Central London Office Market Analysis
The London market for leasing office space continues despite a slowdown in economic growth and on-going political issues. For the Q3 the leasing market in London has year to date seen a total of 8.1 million sq ft of space in transactions in a Jones Lang LaSalle report. The expansion of flexible office space for the city has accounted for 17% or 1.4 million sq ft of the take-up space.
One particular location in the capital is the West End which was the Q3 leader which had 69 transactions for 1.5 million sq ft of space. For the year the West End has had take-up of 3.5 million sq ft which matches the total for 2016 the highest levels of take-up since 2007.
The report shows stability continues for the London market for the quarter with West End vacancy rates falling from 5.0% to 4.4% for the Q3 as a result of the slowing of new developments becoming available. New take-up space is not expected for at least the next 12 months. Prime rents remained at £110 per sq ft compared to £70 for central London.
East London saw an increase in vacancy rising to 8.1% from 6.8% as a result of second-hand space that has become available in Canary Wharf.
Investment activity has had its best performance since 2007 with £4.4 billion for Q3 and £12.5 billion for the year to date. This is a 44% increase on 2016 levels which was aided by the sale of 20 Fenchurch Street for £1.3 billion the largest single asset sale ever in the UK.
The flexible office space sector continues to expand in London which now accounts for 17% of the take-up space with 1.4 million sq ft. The amount of flexible office space is now at 3.4% of the total of office stock in the city.
As a result new landlords have come online in the flexible office sector including Storey (British Land), Level 39 (Canary Wharf) and Uncommon (Carlyle Group). The City market for London now has the highest concentration of flexible office landlords at 4.0% of all office stock with the West End having 3.1%.
The locations of City Core, Shoreditch and Northern submarkets have the largest concentration of flexible office space according to the JLL analysis. Other markets with high amounts of available office share space can be found in Aldgate with 6.0%, Paddington with 7.9% and 5.3% for the North of Oxford Street.
JLL reports that :
‘The market continues to be dominated by cross border capital inflow, with demand from UK based investors more restrained. However, this broadened to encompass a wider range of buyers in Q3, with Middle Eastern capital particularly active after activity in H1 was predominantly driven by German and Hong Kong based investors.’
Recent Key Transactions
The first is 80 Charlotte Street with 123,000 sq ft and rent at £85 per sq ft for the Boston Consulting Group with almost 100% pre-let with almost two years left for completion, JLL reports:
‘This reinforces that demand remains strong for design led developments, in vibrant locations, near major transport hubs such as the Tottenham Court Road Crossrail station.’
Next is 10 Hammersmith Grove, W6 with a purchase price at £112million by a private family office which features multi-let office, ground level restaurant and leisure space.
‘The building is let off an average rent of £47 per sq ft and is considered highly reversionary with lease events in 2018, 2019 and 2020. Hammersmith has seen substantial rental growth in recent years with top rents now achieved at £59.00 per sq ft.’
Third is 21 Moorfields, EC2 for Deutsche Bank as tenant for a 25 year pre-let lease with the condition that with planning permission the building be competed by 2021. The building will have 564,000 sq ft with JLL noting:
‘The bank will retain flexibility over the amount of space it will occupy in the new building and has committed to take a minimum of 469,000 sq ft under the deal. 21 Moorfields is situated near Moorgate and Liverpool Street’s Crossrail station and is part of Crossrail’s wider regeneration of the area.’
Finally for the purchase price of £410 million by Cheung Key Holding is 20 Canada Square E14.
JLL: ’The property is let off a gross rent of £22.35 million pa, reflecting an overall passing rent of around £38.45 per sq ft and a weighted average unexpired lease term to break of c.7+years. The sale stimulated strong interest, and was bought by a new entrant . The price was £410 million reflecting a net initial yield of 5.35%.’