Q1 17 london south bank office retail market report

THE LONDON SOUTH BANK OFFICE & RETAIL MARKETS Q1 2017

DISCOVER SOUTH BANK WATERLOO BANKSIDE BOROUGH WEST LONDON BRIDGE BERMONDSEY ELEPHANT & CASTLE CAMBERWELL KENNINGTON VAUXHALL NINE ELMS BATTERSEA WANDSWORTH

UNION STREET PARTNERS PROVIDES A SPECIFIC AND BESPOKE REAL ESTATE SERVICE FOR THE SOUTH BANK, A MARKET WHICH HAS UNDERGONE AN UNPRECEDENTED TRANSFORMATION AND WHICH IS NOW FIRMLY ESTABLISHED AS ONE OF CENTRAL LONDON’S MOST IMPORTANT BUSINESS DISTRICTS. THE PRACTICE’S SERVICES INCLUDE OFFICE, RETAIL, LEISURE AND INDUSTRIAL LEASING & DEVELOPMENT, LEASE ADVISORY, BUSINESS RATES, VALUATION, INVESTMENT ADVICE AND PROPERTY ASSET MANAGEMENT ADVICE.

UNION STREET PARTNERS’ EXTENSIVE RESEARCH IS AIMED AT PROVIDING A SHORT, SHARP INSIGHT INTO THE LONDON SOUTH BANK MARKET. THIS QUARTERLY REPORT REVIEWS THE OVERALL PERFORMANCE OF THE OFFICE & RETAIL LEASING, DEVELOPMENT AND INVESTMENT MARKETS AND IS PUBLISHED ALONGSIDE UNION STREET PARTNERS’ CENTRE OF LONDON REPORTS, PRODUCED IN PARTNERSHIP WITH FAREBROTHER. THESE PROVIDE A COMPREHENSIVE AND UNIQUE ANALYSIS OF THE EVOLUTION OF LONDON’S CENTRAL CORE ON THE NORTH-SOUTH AXIS FROM THE NORTHERN BORDER OF MIDTOWN AT KING’S CROSS THROUGH THE SOUTH BANK.

Azar Laghaei, PhD Head of Research +44 20 7855 3547 azarl@unionstreetpartners.co.uk

DEFINITIONS South Bank - SE1, SE11, SE17, SW8 Stock - office accommodation, excluding buildings under construction Floorspace - net internal area, unless otherwise stated Availability - office space available for immediate occupation Availability Rate - available offices as a proportion of total stock

Secondhand Grade B - previously occupied lower quality space with features such as central heating or perimeter trunking Construction start - development where the main contract has commenced, normally excluding demolition or stripping out Construction completion - development where the main contract has reached practical completion

Take-up - completed transactions where offices are let or sold to an occupier for own occupation

Hidden Supply - space which is not currently on the open market, but likely to come available in the near future

New - brand new buildings or buildings developed behind a retained façade

Long-term - average calculated since the 1st Quarter 2005

Refurbished - buildings which have undergone a major refurbishment

DAMIT - Design; Advertising; Marketing & PR; Media; Internet; and Technology & Telecoms

Secondhand Grade A - previously occupied higher quality space with features such as air-conditioning or raised floors

3

The London South Bank Office & Retail Markets Q1 2017

EXECUTIVE SUMMARY Resilient prospects with strong investment turnover and high levels of space under offer 1ST QUARTER HEADLINES: n

Moderate start to the year while space under offer remains high

n

The overall Availability Rate has moved from 3.6% to 3.9%

n

Limited

n

Pipeline is slowing and the market needs more development stock

n

The strong investment turnover this quarter is likely to continue

n

Retail offering continues to improve, with considerable room for

development completions means further pressure on New & Refurbished Availability

growth and development

Following a strong finish to the year in 2016, leasing activity moderated in the 1st quarter 2017. With 208,958 sq ft of Take-up across South Bank, activity remained 9% below the long-term quarterly average. Serviced office operators were the most active component of the leasing market this quarter, as they are increasingly expanding their footprint in the South Bank. Space under offer remained high at the end of the quarter, which should sustain the momentum in the coming months.

Total Availability increased to 799,119 sq ft, equating to an Availability Rate of 3.9%. This was the lowest rate in the wider central London market, and competition for space remains fierce in South Bank, while occupier interest continues to be strong. The market is faced with a severe dearth of New & Refurbished office accommodation, currently representing only 36% of the total Availability. Looking ahead, there is 901,859 sq ft of speculative space under construction, 37% of which is due to complete before the end of 2017. This should alleviate some of the pressure on supply. While development activity is mainly concentrated in the SE1 area, the SW8 submarket is anticipated to see the first phase of deliveries in the 2nd quarter of 2017.

The investment market regained momentum in the 1st quarter 2017, with total turnover reaching ÂŁ281m. This was 95% up on the final quarter of 2016, significantly exceeding the long-term trend in South Bank. Investment activity was mainly derived from domestic sources this quarter, with UK purchasers and vendors most active. Whilst the snap general election has introduced a new layer of uncertainty, the diverse capital base in the South Bank will continue to support activity in the short-term.

The retail market in South Bank continued to be buoyant in the 1st quarter 2017. Occupational demand remains strong with a growing interest from a diverse mix of tenants. The market is anticipated to change significantly in the next two to three years, with the delivery of major development schemes. This should result in rental growth in all areas of South Bank.

IN THIS EDITION Executive Summary

01

House View

03

Take-up 04 Availability 06 Pipeline 08 Investment 10 Retail & Leisure

12

The London South Bank Office & Retail Markets Q1 2017

01

Q1 17 OVERVIEW SOUTH BANK TOTAL AVAILABILITY

SOUTH BANK TAKE-UP

799,119

208,958

sq ft

% change on Q4 16

% change on Q4 16

SOUTH BANK AVAILABILITY NEW & REFURBISHED

SOUTH BANK INVESTMENT

284,962

£281 m

sq ft

-50%

+7%

sq ft

% change on Q4 16

% change on Q4 16

SOUTH BANK AVAILABILITY SECONDHAND

SOUTH BANK SPECULATIVE CONSTRUCTION

514,157

901,859

+13%

+95%

sq ft

% change on Q4 16

+4%

sq ft

% change on Q4 16

-27%

SOUTH BANK AVAILABILITY RATE

3.9 % % change on Q4 16

+0.3pts

02

The London South Bank Office & Retail Markets Q1 2017

HOUSE VIEW

IMPLICATIONS OF SNAP GENERAL ELECTION FOR SOUTH BANK OFFICE MARKET

TENANTS NOT DISSUADED FROM PAYING FULL RENTS FOR IDEAL SPACE

We mentioned in our previous report, the ‘Centre of London Strength in Diversity’ edition, that 2017 will see a continuation of surprises from 2016.

Not long after that, the Prime Minister’s announcement for a snap general election on June 8th stunned Westminster. This is undoubtedly a new element of uncertainty. The election will be succeeded by the summer season and, therefore, has the potential to cause another slowdown in the market. However, economic drivers have a much more pronounced role in the performance of the property market and the UK general economy does not seem to be negatively impacted by the election in the short run.

The South Bank market is currently faced with a dearth of high quality supply while demand for this type of space remains robust. This imbalance in supply and demand has a two-fold consequence for the market. As demand continues to grow, occupiers specifically in the smaller end of the market, are becoming more flexible in their real estate cost considerations and are increasingly willing to pay high rents for their ideal, characterful space. The best testament to this in the 1st quarter 2017 was Marlin PR’s transaction at 5 Stoney Street, SE1, with a record rent of £71.00 per sq ft for 1,305 sq ft of office space. This in turn places further pressure on rents for Secondhand office accommodation, widening the gap in costs for the two types of space. As a result, we have started to see a growing divergence between the rental levels of high and poor quality office space in South Bank; a trend that is anticipated to continue apace in the following quarters.

The South Bank market previously proved resilient through the course of similar events, such as the 2015 UK general election, the 2016 London mayoral election, and most significantly the EU Referendum last year. We believe that occupier confidence, diversity, and churn in South Bank are sufficiently strong to sustain the momentum of the leasing market preand post-election. The investment market is underpinned by a diverse capital base and good investor appetite, with the strong first quarter adding further credibility to this. Any future moderation, if caused, would be a consequence of a lack of liquidity rather than market concern.

BETTER QUARTERS TO COME FOR LEASING MARKET Despite a subdued level of leasing activity this quarter, the market is expected to see a rebound in leasing volumes in the coming months.

There is a substantial amount of space currently under offer and due to complete in the coming quarters and, with this mind, we anticipate Take-up levels to improve within the South Bank for the remainder of the year, irrespective of the snap election and other macro market influences.

The strength is mainly attributed to consistent levels of demand, especially from the DAMIT sector, who are prominent within the vibrant market of South Bank.

5 STONEY STREET, SE1 1,305 sq ft (NIA) £92,500 pax (£71 per sq ft)

The London South Bank Office & Retail Markets Q1 2017

03

TAKE-UP

TOTAL SOUTH BANK TAKE-UP

TOTAL SE1 TAKE-UP

208,958

181,018

% change on Q4 16

-50%

sq ft

Ten-year Quarterly Average

295,910 sq ft

% change on Q4 16

sq ft

Ten-year Quarterly Average

-56%

267,151 sq ft

SE1 NEW & REFURBISHED

SE1 SECONDHAND TAKE-UP

85,010

96,008

% change on Q4 16

-61%

sq ft Ten-year Quarterly Average

95,481 sq ft

sq ft

% change on Q4 16

Five-year Quarterly Average

-50%

154,763 sq ft

TABLE.1 SELECTED OFFICE LETTINGS Q1 17 Company Name

Address

Size sq ft

Grade

Workspace

175-179 Long Lane, SE1

28,000

New

Pennie Way

19 Hatfields, SE1

18,425

Secondhand Grade B

£40.00

Wonga

The Harlequin Building, 65 Southwark Street, SE1

14,591

Secondhand Grade A

£59.00

Matchesfashion.com

The Shard, 32 London Bridge Street, SE1

13,153

New

£65.00

Vero

Cottons Centre, Hays Lane, SE1

8,500

Refurbished

£60.00

Clearscore Technology Limited

47 Durham Street, SE11

7,743

Secondhand Grade B

£45.00

Next 15

Woolyard, 52 Bermondsey, SE1

4772

Secondhand Grade A

£54.00

Focus Vision

South Bank Central, Stamford Street, SE1

4,273

New

Scoota

Union House, 182-194 Union Street, SE1

4,200

Secondhand Grade B

£45.00

Kobalt

3 Valentine Place, SE1

3,079

New

£62.50

Rent psf LLH (LG & G)

Confidential

Source: Union Street Partners

04

The London South Bank Office & Retail Markets Q1 2017

Moderate start to 2017 but projections of better quarters ahead FIG.1 SE1 QUARTERLY TAKE-UP BY GRADE million sq ft 1.00

0.75

0.50 10-year quarterly average - 267,151 sq ft 0.25

0.00

2007 Pre-let

2008

2009 New

2010

2011

Refurbished

2012

2015

2016

2017

FIG.2 SOUTH BANK TAKE-UP BY SECTOR Q1 17 % SECTOR D

A

IT

24%

76%

9 3 0 0 0 1 10 14 34 5

Banking, Finance & Insurance Charities & Associations Corporate Education Government Legal Professional Services Retail & Leisure Serviced Offices Other

196,752 sq ft

Named Take-up Undisclosed (12,206 sq ft)

42%

MIT

DAMIT Design Advertising, Marketing & PR Media Internet Technology & Telecoms

The largest deal of the quarter was Workspace’s long leasehold acquisition of ground and lower ground floors at 175-179 Long Lane, SE1 (28,000 sq ft) for a new business centre in South Bank. Other key transactions this % SECTOR quarter included the purchase of the entire building at 1 Long Lane, SE1 (21,936 sq ft) by Networks Limited for theirDAMIT own occupation, followed 0

by Pennine Way’s leasing of 18,425 sq ft13 at Design 19 Hatfields, SE1, both for Advertising, Marketing & PR 3 Media serviced offices.

DA

0 12 2 0 10

M

3 24

Internet Technology & Telecoms

3 12 6 15 5

Legal Professional Services Retail & Leisure Serviced Offices Other

The churn of 58% smaller occupiers continued to be strong in the 1st quarter, 3 Banking, Finance & Insurance and a wide range of companies from all sectors committed to new leases 4 Charities & Associations 8 Corporate across South Bank. Sub-5,000 sq ft deals accounted for 80% of all 1 Education transactions by number this quarter.

1 Government

Total Take-up: 208,958 sq ft Source: Union Street Partners

FIG. 3 SOUTH BANK TAKE-UP BY SECTOR THREE YEARS ROLLING Q1 17

3 YEARS TO Q1 17

% SECTOR

DA

42% 58%

3.8m sq ft

Named Take-up Undisclosed (0.3m sq ft)

MIT

s

2014

Secondhand Grade B

Serviced office operators were a key component of the leasing market in South Bank this quarter, making up for 34% of total leasing volumes and the top three transactions of the quarter. On the other hand, the share of DAMIT occupiers, a fast-growing player of the South Bank market in recent years fell to 24%, compared to the average of 42% in the last three years.

Source: Union Street Partners

elecoms

rvices

2013

Secondhand Grade A

rketing & PR

e & Insurance ociations

Leasing activity moderated in the 1st quarter 2017, with 208,958 sq ft of Take-up. This was 29% below the long-term quarterly average in South Bank and significantly down on the final quarter of 2016. The decline was anticipated after another year of exceptional leasing activity in South Bank in 2016. Space under offer remained high at the end of the quarter, which should boost Take-up levels in the coming months.

0 13 3 3 24

DAMIT Design Advertising, Marketing & PR Media Internet Technology & Telecoms

3 4 8 1 1 3 12 6 15 5

Banking, Finance & Insurance Charities & Associations Corporate Education Government Legal Professional Services Retail & Leisure Serviced Offices Other

Total Take-up: 4.1m sq ft Source: Union Street Partners

3 YEARS TO Q1 17 The London South Bank Office & Retail Markets Q1 2017

05

AVAILABILITY

TOTAL SOUTH BANK AVAILABILITY

TOTAL SOUTH BANK AVAILABILITY RATE

799,119

3.9 %

% change on Q4 16

+7%

sq ft

Ten-year Quarterly Average

1.1m sq ft

change on Q4 16

+0.3 pts

Ten-year Quarterly Average

4.8%

SE1 NEW & REFURBISHED AVAILABILITY

SE1 SECONDHAND AVAILABILITY

263,244

486,952

% change on Q4 16

+17%

sq ft

Ten-year Quarterly Average

275,194 sq ft

% change on Q4 16

+6%

sq ft

Ten-year Quarterly Average

619,826 sq ft

SE1 AVAILABILITY RATE

4.1 % change on Q4 16

+0.3 pts

06

Ten-year Quarterly Average

4.7%

The London South Bank Office & Retail Markets Q1 2017

New & Refurbished Availability diminishing across South Bank FIG.4 SE1 QUARTERLY AVAILABILITY BY GRADE

Supply rose by 7% over the quarter to stand at 799,119 sq ft at the end of March 2017. This equated to an Availability Rate of 3.9%, up from 3.6% at the end of 2016. Total Availability at the end of the quarter remained 24% below the 10-year quarterly average of 1.0m sq ft in the wider South Bank market. Across the SE1 submarket, supply increased by 20% over the quarter and reached 750,196 sq ft, standing 16% below the long-term trend.

million sq ft 1.5

10-year quarterly average - 895,020 sq ft 1.0

0.5

0.0

2007 New

2008

2009

Refurbished

2010

2011

Secondhand Grade A

2012

2013

2014

2015

2016

Secondhand Grade B

Source: Union Street Partners

2017

With limited development completions over the quarter, New & Refurbished Availability did not see any significant uplift. The largest scheme completed this quarter was CBRE Global Investors’ refurbishment of 90 Union Street, SE1, which brought 18,283 sq ft to the market upon completion. The refurbishment of Lyon House, 160-166 Borough High Street, SE1 by Westminster Real Estate (16,010 sq ft) also completed this quarter.

At the end of the 1st quarter, the South Bank office market was mainly characterised by Secondhand office accommodation, representing 64% of total Availability. With robust occupier demand for quality space in South Bank, competition for the right office space remained fierce, specifically in SE1.

Supply of large-sized floor plates was also under pressure. The buildings which can currently satisfy larger requirements in excess of 50,000 sq ft include South Bank Central, Stamford Street, SE1, County Hall, Westminster Bridge Road, SE1, The Shard, 32 London Bridge Street, SE1, and Cottons Centre, Hays Lane, SE1. County Hall is not however of great quality and is classed as Secondhand Grade B space.

TABLE.2 Q1 17 SOUTH BANK OFFICE STOCK IN CONTEXT OF CENTRAL LONDON

Grade (sq ft)

South Bank

Midtown

West End

City

New & Refurbished

284,962

1,086,642

1,126,367

1,469,285

Secondhand A

160,763

568,130

1,305,459

3,072,402

Secondhand B

353,394

404,516

1,308,078

1,314,710

Total

799,119

2,059,288

3,739,903

5,856,397

Stock

20,565,511

42,442,395

72,111,899

68,568,564

3.9

4.9

5.2

8.5

Availability Rate (%) Source: Union Street Partners

The London South Bank OfďŹ ce & Retail Markets Q1 2017

07

PIPELINE

TOTAL SPECULATIVE SPACE

SPECULATIVE CONSTRUCTION

901,859

134,521

UNDER CONSTRUCTION sq ft

DUE IN Q2 2017

sq ft

% change on Q4 16

-27%

SPECULATIVE CONSTRUCTION

DUE IN Q3 2017

147,322

sq ft

FIG.5 SELECTED SPECULATIVE COMPLETIONS ANTICIPATED IN 2017

U.S. EMBASSY, SW8 U.S. Government 440,000 sq ft | Q2 17 Pre-purchase

08

53 GREAT SUFFOLK STREET, SE1

61 SOUTHWARK STREET, SE1

Morgan Capital Partners 30,097 sq ft | Q2 17

HB Reavis 70,000 sq ft | Q3 17

251 SOUTHWARK BRIDGE ROAD SE1 Oakmayne Properties | Lone Star Real Estate Fund III 33,368 sq ft | Q3 17

The London South Bank Office & Retail Markets Q1 2017

More starts required to rebound development activity Development activity stabilised in South Bank in the 1st quarter 2017, with two starts at Notcutt House, 36 Southwark Bridge Road, SE1 (12,534 sq ft) and 81 Southwark Street, SE1 (11,001 sq ft). Total speculative space under construction therefore stood at 901,859 sq ft in South Bank at the end of this quarter, 8% below the long-term average of 983,506 sq ft.

Around 37% of the total speculative space under construction is scheduled to complete in the remainder of the year, and the 3rd quarter is expected to see the peak of deliveries in 2017.

45% OF TOTAL

The largest speculative scheme to complete this year is HB Reavis’s refurbishment of 61 Southwark Street, SE1 (70,000 sq ft), scheduled for delivery in the 3rd quarter. The new-build scheme at 251 Southwark Bridge Road, SE1 (33,368 sq ft), by Oakmayne Properties and Lone Star Real Estate Fund III, is also due to complete in the 3rd quarter 2017. While the greatest part of speculative completions are concentrated in SE1, a total of 475,500 sq ft is anticipated to complete in the SW8 submarket in the 2nd quarter of the year. A significant part of this space is attributed to the US Embassy (440,000 sq ft). Sky Gardens, SW8 (35,500 sq ft) is the only speculative space to come to the market in SW8 this year.

SPECULATIVE SPACE CURRENTLY UNDER CONSTRUCTION IS EXPECTED TO COMPLETE IN THE NEXT 12 MONTHS

A total of 443,046 sq ft is currently under construction and scheduled for delivery in 2018. The majority of this space is at the new development at Two Southbank Place, York Road, SE1 (297,678 sq ft), anticipated to complete in the final quarter of 2018. Beyond this, total completions for 2019 is currently projected to be 125,752 sq ft. With Apple’s pre-let at Battersea Power Station, SW8, the key scheme currently expected to come online in 2019 is Dalian Wanda’s new development at One Nine Elms, SW8, (118,252 sq ft).

FIG.6 FUTURE SUPPLY IN SOUTH BANK Q1 17 - Q1 19 000s sq ft 600

500

400

300

200

100

0

Q1

Let

Q2

2017

Q3

Completed

Q4

Q1

Under Construction

Q2

2018

Q3

Q4

Q1

2019

Hidden Supply

Source: Union Street Partners

The London South Bank Office & Retail Markets Q1 2017

09

INVESTMENT

TOTAL SOUTH BANK INVESTMENT TURNOVER

TOTAL SE1 INVESTMENT TURNOVER

£281m

£226m

% change on Q4 16

% change on Q4 16

+95%

Ten-year Quarterly Average

+70%

£191m

TABLE.3 SELECTED INVESTMENT TRANSACTIONS Q1 17 Address

Area (sq ft)

Vendor

Purchaser

Reported Price £m

Rose Court, 2 Southwark Bridge, SE1

157,144

HoBee

WPP Group

Capital House, 42 Weston Street, SE1

28,466

Investream

Greystar

1 Long Lane, SE1

24,936

Columbia Threadneedle

Adir Group

11-15 Borough High Street, SE1

9,181

Network Rail

Private Chinese Investor

15

Empire Square London, 9-16 Empire Square & 36 Long Lane, SE1

25,337

Private UK Investor

Private UK Investor

7.3

1 Fellmongers Path, SE1

8,351

Thackeray Estate

Tower Eight

Metro House, Blackfriars Road, SE1

8,150

Savills and Skymac Company

LRP Ltd.

5 Vine Yard, SE1

2,319

Private UK Investor

Ktesius Property Partners / Private Middle Eastern Investor

94.5 65 19.5

6.15 6 2.3

Source: Union Street Partners

10

The London South Bank Office & Retail Markets Q1 2017

The Market regained momentum, with total turnover reaching £281m FIG.7 ANNUAL SE1 INVESTMENT TURNOVER BY SUBMARKET Annual Turnover £m £m

425

350

78

401

562

344

1,307

2,509

1,165

487

226

2000

1500

1000 10-year quarterly average - £191m 10-year quarterly average (excluding More London) - £148m

The investment market regained momentum in the 1st quarter 2017, with total turnover reaching £281m. This was 95% up on the final quarter of 2016 and exceeded the long-term trend in South Bank by some way. In terms of the numbers, this is £35m ahead of the 10-year quarterly average for SE1. The turnover was made up of nine sales with an average lot size of £28m. As is often the case for South Bank, the turnover was dominated by a couple of transactions. The £94.5m sale of Rose Court, Southwark Bridge Road and the c£65m sale of Capital House. The next two largest transactions were the vacant disposal of 1 Long Lane, for £19.5m, and the sale of 11-15 Borough High Street for £15m. The rest of the quarter comprised of granular transactions of £10m and below.

500

0

2007 Bankside

2008

2009 London Bridge

2010

2011 Waterloo

2012

2013

Borough West

Source: Union Street Partners

2014

2015

Bermondsey

2016

2017 Q1

Of the 9 transactions, 4 were to owner occupiers. Greystar’s purchase of Capital House, where we understand they will owner operate student housing, represented the largest. Two, in the form of 1 Long Lane and 175-179 Long Lane, were to Serviced Office operators. South Bank continues to attract strong interest from this sector, driven in part by the perception of better value in comparison to the other markets. Other drivers will include the diversity of the tenant base, which continues to evolve, and the variety of the Real Estate the South Bank market offers.

The remaining owner occupier transaction, was that of 1 Fellmongers Path, where a UK based Property Company disposed of the 8,351 sq ft freehold interest to a firm of building surveyors. The purchasers saw off competition from both investors and those looking to take advantage of the property’s residential consent.

Investment activity was mainly derived from domestic sources this quarter, with UK purchasers and vendors most active. This is merely reflective of what has been available to buy, as opposed to any particular trend. The Overseas Investor remains an important and growing component of the market. More recently, they have been focussing on well secured income streams, with aggressive capital for very strong, long let, prime assets.

For example, a private Far Eastern investor beat considerable competition from a number of other UK and overseas bidders to secure 11-15 Borough High Street, SE1. This asset, arranged as retail on the lower ground and ground floors with office accommodation over three upper floors, sold for a record £1,633 per sq ft. The price paid reflects the 8 years of income secured to the 5A1 covenant, of Pret A Manger.

The short/medium term political and economic outlook continues to remain uncertain. Article 50 was finally triggered, followed closely by the announcement that a General Election has been called, 8th June 2017.Ordinarily it would be expected that the combination of this will have a detrimental effect on the market. However, with capital significantly outweighing availability, pricing regimes are generally maintaining station.

The London South Bank Office & Retail Markets Q1 2017

11

RETAIL & LEISURE An unconventional market with alternative on the rise The South Bank retail and leisure market had a good start to the year.

The first of the deals agreed at South Bank Central has now exchanged, with units 4 and 5a going to Black Sheep Coffee at a rent of £75,000 pa, reflecting just over £44 per sq ft. The scheme comprises approximately 30,000 sq ft of retail space in a prime spot on Stamford Street and we are working on a very exciting tenant mix.

Also done this quarter were lettings to Adventure Bar and Cross Brothers at 111-113 Waterloo Road, SE1. Adventure Bar will be occupying just under 1,500 sq ft of predominantly basement space at a record rent reflecting just over £100 per sq ft, a prime example of the current level of competition within the A4 pub/bar market. Cross Brothers will be taking just over 1,500 sq ft of ground floor space for A3 restaurant use at a rent reflecting £96 per sq ft. This also shows a very strong rate per sq ft demonstrating the strength of occupational demand in the Waterloo area.

Bermondsey Street, largely dominated by A3 restaurant and A4 bar occupiers, continues to be a popular spot for traditional A1 retail, with recent lettings at 71 and 80 Bermondsey Street, SE1. Chapter 72 are in number 72, extending to 630 sq ft, and are paying a rent reflecting £67.50 per sq ft, while The Giddy Grocer will be occupying 564 sq ft at number 80, at a rent reflecting £66.50 per sq ft.

All of the above could probably be described as ‘traditional’ retail lettings, but the South Bank is celebrated for its slightly unconventional nature.

‘Alternative’ retail and leisure destinations have sprung up in recent years are now very popular, being well received by Londoners and tourists alike.

Previously disused railway arches beneath the South Bank’s many railway lines provide some great opportunities. Flat Iron Square on Southwark Street, SE1 is a prime example with a mix of independent food and beverage tenants occupying a variety of different, permanent, and temporary spaces. The scheme also plays host to a series of ongoing events, including those within Omeara, a music venue established by Ben Lovett of well-known band, Mumford & Sons.

Network Rail are bringing a huge amount of arch space back in to use across their London Bridge Estate as well as further south in areas such as Vauxhall, where they have been actively asset managing their estate to improve the mix and quality of the tenant base.

Union Street Partners have also been working on the redevelopment and refurbishment of the Leake Street Arches beneath Waterloo. The renowned graffiti tunnel will soon be home to a unique mix of independent food and beverage operators in eight beautifully refurbished arches, with much of the original Victorian brickwork preserved. The space was previously used as a car park so it is a great example of how innovation can lead to great new opportunities for London’s retail and leisure scene.

The South Bank is also home to some excellent markets. Borough Market is of course the jewel in the crown but there are other excellent examples, including those at the South Bank Centre and Maltby Street and Spa Terminus in Bermondsey. The latter two are hidden gems, attracting a high number of weekend visitors.

As a highly dynamic market, South Bank also offers temporary destinations, where redevelopment proposals are worked up or construction phasing creates an opportunity. Mercato Metripolitano on Newington Causeway, SE1 and Artworks Elephant at Elephant Park, SE17 are two standout examples. The former, on Peabody’s triangle site, and the latter at Lend Lease’s Elephant Park, show the sort of quality hub, which can be created even with a short-term certain.

Given the success of these concepts, we wonder whether there could be opportunities for Landlord’s to offer space for them within new developments – something which hitherto probably has not been considered. There are obvious issues in that by their very nature, they require short-term lettings and creative lease and rent structures.

There would of course be a trade-off between the desire and need for placemaking with value generation and growth.

With many of these schemes generating significant income, there could be opportunities for third parties to step in, take a lease on institutional terms to satisfy landlord’s/developers aspirations, and then deal with the day to day tenant management required to make a successful hub. We know Time Out Market, following their success in Lisbon, are very keen to find space in London and we are also aware of some very interesting London based concepts, who are keen for temporary opportunities but would relish the opportunity for a permanent option in the long run.

Many of these arches, along with the Union Yard scheme at Union Street, SE1 make up ‘The Low Line’, London’s take on Manhattan’s high line.

Conceived by Better Bankside, Network Rail and Southwark, the aim is to create a walking route from London Bridge to Waterloo along the viaduct, with vastly improved public realm and many of the arches given a new lease of life.

12

The London South Bank Office & Retail Markets Q1 2017

FIG.8 SELECTED RETAIL TRANSACTIONS Q1 17

SOUTH BANK CENTRAL, SE1 Size: 1,696 sq ft Type: New Lease Rent: £75,000 pa £44.22 psf

111 WATERLOO ROAD, SE1 Size: 1,436 sq ft (1,373 sq ft basement) Type: New Lease Rent: £145,000 pa (average) £101 psf

113 WATERLOO ROAD, SE1 Size: 1,568 sq ft Type: New Lease Rent: £150,000 pa £95.65 psf

ARCH 25, UNION YARD, SE1 Size: 2,516 sq ft Type: New Lease Rent: £85,000 pa £33.78 psf

72 BERMONDSEY STREET, SE1 Size: 630 sq ft Type: New Lease Rent: £42,500 pa £67.50 psf

THE GIDDY GROCER

80 BERMONDSEY STREET, SE1 Size: 564 sq ft Type: New Lease Rent: £37,500 pa £66.50 psf

CAN WE HELP YOU?

SIMON SMITH

RUPERT COWLING

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JULES HIND

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NEIL DAVIES

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MARK ANSTEY

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T 020 3757 7777 TEAM@UNIONSTREETPARTNERS.CO.UK UNIONSTREETPARTNERS.CO.UK Union Street Partners provides a specific and bespoke Real Estate service for the South Bank, a market which has undergone an unprecedented transformation and which is now firmly established as one of Central London’s most important business districts. The practice’s services include Office, Retail, Leisure and Industrial Leasing & Development, Lease Advisory, Business Rates, Valuation, Investment Advice and Property Asset Management Advice.

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This publication has been carefully prepared and it is intended for general guidance only. No responsibility is accepted by Union Street Partners for any errors or omissions. The information contained herein should not be relied upon to replace professional advice on specific matters and is not, in whole or in part, to be published, reproduced or referred to without prior approval.

Information may be subject to revisions in subsequent editions. ©2017 Union Street Partners. All rights reserved.

This research is available in PDF format. Please email team@unionstreetpartners.co.uk to receive a copy

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