Research Report

LONDON MARKETS Analysis of the London office market Summer 2017

International Property Consultants

2017 Take-up Q2

2.6

£65

£68.50

ft)

£110 dP

rime Rent (

y

r pe

A Availabi lity ade Gr

10.4

35%

MILLION SQ FT

Q2

201

y ilit 7 Availab

Q2 2017 key deals

Pr

ft)

t Ci

t

En

sq

s We

MILLION SQ FT

ft) sq

Mi dt

rime Rent (p nP er ow

ime

R e nt ( p e

q

ant Space Ten

5.3%

21.9%

Av te ailab ility Ra

Key schemes under construction

WeWork 140,000 sq ft

22 Bishopsgate 1,275,000 sq ft

Covent Garden

AXA IM Real Assets/Lipton Rogers Developments

NEX Group 112,000 sq ft

100 Bishopsgate 907,000 sq ft

City

Brookfield

Framestore 94,000 sq ft

70 Farringdon Street 825,000 sq ft

Midtown

Goldman Sachs/Tishman Speyer

Hearst UK 83,000 sq ft

Bloomberg Place 669,000 sq ft

Soho

Bloomberg/Stanhope

Bupa 55,000 sq ft

10 Fenchurch Avenue 398,000 sq ft

City

Generali Real Estate/Greycoat/CORE

www.geraldeve.com

rs

EXECUTIVE SUMMARY Availability by region Source: Gerald Eve

Quarterly take-up by region Source: Gerald Eve 4.0

Million sq ft

12

3.5

Million sq ft

10

3.0 8

2.5 2.0

6

1.5

4

1.0 2

0.5 0

East

Midtown

West

Five year average

East

Midtown

Q2 2017

Q1 2017

Q4 2016

Q3 2016

Q2 2016

Q1 2016

Q4 2015

Q3 2015

Q2 2015

Q1 2015

Q4 2014

Q3 2014

Q2 2017

Q1 2017

Q4 2016

Q3 2016

Q2 2016

Q1 2016

Q4 2015

Q3 2015

Q2 2015

Q1 2015

Q4 2014

Q3 2014

Q2 2014

Q1 2014

Q4 2013

Q3 2013

0

West

Occupiers remain cautious over economic uncertainty

Availability continues to rise

Against the backdrop of both political and economic uncertainty; with a snap election, and two years of Brexit negotiations underway, the London office market continued to be subdued with occupiers acting cautiously over their real estate decisions.

As a result, in Q2 take-up volumes totalled 2.6 million sq ft, a 6% decline on Q1 and 8% below the five year average.

A number of significant development completions across central London have led to an increase in overall availability.

However, despite the delivery of a further 5.1 million sq ft by the end of the year, the majority of this space has already been let, which will limit the impact on availability in H2.

Whilst this makes it five consecutive quarters of below average letting activity for the capital, when broken down by region, it’s only in the East where take-up is down, with both the West and Midtown exceeding their five year average. Media and technology companies were the most active sector with significant deals signed by NEX Group, Framestore and the Disney Corporation, continuing to demonstrate the diversity of occupier within the capital.

Central London development pipeline Source: Gerald Eve 8

Of the available space, 22% is available from an existing tenant rather than a new lease direct from the landlord. Finance and banking occupiers are the most active in releasing space back to the market, with most of this sub-letting activity taking place in the East.

At the end of Q2, the availability rate had increased to 5.3%.

The majority of this space is of good quality, with 63% either new or recently refurbished.

Development completions reach 2 million sq ft In 2017, seven million sq ft of new office space will be delivered in central London across 77 schemes. This volume of new space is significantly higher than in previous years and will continue to increase the capital’s availability.

Million sq ft

7

The majority is still under construction and will be delivered in H2 2017, notably The Scalpel (386,000 sq ft), One London Wall Place (309,000 sq ft) and 3 Minster Court (275,000 sq ft). There will also be the delivery of Bloomberg Place (669,000 sq ft), although this building is entirely let to Bloomberg.

6 5 4 3 2 1

Completed

Under Construction Let

2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

0

The increase in availability, both from tenant space and development, is likely to prevent any rental growth in the second half of the year.

Already prime rents in the City have fallen 2% to £68.50 per sq ft as a result of the increased choice on offer to occupiers.

Under Construction Available

3

K

LONDON OFFICE RENTS ross & Eus ’s C to n ing Grade A

£80.00 £60.00 Re

Grade B nt

F re e 1 8 m o n t

hs Scala

The British Library

ia & Bloomsb ur rov itz Grade A

y

F

Regent’s Park

£80.00 £60.00 Re

ylebone Mar

Grade B nt

Grade A

dington Pad

£80.00 £65.00

Grade A

Grade B

Re

£71.00 £55.00 Re

F re e 2 1 m o n t

F re e 2 1 m o n

t

hs

& St Jame fair s’s ay M Grade A

£110.00 £90.00 Re

Soho

vent Garden Co

Grade A

Grade A

£90.00 £70.00

hs

Hyde Park

Re

F re e 2 1 m o n

t

£80.00 £65.00

Grade B nt

F re e 1 8 m o n t

Royal Opera House Grade

Re

hs

nt

B

F re e 2 1 m o n t

The National Gallery

Grade B nt

hs

BBC

Selfridges

Grade B nt

nt

The Wallace Collection

F re e 2 1 m o n t

hs

Green Park London Eye St James’s Park

ightsbridge Kn Royal Albert Hall

Buckingham Palace Palace of Westminster

Grade A

V&A

Re

V

£90.00 £65.00

Harrods

Science Museum

Westmi Abbey ns ia &Westminster te tor r ic Grade A

£72.50 £50.00

Grade B nt

F re e 2 1 m o

h nt

s Westminster Cathedral

Re

www.geraldeve.com

Grade B nt

F re e 2 1 m o n

th

s

hs

& Clerk en don we ng rri Grade A

ll

Fa

Geffrye Museum

Sadler’s Wells

£65.00 £55.00 Re

Grade B nt

F re e 2 0 m o n t

hs

Midtown

City

Grade A

£65.00 £50.00 Lincoln’s Inn Fields

Re

Barbican Centre

£68.50 £60.00

Grade B nt

F re e 2 2 m o n t

The Old Truman Brewery

Grade A

hs

Re

St Paul’s Cathedral

Grade B nt

F re e 2 4 m o n t

hs

Whitechapel Gallery

Bank of England 30 St Mary Axe Mansion House

Somerset House

National Theatre

Tate Modern

hbank Sout

Tower of London

Grade A Southbank Centre

£65.00 £45.00 Re

City Hall Tower Bridge

Grade B nt

F re e 1 8 m o n t

hs

London South Bank University

Imperial War Museum

Ten year term

Southwark Park

See inside back cover for definitions

5

Edgware Road

Paddington

PADDINGTON Contact Stephen Peers London Offices Mobile +44 (0)7771 607057

Lancaster Gate

Hyde Park

£71.00

64%

3

Prime Rents

Media and Technology take-up

Underground Stations

7.6%

372,000 sq ft

0

Availability Rate

Under Construction

Michelin Star Restaurants

5.4%

75,600 sq ft

42

Tenant Space

Under Offer

Pubs

After a slow start to the year, take-up volumes in Paddington reached 67,000 sq ft in Q2, its highest since Q1 2016 and exceeding the five year average.

The most significant deal occurred when media and technology company Finastra, agreed to take three floors at 4 Kingdom Street.

The building, which provides 147,000 sq ft across nine floors, is the first building to be developed by British Land at Paddington Central and is now 89% let or under offer.

Despite recent letting activity, Paddington’s availability rate remains the highest of all the submarkets at 7.6%, with overall availability at 215,000 sq ft, the majority of which is either new or recently refurbished.

There is more new space on the way with 240,000 sq ft currently under construction, including Derwent London’s Brunel Building, 55-65 North Wharf Road which will complete at the beginning of 2019. There is also the potential for another 800,000 sq ft over five schemes. The most significant being British Land’s 5 Kingdom Street (210,000 sq ft) and TFL’s Crossrail expansion at Paddington station (290,000 sq ft).

Elsewhere, Mitsubishi Hitachi Power Systems Europe has taken 11,500 sq ft at the recently refurbished Point, as the company has chosen to relocate from Mayfair for better value offices.

The recent surge in activity has seen prime rents increase to a new market high of £71 per sq ft with 18-21 months’ rent free on a ten year term.

Demand Quarterly take-up and five year average 140

Supply Available floorplates

000s sq ft

2

Development Development pipeline

Floors

600

120

000s sq ft

500

100

400

80 300

1

Source: Gerald Eve

www.geraldeve.com

New Refurbished Unrefurbished

Completed Potential development Under construction let Under construction available

2019

2018

2017

2016

2015

2014

2013

2012

0 2011

XL

2010

L

2009

M

100

2008

Q2 2017

Q1 2017

Q4 2016

Q3 2016

Q2 2016

Q1 2016

Q4 2015

Q3 2015

Q2 2015

Q1 2015

Q4 2014

Q3 2014

Take-up Five year average

S

200

2007

0

0

188,423 sq ft

20

11,723 sq ft

2,361 sq ft

40

12,905 sq ft

60

Baker Street

Edgware Road

MARYLEBONE

The Wallace Collection

Marble Arch

Contact Sophie Daw London Offices Mobile +44 (0)7880 454161

£80.00

52%

5

Prime Rents

Corporate take-up

Underground Stations

2.4%

75,000 sq ft

0

Availability Rate

Under Construction

Michelin Star Restaurants

29.4%

79,415 sq ft

57

Tenant Space

Under Offer

Pubs

Take-up volumes in Marylebone fell for the third consecutive quarter.

In Q2 2017 only 26,000 sq ft of office space was leased, which is 76% below the five year average.

The market was populated with smaller deals with only one over 5,000 sq ft; namely Klarna UK Limited which took 6,600 sq ft at 33 Cavendish Square. More encouragingly, there is currently 80,000 sq ft of office space under offer which demonstrates that occupier demand for new space within this submarket remains.

To ease the supply strain, there are two development schemes currently under construction which will add an additional 75,000 sq ft to the market. Howard de Walden Estates’ 47-51 Queen Anne Street (20,000 sq ft) should complete before the end of the year; and Portman Estates’ 1-9 Seymour Street (55,000 sq ft) will be delivered in early 2018.

A lack of available office space continues to be an issue for the market and at the end of Q2, the availability rate was recorded at 2.4%, with only King’s Cross & Euston lower. At current levels of take-up, we forecast that there is only six months of available space remaining.

Demand Quarterly take-up and five year average

As take-up has dropped off, we’ve seen a reduction in headline rents from £90 per sq ft to £80 per sq ft since the beginning of 2016. Incentives have moved to around 21 month’s rent free on a ten year term.

Supply Available floorplates

000s sq ft

30

Development Development pipeline

Floors

400

000s sq ft

350

140

300

120 20

100

250

80

200

Take-up Five year average

New Refurbished Unrefurbished

2019

2018

2017

2016

0 2015

XL

2014

L

2013

M

2012

S

2011

Q2 2017

Q1 2017

Q4 2016

Q3 2016

Q2 2016

Q1 2016

Q4 2015

Q3 2015

Q2 2015

Q1 2015

Q4 2014

Q3 2014

0

50

2010

0

100

2009

20

2008

40

150 16,965 sq ft

110,247 sq ft

10

132,691 sq ft

60

2007

160

Of the available space, almost a third is available via sub-let or assignment, the highest proportion of any submarket. The majority of this space is being subleased by professional service firms, although media and technology companies are also active in reducing their occupied space.

Completed Potential development Under construction let Under construction available

Source: Gerald Eve

7

Oxford Circus

MAYFAIR & ST JAMES’S

Bond Street

Piccadilly Circus Hyde Park Corner Hyde Park

Green Park St James’s Park

Contact Stephen Peers London Offices Mobile +44 (0)7771 607057

£110.00

35%

6

Prime Rents

Finance and Banking take-up

Underground Stations

4.8%

311,000 sq ft

21

Availability Rate

Under Construction

Michelin Star Restaurants

18.4%

262,884 sq ft

41

Tenant Space

Under Offer

Pubs

Somewhat to our surprise, occupier sentiment remains relatively positive in the Mayfair and St James’s submarkets as takeup volumes exceeded the five year average for the second consecutive quarter.

Take-up has eroded existing supply levels and as a result availability has fallen for the third consecutive quarter. At the end of Q2, an availability rate of 4.8% was recorded with the majority of this space either new or recently refurbished.

240,000 sq ft was let in Q2 2017. The largest deal came when Global Holdings Management Group, advised by Gerald Eve, let 32,000 sq ft at 20 North Audley Street to serviced office provider LEO. This further increases LEO’s presence in the West End and takes their total portfolio to 820,000 sq ft over 35 assets.

Of the available space, 18% is available through a sub-let or assignment with the majority of this space coming from the finance and banking sector. Professional services are also active in divesting office space.

Mayfair & St James’s has 311,000 sq ft currently under construction across eight schemes with the majority of this (224,000 sq ft) to complete by the end of this year. 2018 will see the dramatic revitalisation of the iconic Economist Tower by Tishman Speyer, plus the delivery of new space at 20 St James’s Street opposite.

High leasing activity looks set to continue in the second half of the year, with confirmation that HSBC has signed a 36,500 sq ft pre-let at The Pollen Estate’s new scheme on Cork Street. The bank will take a ten year lease at £110 per sq ft.

Demand from occupiers to locate to the submarket has maintained a pressure on headline rents.

Demand Quarterly take-up and five year average 350

Supply Available floorplates

000s sq ft

70

300

60

250

50

200

40

150

30

100

20

50

10

0

0

Development Development pipeline

Floors

600

000s sq ft

500 400

Take-up Five year average

Source: Gerald Eve

www.geraldeve.com

New Refurbished Unrefurbished

Completed Potential development Under construction let Under construction available

2019

2018

2017

2016

2015

2014

2013

2012

2011

0 2010

110,228 sq ft XL

2009

L

100

2008

M

64,070 sq ft

290,154 sq ft

448,925 sq ft S

200

2007

Q2 2017

Q1 2017

Q4 2016

Q3 2016

Q2 2016

Q1 2016

Q4 2015

Q3 2015

Q2 2015

Q1 2015

Q4 2014

Q3 2014

300

Hyde Park

KNIGHTSBRIDGE

Green Park

Victoria Sloane Square

Contact Rhodri Phillips London Offices Mobile +44 (0)7768 615296

£90.00

47%

2

Prime Rents

Associations take-up

Underground Stations

2.5%

28,000 sq ft

11

Availability Rate

Under Construction

Michelin Star Restaurants

15.9%

— sq ft

31

Tenant Space

Under Offer

Pubs

After a slow start to the year, leasing activity bounced back in Q2 2017 exceeding the five year average with 50,000 sq ft taken across six lettings.

To help ease the supply strain, Motcomb Estates are refurbishing and leasing 40,000 sq ft of high quality offices at their newly purchased 27 Knightsbridge, advised by Gerald Eve.

The largest deal of the quarter saw The Royal Borough of Kensington and Chelsea, advised by Gerald Eve, pre-let 22,500 sq ft at 50 Sloane Avenue at a rent of £80.00 per sq ft.

Prime rents in the market have remained at £90 per sq ft with around 21 months rent free available on a 10 year term.

Knightsbridge remains one of the smallest office markets in central London. With an availability rate at 2.5%, there are few options for larger lot sizes.

Availability was recorded at 91,000 sq ft at the end of Q2, the least available space of all the submarkets. At current take-up rates, we forecast that there is only six months of availability.

Floors

90

90

80

5

70 60

4

60

50

3

40

Take-up Five year average

New Refurbished Unrefurbished

XL

0 2019

L

2018

M

2017

S

10 2016

Q2 2017

Q1 2017

Q4 2016

Q3 2016

Q2 2016

Q1 2016

Q4 2015

Q3 2015

Q2 2015

Q1 2015

Q4 2014

Q3 2014

0

20

2015

0

30

2014

1

10

35,100 sq ft

20

15,103 sq ft

2

30

40,979 sq ft

40

2013

50

2012

70

2011

80

000s sq ft

2010

6

2009

000s sq ft

Development Development pipeline

2008

100

Supply Available floorplates

2007

Demand Quarterly take-up and five year average

Completed Potential development Under construction let Under construction available

Source: Gerald Eve

9

Green Park Hyde Park Green Park

VICTORIA & WESTMINSTER

Westminster St James’s Park

Victoria

Contact Rhodri Phillips London Offices Mobile +44 (0)7768 615296

Pimlico

£72.50

75%

5

Prime Rents

Corporate take-up

Underground Stations

6.2%

143,000 sq ft

0

Availability Rate

Under Construction

Michelin Star Restaurants

16.4%

121,953 sq ft

64

Tenant Space

Under Offer

Pubs

There is also more office space on the way with 63-65 Buckingham Gate (63,000 sq ft) under construction, as well as the potential for 350,000 sq ft across three schemes over the next three years, including Land Securities’ Nova East (226,000 sq ft).

Q2 was a quiet quarter for the submarket in terms of letting activity, with only 71,000 sq ft transacted and the first time in 12 months that take-up has fallen below the five year average.

The market was populated by lots of smaller deals, with only three occupiers signing for more than 5,000 sq ft. However occupier sentiment remains positive with 122,000 sq ft currently under offer which should lead to a more active H2 2017.

Of the space available at Q2 2017, 16% is available via sub-let or assignment, with the majority of this space coming from corporate and media & technology occupiers.

A combination of weaker demand, rising availability and an increase in tenants looking to divest their existing space, has caused prime rents to fall over the last six months from £80 per sq ft to £72.50 per sq ft.

A combination of reduced letting activity and recent development completions has caused the availability rate to rise from 5.8% to 6.2%. In addition to Land Securities’ 184,000 sq ft Nova North, a further 114,000 sq ft will be delivered across two schemes in H2; Royal London Asset Management’s 25 Wilton Road (80,000 sq ft), and Caledonia Investments’ Cayzer House (34,000 sq ft). Tishman Speyer’s 320,000 sq ft redevelopment of Verde also completed in Q1, although this is now 89% let or under offer.

Demand Quarterly take-up and five year average 350

Palace of Westminster

Supply Available floorplates

000s sq ft

18

300

Development Development pipeline

Floors

700 600

15

250

000s sq ft

500

12

200

400 9

150

Take-up Five year average

Source: Gerald Eve

www.geraldeve.com

New Refurbished Unrefurbished

Completed Potential development Under construction let Under construction available

2019

2018

2017

2016

2015

2014

2013

2012

0 2011

XL

2010

382,686 sq ft

139,298 sq ft L

2009

M

100

2008

S

200

2007

Q2 2017

Q1 2017

Q4 2016

Q3 2016

Q2 2016

Q1 2016

Q4 2015

Q3 2015

Q2 2015

Q1 2015

0 Q4 2014

0 Q3 2014

50

3

65,579 sq ft

100

163,395 sq ft

300 6

Tottenham Court Road Oxford Circus Soho Square Gardens

SOHO Golden Square

Piccadilly Circus

Leicester Square

Contact Sophie Dickens London Offices Mobile +44 (0)7763 206550

£90.00

75%

4

Prime Rents

Media and Technology take-up

Underground Stations

3.7%

100,500 sq ft

0

Availability Rate

Under Construction

Michelin Star Restaurants

25.5%

60,606 sq ft

49

Tenant Space

Under Offer

Pubs

Over the next three years, there’s potentially a further 380,000 sq ft to be developed across five schemes, notably Soho Estates’ iconic development of 111-119 Charing Cross Road (173,000 sq ft) which could complete in 2019.

Following a quiet first quarter, take-up volumes bounced back in Q2 reaching 160,000 sq ft, exceeding the five year average and the submarkets most active quarter since 2001.

The most significant deal was signed by publishing company Hearst, which agreed to take five floors totalling 83,000 sq ft at the recently developed LSQ 30 Panton Street, in a move which will consolidate Hearst’s two existing offices. LSQ, which completed in October 2016, was developed by a private Hong Kong investor in association with Old Park Lane Management Ltd and achieved a rent of £85 per sq ft.

Despite the high levels of leasing activity, Soho’s availability rate remained at 3.7% with a number of developments under construction bringing new space to the market. Over the next 12 months, 92,000 sq ft will be completed across four schemes; 57 Broadwick Street (20,000 sq ft), Hammersley House (13,000 sq ft), 161 Oxford Street (25,000 sq ft), and 1 Dean Street (33,500 sq ft), although this has already been let to Moneysupermarket.

Demand Quarterly take-up and five year average

As occupier demand for new space continues to be strong, prime rents look set to remain at £90 per sq ft in H2 2017, with 18 months’ rent free achievable on a ten year lease.

Supply Available floorplates

000s sq ft

30

160

Development Development pipeline

Floors

350

120

000s sq ft

300

25

140

250

20

200

100

15

80

New Refurbished Unrefurbished

2019

2018

2017

2016

2015

2014

0 2013

XL

2012

L

2011

M

2010

Q2 2017

Q1 2017

Q4 2016

Q3 2016

Q2 2016

Q1 2016

Q4 2015

Q3 2015

Q2 2015

Q1 2015

Q4 2014

Q3 2014

Take-up Five year average

S

2009

0

0

50

2008

20

100

2007

5

61,369 sq ft

40

68,731 sq ft

150 10

60

100,267 sq ft

180

Of the space available at Q2 2017, 25% is available as a sub-let or assignment, with the majority of this space coming from media and technology occupiers, looking to divest existing space.

Completed Potential development Under construction let Under construction available

Source: Gerald Eve

11

Euston King’s Cross

FITZROVIA & BLOOMSBURY

Russell Square Great Portland Street

Goodge Street

Contact Sophie Dickens London Offices Mobile +44 (0)7763 206550

£80.00

50%

8

Prime Rents

Media and Technology take-up

Underground Stations

4.2%

550,150 sq ft

8

Availability Rate

Under Construction

Michelin Star Restaurants

24.4%

233,334 sq ft

88

Tenant Space

Under Offer

Pubs

Over the next two years, a further 361,000 sq ft is currently under construction, primarily Derwent London’s 80 Charlotte Street (321,000 sq ft) of which a UK subsidiary of Arup Group has signed an agreement to pre-let 133,600 sq ft in Q1 2017, and Boston Consulting Group are currently under offer to take 150,000 sq ft.

Fitzrovia and Bloomsbury has enjoyed a strong start to the year with leasing volumes in Q1 (328,000 sq ft) and Q2 (316,000 sq ft) well above the five year average. Media and technology companies were the most active in the market, and in particular the Disney Corporation which secured the largest letting of Q2 when it took 48,000 sq ft at 84 Theobalds Road. Also, London & Capital, advised

by Gerald Eve, have acquired 13,000 sq ft at 2 Fitzroy Place.

Almost a quarter of available space on the market is available as either a sub-let or assignment, with the majority of this coming from retail occupiers. Despite this however, we don’t expect to see rental movement by the end of the year with prime rents remaining at £80 per sq ft.

The high level of activity seen in H1 is set to continue in the second half of the year with currently 233,000 sq ft under offer.

Despite the number of deals signed, overall availability in the submarket increased due to a number of development schemes bringing space to the market. As well as the completion of Great Portland Estates’ One Rathbone Square, which is entirely let to Facebook, H1 2017 saw the delivery of The Harley Building (36,000 sq ft), marketed by Gerald Eve, and 15-18 Rathbone Place (22,500 sq ft).

Demand Quarterly take-up and five year average 600

Supply Available floorplates

000s sq ft

60

Development Development pipeline

Floors

1,000

000s sq ft

900 500

50

400

40

300

30

200

20

100

10

0

0

800 700 600 500

Take-up Five year average

Source: Gerald Eve

www.geraldeve.com

New Refurbished Unrefurbished

Completed Potential development Under construction let Under construction available

2019

2018

2017

2016

2015

2014

2013

2012

2011

0 2010

241,869 sq ft XL

100 2009

L

200

2008

M

180,455 sq ft

135,393 sq ft

204,715 sq ft S

300

2007

Q2 2017

Q1 2017

Q4 2016

Q3 2016

Q2 2016

Q1 2016

Q4 2015

Q3 2015

Q2 2015

Q1 2015

Q4 2014

Q3 2014

400

KING’S CROSS & EUSTON

Mornington Crescent

King’s Cross Euston

Contact Cathal Diamond London Offices Mobile +44 (0)7766 977175

£80.00

43%

5

Prime Rents

Corporate take-up

Underground Stations

1.8%

505,000 sq ft

0

Availability Rate

Under Construction

Michelin Star Restaurants

21.7%

363,500 sq ft

50

Tenant Space

Under Offer

Pubs

Despite the expected completion of 505,000 sq ft in H2 2017 across three schemes, all of the new space has been pre-let highlighting the demand from occupiers to be in this location.

Universal Music, which is currently based in Kensington has signed a long-term lease for all 175,000 sq ft of Four Pancras Square, moving over 1,000 employees to King’s Cross. Google will further expand into S2 Handyside Street, taking the entire 185,000 sq ft, whilst New Look and XTX have pre-let R7 Handyside Street (147,000 sq ft).

A lack of available office space continues to limit occupier opportunities. Availability fell for the third consecutive quarter and was recorded in King’s Cross & Euston at 153,000 sq ft at the end of Q2. This resulted in an availability rate of 1.8%, the lowest of all the London submarkets.

Consequently, take-up volumes were well below the five year average in both Q1 (17,232 sq ft) and Q2 (17,277 sq ft).

There were only five deals signed in Q2, all of which were below 5,000 sq ft. The largest was media and technology company, Piriform Software Limited, which took 4,500 sq ft at 163 Eversholt Street. The second half of the year however could be more active with 363,500 sq ft currently under offer.

Demand Quarterly take-up and five year average 350

The demand for new space in the submarket is keeping pressure on prime rents which have held at £80 per sq ft.

Supply Available floorplates

000s sq ft

12

300

Development Development pipeline

Floors

700 600

10

250

000s sq ft

500

8

200

400 6

150

Take-up Five year average

New Refurbished Unrefurbished

14,208 sq ft

2019

2018

2017

2016

2015

2014

2013

2012

0 2011

XL

2010

L

2009

M

100

2008

S

200

2007

Q2 2017

Q1 2017

Q4 2016

Q3 2016

Q2 2016

Q1 2016

Q4 2015

Q3 2015

Q2 2015

Q1 2015

0 Q4 2014

0 Q3 2014

50

2

55,203 sq ft

100

83,560 sq ft

300 4

Completed Potential development Under construction let Under construction available

Source: Gerald Eve

13

Lincoln’s Inn Fields

COVENT GARDEN

Covent Garden

Leicester Square

River Thames

Charing Cross

Contact Sophie Daw London Offices Mobile +44 (0)7880 454161

Embankment

£80.00

54%

4

Prime Rents

Serviced Offices take-up

Underground Stations

3.0%

13,000 sq ft

1

Availability Rate

Under Construction

Michelin Star Restaurants

9.0%

72,697 sq ft

56

Tenant Space

Under Offer

Pubs

Covent Garden was one of the strongest performing markets in terms of take-up as letting volumes totalled 282,000 sq ft, its highest since 2005. However leasing activity was dominated by WeWork taking 140,000 sq ft at 125 Shaftesbury Avenue. This letting comes straight after WeWork signed up for 280,000 sq ft at Two Southbank Place, as the US co-working group’s aggressive expansion within the capital continues.

Despite the high level of take-up, availability has increased in Covent Garden with a number of schemes bringing new space to the market.

Occupier sentiment in this market is positive and even without the WeWork letting, take-up was still above the five year average.

This level of letting activity is expected to continue, with 73,000 sq ft currently under offer.

Despite the recent rise of available space, prime rents have remained flat in Q2 at £80 per sq ft.

Demand Quarterly take-up and five year average 300

Of the available space in Q2, 9% is available from occupiers, with only Paddington having a lower rate. The majority of this space is being sub-let from media & technology companies.

Supply Available floorplates

000s sq ft

25

250

Development Development pipeline

Floors

700

000s sq ft

600

20

500

200 15

400

150 300

Take-up Five year average

Source: Gerald Eve

www.geraldeve.com

New Refurbished Unrefurbished

Completed Potential development Under construction let Under construction available

2019

2018

2017

2016

2015

2014

2013

0 2012

154,338 sq ft XL

2011

L

2010

M

2009

S

100

2008

Q2 2017

Q1 2017

Q4 2016

Q3 2016

Q2 2016

Q1 2016

Q4 2015

Q3 2015

Q2 2015

Q1 2015

Q4 2014

Q3 2014

0

200

2007

0

39,035 sq ft

93,548 sq ft

5

50

119,276 sq ft

10 100

Holborn

Chancery Lane

MIDTOWN Contact Cathal Diamond London Offices Mobile +44 (0)7766 977175

Blackfriars

Amy Bryant London Offices Mobile +44 (0)7551 172931

Temple

River Thames

£65.00

69%

4

Prime Rents

Media and Technology take-up

Underground Stations

4.6%

545,000 sq ft

0

Availability Rate

Under Construction

Michelin Star Restaurants

38.1%

211,184 sq ft

40

Tenant Space

Under Offer

Pubs

There has only been one development completion in H1 2017, namely Aberdeen Asset Management’s 35 Chancery Lane (65,000 sq ft). Consequently the availability rate has dropped for two consecutive quarters to 4.6%, with over a third of this space available as a sublease or assignment from an existing tenant.

Occupier demand for new space has been strong in 2017 with letting activity above the five year average in consecutive quarters. This activity looks set to continue in the second half of the year with 211,000 sq ft currently under offer.

Media and technology firms were the most active with special effects company Framestore taking a 15-year lease to occupy the entire 94,000 sq ft of Viridis Real Estate’s development, 28 Chancery Lane. Framestore will consolidate from its three existing offices in Soho, Fitzrovia & Bloomsbury.

However more space is on the way, and currently there is 545,000 sq ft under construction which will be delivered before the end of 2018.

Prime rents have remained at £65 per sq ft, with 21 months rent free achievable on a ten year lease.

Demand Quarterly take-up and five year average 800

Supply Available floorplates

000s sq ft

35

700

30

600

25

500

20

400

15

300

10

200

5

0

0

Development Development pipeline

Floors

600

000s sq ft

500 400

Take-up Five year average

New Refurbished Unrefurbished

2019

2018

2017

2016

2015

2014

2013

2012

2011

0 2010

87,240 sq ft XL

2009

L

100

2008

M

44,122 sq ft

113,562 sq ft

168,265 sq ft S

200

2007

Q2 2017

Q1 2017

Q4 2016

Q3 2016

Q2 2016

Q1 2016

Q4 2015

Q3 2015

Q2 2015

Q1 2015

Q4 2014

Q3 2014

300

Completed Potential development Under construction let Under construction available

Source: Gerald Eve

15

FARRINGDON & CLERKENWELL

Old Street

Barbican Farringdon

Contact Fergus Jagger London Offices Mobile +44 (0)7787 558756

Chancery Lane

£65.00

38%

5

Prime Rents

Media and Technology take-up

Underground Stations

4.1%

1,290,000 sq ft

3

Availability Rate

Under Construction

Michelin Star Restaurants

12.1%

243,614 sq ft

90

Tenant Space

Under Offer

Pubs

Collar Factory (276,000 sq ft), and Allied London’s Herbal House (77,000 sq ft), however large chunks of space have been let during construction which has minimalised the impact on availability.

After a strong start to the year in terms of take-up, letting activity slowed in the second quarter, with volumes reaching 226,000 sq ft, 20% below the five year average. However, despite this, occupier sentiment remains positive and there is currently 244,000 sq ft under offer which could translate into a better performing second half of the year.

To help ease the supply strain, a number of schemes are under construction which will deliver around 1.3 million sq ft of new space to the submarket over the next three years. 38% of this will complete before the end of 2017, including Mercer Real Estate’s 160 Aldersgate Street (207,000 sq ft).

Media and technology firms continued to increase their presence in the area and were the most active occupiers in the submarket in Q2, notably with Box.com’s 29,000 sq ft letting at the White Collar Factory, City Road.

Despite a slight easing in occupier demand, prime rents have held at £65 per sq ft although incentives have moved out this year and now 20 months’ rent free can be achieved on a ten year term.

Although take-up has been subdued, availability has continued to fall for the second consecutive quarter and resulted in an availability rate of 4.1%. There has been a number of significant development completions during this time, namely Derwent London’s White

Demand Quarterly take-up and five year average 600

Supply Available floorplates

000s sq ft

80

Development Development pipeline

Floors

1,200

70

500

000s sq ft

1,000

60 800

50

600

40

Source: Gerald Eve

www.geraldeve.com

New Refurbished Unrefurbished

Completed Potential development Under construction let Under construction available

2019

2018

2017

0 2016

XL

2015

L

2014

M

2013

Q2 2017

Q1 2017

Q4 2016

Q3 2016

Q2 2016

Q1 2016

Q4 2015

Q3 2015

Q2 2015

Q1 2015

Q4 2014

Q3 2014

Take-up Five year average

S

2012

0

0

200

2011

10

2010

100

400

2009

20

2008

364,749 sq ft

200

292,152 sq ft

30

124,707 sq ft

300

2007

400

CITY

Moorgate Liverpool Street City Thameslink Cannon Street

Contact Steve Johns London Offices Mobile +44 (0)7833 401249

Tower Hill

£68.50

33%

15

Prime Rents

Media and Technology take-up

Underground Stations

7.3%

7,869,590 sq ft

3

Availability Rate

Under Construction

Michelin Star Restaurants

24.5%

1,500,056 sq ft

150

Tenant Space

Under Offer

Pubs

A number of development completions have led to a 16% increase in availability since December, notably Mitsui Fudosan and Stanhope’s Angel Court (300,000 sq ft), Blackstone’s The River Building (89,000 sq ft) and Ocubis’ Cannon Green (73,000 sq ft). Whilst some of this space was already pre-let, the completion of these schemes has increased the availability rate in the submarket to 7.3% from 6.4%.

Letting volumes totalled 965,000 sq ft in Q2, and whilst this is below the five year average for the second consecutive quarter, demand for new space remains high with 1.5 million sq ft currently under offer.

Media and technology occupiers were the most active, and in particular fintech company NEX Group, which agreed to sub-let 115,000 sq ft from Ashurst at the new London Fruit & Wool Exchange development which is due to complete in 2018.

Over the next six months, the City will likely see this increase with 3.2 million sq ft set to complete before the end of the year.

Bupa was also active, and agreed to take 55,000 sq ft at Mitsui Fudosan and Stanhope’s Angel Court development. The health insurance firm will take the first, second and third floors on a 15-year term, moving its global headquarters from its existing premises in Holborn.

Demand Quarterly take-up and five year average

Supply Available floorplates

Million sq ft

200

Development Development pipeline

Floors

7

1.6

Million sq ft

6 150

1.4

5

1.2

4 100

0.8

New Refurbished Unrefurbished

2019

2018

2017

2016

2015

2014

2013

0 2012

XL

2011

L

2010

M

1

2009

Q2 2017

Q1 2017

Q4 2016

Q3 2016

Q2 2016

Q1 2016

Q4 2015

Q3 2015

Q2 2015

Q1 2015

Q4 2014

Q3 2014

Take-up Five year average

S

2

2008

0

0

1,196,152 sq ft

0.2

910,207 sq ft

1,103,935 sq ft

50

0.4

2,246,371 sq ft

3

0.6

2007

1.8

As a result of subdued letting activity and rising availability, particularly from sub-lets and assignments which now represent a quarter of the available space, prime rents have fallen to £68.50 per sq ft.

Completed Potential development Under construction let Under construction available

Source: Gerald Eve

17

CENTRAL LONDON INVESTMENT Despite a recent decline in transaction volumes, investor appetite for London offices remains strong. Driven by the weakened pound, international investors, particularly from $US pegged currencies see this as an opportunity to buy London offices given the offering of strong income return at a national discount and to date are largely undeterred by Brexit negotiations.

City office investment volumes totalled £3.5 billion during H1 2017. This figure was largely skewed by the sale of The Leadenhall Building to Hong Kong-based investor CC Land Holdings. The tower was sold by British Land and Oxford Properties for £1.15 billion, which reflected a yield of 3.5% and marked the largest investment deal transacted in central London since the Qatar Investment Authority’s purchase of the HSBC Tower in Canary Wharf in 2014 for $1.18 billion.

Contact Lloyd Davies London Offices Mobile +44 (0)7767 311254

Hong Kong investors have been increasingly active in the London market recently, with the sale of 65 Fleet Street to a private Hong Kong investor. The 230,000 sq ft building, of which Freshfields are currently the sole occupier, was sold by Malaysia’s Employees Provident Fund (EPF) for £160 million. The building originally went under offer to Hong Kong-based private equity firm Joint Treasure in late 2016, although these talks did not progress.

There was £2.4 billion of West End offices traded in H1 2017. The largest deal agreed, in terms of both size and sale price, was DekaImmobilienEuropa and WestInvest InterSelect’s acquisition of the freehold of Rathbone Square in the North of Oxford Street submarket.

Central London Investment Volumes 7

The building, which is fully let to Facebook on a fifteen year lease, was sold to the German funds by Great Portland Estates for £435 million, reflecting a net initial yield of 4.3%.

Similar to the City market, Hong Kong-based investors have also been active in the West End at the start of 2017, looking to capitalise on the sale of sterling-denominated assets. Emperor Group purchased the Ampersand building on Wardour Street in Soho from fellow Hong Kong investor the Peterson Group for £260 million, which reflected a low net initial yield for this market of 2.9%. The building is the headquarters of King.com, the developers of apps such as Candy Crush Saga, and was refurbished in 2014.

In Q1 2017, offices in the City outperformed those in the West End and Midtown for the second consecutive quarter with a total return of 1.8% compared to 1.5% with rental growth the main driver behind this. However recent figures from MSCI indicate a slight rental decline in central London and as a result, central London offices are expected to experience reduced total returns in 2017 and 2018 before recovering.

Yields remain at record levels across Central London for well let properties, due to a combination of low availability, and strong demand because of the currency opportunity. Whilst we have seen some assets with large forthcoming voids experience yield softening, Prime office yields in the West End remain low at 3.5%, and 4% in the City.

Far Eastern Investment

£ billion

%

1.80

6

60

1.70

50

1.60

40

1.50

30

1.40

20

1

1.30

10

0

1.20

0

5 4

City

Midtown

West End

Five year average

Source: Gerald Eve, Property Data, Experian Economics

www.geraldeve.com

Far Eastern (% of total investment)

US Dollar-Sterling (LHS)

Q2 2017

Q1 2017

Q4 2016

Q3 2016

Q2 2016

Q1 2016

Q4 2015

Q3 2015

Q2 2015

Q1 2015

Q4 2014

Q3 2014

Q2 2014

Q1 2014

Q4 2013

Q3 2013

Q2 2013

Q2 2017

Q1 2017

Q4 2016

Q3 2016

Q2 2016

Q1 2016

Q4 2015

Q3 2015

Q2 2015

Q1 2015

Q4 2014

Q3 2014

Q2 2014

Q1 2014

Q4 2013

Q3 2013

Q2 2013

Q1 2013

2

Q1 2013

3

LONDON OFFICES - OUR SUCCESSES

1 Angel Lane, City We have successfully advised Nomura on the sub-letting of 50,000 sq ft at their Angel Lane HQ. The two transactions were completed ahead of the refurbishment works completing.

20 North Audley Street, Mayfair We have successfully advised Global Holdings on the leasing of 32,000 sq ft to LEO serviced offices.

50 Sloane Avenue, Knightsbridge We have successfully advised the Royal Borough of Kensington and Chelsea on the pre-leasing of this 22,500 sq ft new development.

2 Fitzroy Place, Fitzrovia We recently acquired 13,000 sq ft in this landmark development for London & Capital.

DEFINITIONS Floor quality New: Floor in a newly-developed or newly-refurbished building, including sub-let space in new buildings which have not been previously occupied. Refurbished: A floor which has been comprehensively refurbished and is of good specification, floorplate efficiency and image, but is in a building which is not new or been comprehensively refurbished. Unrefurbished: Poorer quality space, usually offered for occupation ‘as is’.

Floorplate sizes Small (S) Medium (M) Large (L) Extra Large (XL)

1,000 sq ft to 5,000 sq ft

Prime headline rents The rent being paid which does not take account of concessions such as rent free periods. The references to both headline rents and incentives in this report are a reflection of the best office space in that submarket which is taken on an assumed ten year term.

Tenant space Reference to ‘tenant space’ includes office space that is actively marketed and is available either as a sub-let or an assignment of an existing lease. ‘Grey space’ that is not actively marketed is not covered in this report.

5,001 sq ft to 10,000 sq ft 10,001 sq ft to 20,000 sq ft 20,001 sq ft +

Current letting policies may dictate some floors are not available in isolation

19

LONDON OFFICES Agency & Investment

Lease Consultancy

Stephen Peers Partner Tel. +44 (0)20 3486 3450 Mobile +44 (0)7771 607057 speers@geraldeve.com

Tony Guthrie Partner Tel. +44 (0)20 3486 3456 Mobile +44 (0)7585 960695 tguthrie@geraldeve.com

Lloyd Davies Partner Tel. +44 (0)20 7333 6242 Mobile +44 (0)7767 311254 ldavies@geraldeve.com

Graham Foster Partner Tel. +44 (0)20 7653 6832 Mobile +44 (0)7774 823663 gfoster@geraldeve.com

Fergus Jagger Partner Tel. +44 (0)20 7653 6831 Mobile +44 (0)7787 558756 fjagger@geraldeve.com

Research

Steve Johns Partner Tel. +44 (0)20 7653 6858 Mobile +44 (0)7833 401249 sjohns@geraldeve.com

Alex Dunn Associate Tel. +44(0)203 486 3495 Mobile +44 (0)7917 587230 adunn@geraldeve.com

Disclaimer & copyright London Markets is a short summary and is not intended to be definitive advice. No responsibility can be accepted for loss or damage caused by reliance on it. Š All rights reserved The reproduction of the whole or part of this publication is strictly prohibited without permission from Gerald Eve LLP.

08/17 www.geraldeve.com