHeronTowerarelikelytobeannouncedshortlywithunitsunderofferatmarketleadingrentsintheearlytomid£60spsf.PotentialoccupiersincludeSnoras,CityCreditCapitalandMetlifeInvestment,amongstothers.
•CMSCameronMcKennahasalsoconfirmeditsintentiontotake200,000sqftatHammerson’sPrincipalPlacescheme.Thelatterwillbesufficienttokickstartconstructionatthe590,000sqftproject.Currently,thereare13activeandpotentialrequirementsof100,000sqftfocussedontheCitymarket.Anumberoftenantsarealsoreoccupyingspacethathadformerlybeenmarketedforsubletting.Accenturewilltakeback82,000sqftat20OldBaileyandDentonWildeSapteisreoccupying18,900sqftat1FleetPlace.WeseequarterlyCitytake-upimprovingbutremainingclosetothetenyearquarterlyaverageof1.4millionsqftforthenexttwoquartersandthusdownonthe2010total.
•Despitebelowaveragetake-up,availabilityintheCitycontinuestofallatasignificantpace(seeFigure 4).Theoverallvacancyrateisnowbelow9.5%forthefirsttimeinnearlythreeyears.WithjustonemajorCityscheme,Hines’CannonPlace(393,000sqft),duetocompleteinthenext12months,GradeAvacancyissettoseefurthersharpfalls.
•Primerentsremainat£57.50psfwithheadlinerentsbeingdictatedbydealsfortowerspace.Prospectivedealsarelikelytoraisethatabove£60psfbutthislevelisconfinedtoaverylimitednumberofspecificunits.Rentsforgoodqualitysecond-handspaceappeartoberisingwithfiguresinthemid£50spsfbeingrumouredatGradeAqualityschemesintheheartoftheSquareMile. 0.0
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Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011
sq ft
(mill
ion)
Grade C Grade B Grade A
(Units over 5,000 sq ft)
FIGURE3:CITYTAKE-UPBYGRADE
CMSCameronMcKennahasalsoconfirmeditsintentiontotake200,000sqftatHammerson’s
thathadformerlybeenmarketedforsubletting.Accenturewilltakeback82,000sqftat20Old
thetenyearquarterlyaverageof1.4millionsqftforthenexttwoquartersandthusdownonthe
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Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011
sq ft
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ion)
Grade C Grade B Grade A Pre-let
Source:ColliersInternational/Focus
Source:ColliersInternational
FIGURE2:CITYNETSTOCKABSORPTION
Source:ColliersInternational
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H1 2007 H2 2007 H1 2008 H2 2008 H1 2009 H2 2009 H1 2010 H2 2010 H1 2011
sq ft
(mill
ion)
P. 2 | COLLIERS INTERNATIONAL
CENTRAL LONDON OFFICES Q2 | SUMMER 2011
FIGURE4:CITYAVAILABILITYBYGRADE
West End•AbsorptionlevelsintheWestEndremain
buoyant,drivenupfurtherbyacombinationofashortageofnewsupplyandalsohealthycompetitionforGradeAandB+product(see Figure 5).1.2millionsqftofofficespacewasabsorbedinthefirsthalfof2011,thehighestsixmonthlytotalsinceH22005.AllWestEndsubmarkets,barone,sawoccupationlevelsincreasehalfyearonhalfyear,withMayfairandBelgraviabothexperiencingpositiveabsorptioninexcessof100,000sqft.TheWestEndmarketsawover1.2millionsqftofabsorptionduringthefirstsixmonthsof2011causingaveragerentstoriseby11%sinceDecember2010.
•Giventhathalfyearlytake-upintheWestEndreached2.5millionsqft(see Figure 6),just13%upontheprevious12months,the34%increaseinabsorptionoverthesameperiodishighlysignificant.Withlittlenewsupplycomingtomarket,occupiersinitiatingrelocationandexpansionplanswillneedtobroadentheirhorizonsintermsofqualityofaccommodationandgeography.VacancyratesacrossnearlyallWestEndsubmarketshavefallenandGradeAavailabilityisbelow60,000sqftinfiveoftheninekeylocations(see Figure 7).
•WestEndofficecompletionshaveachievedanannualaverageof1.2millionsqftoverthepastdecade.In2011,completionswillfallto0.5millionsqftandonlyriseto0.8millionsqftin2012.2012willseethecompletionofLandSecurities’ParkHouse(190,000sqft)andthefirstphaseofStanhope/TheCrownEstate’sQuadrantscheme(163,000sqft),whereGenerationInvestmentManagementisrumouredtohavethetopfloorunderofferat£92psf.However,over75%ofthe2012completiontotaliscontainedinjustthreeschemes,withnospeculativecompletionsofspacebetween60,000-100,000sqftscheduled.Just185,000sqftissettocompleteintheMaryleboneandNohomarketswithcirca44%ofthatspacehavingalreadybeenpre-letof160GreatPortlandStreettoDoubleNegative
•In2011todate,headlinerentshaverisenacrossthemajorityofsubmarkets.Whererentalgrowthisflat,lackofproductisthemaincause.Inotherlocations,headlinerentshaveseensharpupliftsduetodemandandcompetitionfortheremainingGradeAproduct.Intheyeartodate,CoventGardenandSoho(+22%),StJames’s(+19%),Mayfair(+12%)andBelgravia(+10%)haveallseendoubledigitgrowthinprimerents.AdditionaltopqualityunitscurrentlyunderofferinMarylebone,MayfairandSohoshouldencouragefurtherrentalgrowthinthoselocationsoverthenexttwoquarters.
FIGURE5:WESTENDNETSTOCKABSORPTION
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H1 2007 H2 2007 H1 2008 H2 2008 H1 2009 H2 2009 H1 2010 H2 2010 H1 2011
FIGURE6:WESTENDSUBMARKETAVAILABILITYBYGRADE
Source:ColliersInternational
FIGURE7:WESTENDTAKE-UPBYGRADE
Source:ColliersInternational
Source:ColliersInternational
FIGURE6:WESTENDSUBMARKETAVAILABILITYBYGRADE
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Belgravia Covent Garden
Marylebone Mayfair Noho Paddington Soho St James's Victoria
sq ft
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ion)
Grade A Grade B Grade C
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Grade A Grade B Grade C
COLLIERS INTERNATIONAL | P. 3
CENTRAL LONDON OFFICES Q2 | SUMMER 2011
Summary•CompetitionforGradeAspacewillremainthekeydriverofrentalupliftduringtheremainder
of2011.Despitethat,overall2011take-upislikelytobebelowaverageinboththeCityandWestEndmarkets,duetoshortageofsupply.
•AbsorptionappearstohavepeakedintheCityandisclosetopeakingintheWestEnd.Nevertheless,weexpecttoseeincreasedabsorptionofgoodqualitysecond-handstockasGradeAproductbecomesscarcer.
•Weexpecttoseeincreasedpre-lettingactivity,notjustintheCitybutintheWestEndalso,asbuiltproductfailstooffernewentrantsandexpandingoccupierstherequisitespecificationinthecorelocations.
•DoubledigitrentalgrowthislikelytospreadtoallWestEndsubmarkets,whiletheCitymarketremainsdominatedbyheadlinedealsattrophyschemes.
•Incentivesaresettocomeinfurtherduringtheremainderof2011,buttodatetherehavebeenmodestreductionsintheWestEndbutnodiscerniblehardeningintheCity.
LONDON – CITYLevel20,Tower4225OldBroadStreetLondonEC2N1HQ+442079354499
LONDON – WEST END9MaryleboneLaneLondonW1U1HL+442079354499
RESEARCH & [email protected]
CITY [email protected]
WEST END [email protected]
Disclaimer:Thisreportgivesinformationbasedprimarilyonpublisheddatawhichmaybehelpful inanticipatingtrends inthepropertysector.However,nowarranty isgivenastotheaccuracyof,andnoliabilityfornegligenceis accepted in relation to the forecasts, figures orconclusionscontainedinitandtheymustnotbereliedonforinvestmentpurposes.Thisreportdoesnotconstituteandmustnotbetreatedasinvestmentadviceoranoffertobuyorsellproperty.July2011 11138
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Acceleratingsuccess.
512officesin61countrieson6continentsUnitedStates:135Canada:39LatinAmerica:17AsiaPacific:26ANZ:168EMEA:95
Source:ColliersInternational/Focus
CENTRAL LONDON OFFICES Q2 | SUMMER 2011
Take-up (000s sq ft)
Availability (000s sq ft)
Net Stock Absorption
(000s sq ft)
Prime Rents £psf
Prime Yields%
Q12011 Q22011 Q12011 Q22011 Q12011 Q12011 Q12011
WEST ENDNew/Refurb 505 599 2,302 1,904
Second-hand 745 651 3,568 2,764
Total 1,250 1,250 5,870 4,668 1,123 £95.00 4.00Belgravia/Knightsbridge 37 70 292 226 115 £55.00 4.75
CoventGarden/Strand 338 376 924 511 449 £55.00 5.25
Euston 68 47 482 420 18 £45.00 6.25
Marylebone 107 94 454 438 23 £60.00 4.00
Mayfair 172 198 876 702 185 £95.00 5.25
Noho 102 222 731 558 47 £47.50 5.25
Paddington 79 35 353 344 96 £49.50 5.75
Soho 37 56 287 193 78 £55.00 5.25
StJames’s 45 71 453 338 99 £80.00 4.25
Victoria 132 29 669 645 35 £52.50 5.50
CITYNew/Refurb 580 781 4,846 4,491
Second-hand 497 584 4,827 4,441
Total 1,077 1,365 9,673 8,932 679 £57.50 5.25CityCore 695 862 5,882 5,499 440 £57.50 5.25
CityMidtown 31 30 478 341 163 £52.50 5.25
EasternCity 35 108 951 1,027 -94 £22.50 6.00
NorthernCity 315 365 2,362 2,065 170 £27.50 6.00
DOCKLANDSNew/Refurb - 2 145 155
Second-hand 14 22 498 514
Total 14 24 643 669 66 £25.00 6.25CANARY WHARFNew/Refurb 28 - 709 709
Second-hand - 30 343 366
Total 28 30 1,052 1,075 110 £35.00 5.50SOUTHBANKNew/Refurb 49 41 254 222
Second-hand 155 67 693 661
Total 204 108 947 883 -20 £40.00 5.50
FIGURE8:CENTRALLONDONMARKETSUMMARY