THE MARKET: OFFICE AGENCY
‘FEELGOOD FACTOR’ DRIVING OCCUPIER DEMAND
• BUSINESS EXPANSION – NOT JUST LEASE EVENTS – DRIVING DEMAND • RENTS RISING EVEN ON LARGER LETTINGS • GROWING SHORTAGE OF GRADE A SPACE • OCCUPIERS MAY HAVE TO LOOK FURTHER AFIELD
For many businesses in London’s West End the ‘feelgood factor’ is emphatically back. The improving economic situation is generating new business and companies are beginning to expand again. This feeds directly into the take-up of office space.
During the past two years, the demand for new offices has largely been driven by occupiers facing lease expiries or those who have had options to break their leases taking the opportunity of these ‘lease events’ to upgrade their accommodation. As a consequence, they were often taking either the same, or less space than they had occupied previously. In essence, the office market was living off the latent demand generated by these breaks and expiries.
However, there has been a clear trend since the beginning of the year towards occupiers looking for space because of expansion plans.
The larger space occupiers also have an eye on the dwindling supply of high quality new space and realise that they need to move now if they are to have any range of choice. There were an impressive number of new occupier requirements coming to the market in January and the pace of take-up has quickened since then.
For Grade A space in the West End core of Mayfair and St James’s, we are now seeing deals being routinely struck at over £100 per sq ft – and even for more substantial amounts of space. For instance, the pre-let of 40,000 sq ft at 20 Grosvenor Street to KPMG is understood to reflect a headline rent of around £120 per sq ft. This scale of deal is a departure from last year’s market where progressive rental growth was predominantly confined to units of less than 10,000 sq ft.
Every pre-let that is agreed further exacerbates the supply situation. This is particularly acute in the core where there is currently only 250,000 sq ft of new space available in buildings of over 25,000 sq ft, and only a further 150,000 sq ft planned by the end of this year. This is not enough to satisfy demand; particularly in a more expansionary business environment.
Increased take-up in fringe areas is also putting more pressure on rents. For much of the past five years, occupiers with substantial requirements always had a potential ‘fall-back option’ of being able to access ‘fringe space’ at King’s Cross at projected rents of around £45 per sq ft. However, a succession of lettings at King’s Cross (most notably to Google) and also in Paddington, Euston and the Southbank has eaten up available space, diminished projected supply over the next two years and pushed rents up to the £60-£65 per sq ft in some of these areas.
All bands of the West End office market and its fringes are now moving ahead and occupiers are increasingly constrained in their choices. Occupiers looking for economic alternatives to the West End could have to consider locations such as Canary Wharf and Stratford. However, these do not have the same connectivity and amenity that the West End and its environs offer. When transport connectivity becomes restricted it is a much harder sell for businesses to persuade their workforce to settle in more distant locations.
On this basis, it is interesting to once again consider the effect of Crossrail. To date, the major beneficiaries have been identified as being central areas of London but if the space squeeze continues and the ripple effect of rising rents spreads outwards there may be more distant locations on the Crossrail line which benefit.
LONDON OFFICE MARKETS
OUR LONDON OFFICE MARKETS TEAM COVERS LETTINGS, SALES AND ACQUISITIONS ACROSS THE CAPITAL. WE ARE CURRENTLY ADVISING ON THE LEASING OF MORE THAN 2 MILLION SQ FT OF CENTRAL LONDON OFFICE SPACE THAT IS EITHER AVAILABLE NOW OR UNDER CONSTRUCTION.
THE TEAM HAS HUGE COMBINED EXPERIENCE, WITH EXCEPTIONAL MARKET KNOWLEDGE AND A PROVEN INDIVIDUAL TRACK RECORD OF SUCCESS.
THIS IS SUPPORTED BY BESPOKE RESEARCH AND ANALYSIS WHICH ENABLES A COMMANDING OVERVIEW OF RENTAL TRENDS, OFFICE AVAILABILITY AND OCCUPIER DEMAND PATTERNS.
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