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Central London Office Report 2Q 2011
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Central London Office Report 2Q 2011


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  • 1. SUMMER 2011 | CENTRAL LONDON OFFICES Q2RESEARCH & FORECASTING UKCENTRAL LONDON OFFICES Q2 CENTRAL LONDON Central London Highlights ABSORPTION • Net stock absorption of offi ce space across Central London reached 1.8 million sq ft in H1 2011, AVAILABILITY resulting in a rise in occupancy across all core locations. The West End saw six month occupancy rise at its fastest rate since pre-credit crunch in H2 2005. Grade A absorption TAKE-UP remains strong (see Figure 1) but H1 2011 shows levels slowing, primarily due to below RENTS average take-up in the City. • Central London availability fell to a 30 month low, driven by a fall in Central London Grade A CITY availability of 17% in the past 12 months. In the West End market, Grade A availability has fallen even more sharply, down by 44% in the past six months. ABSORPTION • Take-up of top quality product has begun to peak due to the lack of new space being delivered AVAILABILITY onto the market. The Central London offi ce market saw quarterly take-up rise by just 7%, as overall availability fell by 10%. TAKE-UP • The lack of Grade A availability is starting to have a significant impact upon headline rents, RENTS specifically across the West End market. Some submarkets have already seen double digit growth in 2011 to date. WEST END • While competition for Grade A continues to drive up headline figures, the second-hand market is also beginning to see significant falls in vacancy as cost conscious occupiers look for ABSORPTION alternative options in the core locations. Second-hand availability is down by 19% since the AVAILABILITY start of 2011. TAKE-UP RENTS FIGURE 1: CITY AND WEST END GRADE A ABSORPTION 2.5 West End City“ he West End market saw T 2.0 over 1.2 million sq ft of absorption during the first 1.5 sq ft (million) six months of 2011 causing average rents to rise by 1.0 11% since December 2010.” 0.5 0.0 H1 2007 H2 2007 H1 2008 H2 2008 H1 2009 H2 2009 H1 2010 H2 2010 H1 2011 Source: Colliers
  • 2. CENTRAL LONDON OFFICES Q2 | SUMMER 2011City• As predicted in previous reports, absorption of offi ce space in the City of London is beginning FIGURE 2: CITY NET STOCK ABSORPTION to slow (see Figure 2). Take-up of built offi ce 2.0 space, which plays a key role in absorption, has been below average in the City in 2011 to date. 1.5 Over the past decade average annual take-up in the City market has been 5.7 million sq ft. In the first half of 2011, transaction levels have 1.0 reached just 2.5 million sq ft, over 9% below sq ft (million) the long term average. 0.5• Nevertheless, City Q2 take-up rose to 1.4 million sq ft, up from 1.1 million sq ft in 0.0 Q1 2011 (see Figure 3). As predicted, the first of the next wave of large pre-lets have recently been signed. Aon has signed for a pre-let of -0.5 191,000 sq ft at British Land’s Leadenhall Building (Cheesegrater), which is largely -1.0 responsible for the quarter on quarter rise in H1 2007 H2 2007 H1 2008 H2 2008 H1 2009 H2 2009 H1 2010 H2 2010 H1 2011 transaction levels. Elsewhere, further deals at Heron Tower are likely to be announced shortly Source: Colliers International with units under offer at market leading rents in the early to mid £60s psf. Potential occupiers FIGURE 3: CITY TAKE-UP BY GRADE include Snoras, City Credit Capital and Metlife 2.5 Investment, amongst others. Grade A Grade B Grade C Pre-let• CMS Cameron McKenna has also confirmed its intention to take 200,000 sq ft at Hammerson’s 2.0 Principal Place scheme. The latter will be suffi cient to kick start construction at the 590,000 sq ft project. Currently, there are 1.5 sq ft (million) 13 active and potential requirements of 100,000 sq ft focussed on the City market. A number of tenants are also reoccupying space 1.0 that had formerly been marketed for subletting. Accenture will take back 82,000 sq ft at 20 Old Bailey and Denton Wilde Sapte is reoccupying 0.5 18,900 sq ft at 1 Fleet Place. We see quarterly City take-up improving but remaining close to the ten year quarterly average of 1.4 million sq ft 0.0 for the next two quarters and thus down on the Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 2010 total. Source: Colliers International/Focus• Despite below average take-up, availability in the City continues to fall at a significant pace (see Figure 4). The overall vacancy rate is FIGURE 4: CITY AVAILABILITY BY GRADE now below 9.5% for the first time in nearly 12.0 three years. With just one major City scheme, Grade A Grade B Grade C Hines’ Cannon Place (393,000 sq ft), due to (Units over 5,000 sq ft) 10.0 complete in the next 12 months, Grade A vacancy is set to see further sharp falls. 8.0• Prime rents remain at £57.50 psf with sq ft (million) headline rents being dictated by deals for 6.0 tower space. Prospective deals are likely to raise that above £60 psf but this level is confined to a very limited number of specific 4.0 units. Rents for good quality second-hand space appear to be rising with figures 2.0 in the mid £50s psf being rumoured at Grade A quality schemes in the heart of the Square Mile. 0.0 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Source: Colliers InternationalP. 2 | COLLIERS INTERNATIONAL
  • 3. CENTRAL LONDON OFFICES Q2 | SUMMER 2011West End• Absorption levels in the West End remain buoyant, driven up further by a combination FIGURE 5: WEST END NET STOCK ABSORPTION of a shortage of new supply and also healthy 1.5 competition for Grade A and B+ product (see Figure 5). 1.2 million sq ft of offi ce space was 1.0 absorbed in the first half of 2011, the highest six monthly total since H2 2005. All West End 0.5 submarkets, bar one, saw occupation levels sq ft (million) increase half year on half year, with Mayfair and Belgravia both experiencing positive 0.0 absorption in excess of 100,000 sq ft. The West End market saw over 1.2 million sq ft -0.5 of absorption during the first six months of 2011 causing average rents to rise by 11% since December 2010. -1.0• Given that half yearly take-up in the West End reached 2.5 million sq ft (see Figure 6), just -1.5 13% up on the previous 12 months, the 34% H1 2007 H2 2007 H1 2008 H2 2008 H1 2009 H2 2009 H1 2010 H2 2010 H1 2011 increase in absorption over the same period is highly significant. With little new supply coming Source: Colliers International to market, occupiers initiating relocation and expansion plans will need to broaden their FIGURE 6: WEST END SUBMARKET AVAILABILITY BY GRADE horizons in terms of quality of accommodation and geography. Vacancy rates across nearly all 0.8 West End submarkets have fallen and Grade A Grade A Grade B Grade C availability is below 60,000 sq ft in five of the 0.7 nine key locations (see Figure 7). 0.6• West End offi ce completions have achieved an annual average of 1.2 million sq ft over the past 0.5 sq ft (million) decade. In 2011, completions will fall to 0.4 0.5 million sq ft and only rise to 0.8 million sq ft in 2012. 2012 will see the completion of Land 0.3 Securities’ Park House (190,000 sq ft) and the first phase of Stanhope/The Crown Estate’s 0.2 Quadrant scheme (163,000 sq ft), where 0.1 Generation Investment Management is rumoured to have the top fl oor under offer at 0.0 Belgravia Covent Marylebone Mayfair Noho Paddington Soho St Jamess Victoria £92 psf. However, over 75% of the 2012 Garden completion total is contained in just three Source: Colliers International schemes, with no speculative completions of space between 60,000-100,000 sq ft scheduled. Just 185,000 sq ft is set to FIGURE 7: WEST END TAKE-UP BY GRADE complete in the Marylebone and Noho markets with circa 44% of that space having already 1.4 been pre-let of 160 Great Portland Street to Grade A Grade B Grade C Double Negative 1.2• In 2011 to date, headline rents have risen across the majority of submarkets. Where 1.0 rental growth is fl at, lack of product is the main cause. In other locations, headline rents have sq ft (million) 0.8 seen sharp uplifts due to demand and competition for the remaining Grade A product. 0.6 In the year to date, Covent Garden and Soho (+22%), St James’s (+19%), Mayfair (+12%) 0.4 and Belgravia (+10%) have all seen double digit growth in prime rents. Additional top quality units currently under offer in 0.2 Marylebone, Mayfair and Soho should encourage further rental growth in those 0.0 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 locations over the next two quarters. Source: Colliers International COLLIERS INTERNATIONAL | P. 3
  • 4. CENTRAL LONDON OFFICES Q2 | SUMMER 2011Summary 512 offices in • Competition for Grade A space will remain the key driver of rental uplift during the remainder of 2011. Despite that, overall 2011 take-up is likely to be below average in both the City and 61 countries on West End markets, due to shortage of supply. 6 continents• Absorption appears to have peaked in the City and is close to peaking in the West End. Nevertheless, we expect to see increased absorption of good quality second-hand stock as United States: 135 Grade A product becomes scarcer. Canada: 39 Latin America: 17• We expect to see increased pre-letting activity, not just in the City but in the West End also, as Asia Pacific: 26 built product fails to offer new entrants and expanding occupiers the requisite specification in ANZ: 168 the core locations. EMEA: 95• Double digit rental growth is likely to spread to all West End submarkets, while the City market LONDON – CITY remains dominated by headline deals at trophy schemes. Level 20, Tower 42 25 Old Broad Street• Incentives are set to come in further during the remainder of 2011, but to date there have been London EC2N 1HQ modest reductions in the West End but no discernible hardening in the City. +44 20 7935 4499FIGURE 8: CENTRAL LONDON MARKET SUMMARY LONDON – WEST END 9 Marylebone Lane London W1U 1HL Net Stock Take-up Availability Prime Rents Prime Yields +44 20 7935 4499 Absorption (000s sq ft) (000s sq ft) £psf % (000s sq ft) Q1 2011 Q2 2011 Q1 2011 Q2 2011 Q1 2011 Q1 2011 Q1 2011 RESEARCH & FORECASTING Guy Grantham WEST END New / Refurb 505 599 2,302 1,904 CITY AGENCY Second-hand 745 651 3,568 2,764 Julie Rees Total 1,250 1,250 5,870 4,668 1,123 £95.00 4.00 Belgravia / Knightsbridge 37 70 292 226 115 £55.00 4.75 Mark McAlister Covent Garden / Strand 338 376 924 511 449 £55.00 5.25 Euston 68 47 482 420 18 £45.00 6.25 WEST END AGENCY Marylebone 107 94 454 438 23 £60.00 4.00 Mike MacKeith Mayfair 172 198 876 702 185 £95.00 5.25 Noho 102 222 731 558 47 £47.50 5.25 Robert Few Paddington 79 35 353 344 96 £49.50 5.75 Soho 37 56 287 193 78 £55.00 5.25 INVESTMENT Andrew Whitaker St James’s 45 71 453 338 99 £80.00 4.25 Victoria 132 29 669 645 35 £52.50 5.50 Dominic Amey CITY New / Refurb 580 781 4,846 4,491 Disclaimer: This report gives information based primarily Second-hand 497 584 4,827 4,441 on published data which may be helpful in anticipating Total 1,077 1,365 9,673 8,932 679 £57.50 5.25 trends in the property sector. However, no warranty is given as to the accuracy of, and no liability for negligence City Core 695 862 5,882 5,499 440 £57.50 5.25 is accepted in relation to the forecasts, figures or conclusions contained in it and they must not be relied on City Midtown 31 30 478 341 163 £52.50 5.25 for investment purposes. This report does not constitute and must not be treated as investment advice or an offer Eastern City 35 108 951 1,027 -94 £22.50 6.00 to buy or sell property. July 2011 11138 Northern City 315 365 2,362 2,065 170 £27.50 6.00 Colliers International is the licensed trading name of Colliers International UK plc. Company registered in DOCKLANDS England & Wales no. 4195561. New / Refurb - 2 145 155 Registered office: 9 Marylebone Lane, London W1U 1HL. Second-hand 14 22 498 514 Total 14 24 643 669 66 £25.00 6.25 CANARY WHARF New / Refurb 28 - 709 709 Second-hand - 30 343 366 Total 28 30 1,052 1,075 110 £35.00 5.50 SOUTHBANK New / Refurb 49 41 254 222 Second-hand 155 67 693 661 Total 204 108 947 883 -20 £40.00 5.50 Accelerating success.Source: Colliers International/