OnPoint
The Central London Market
Q1 2014
Rise in demand signals
continued market strength
• The volume of leasing activity slipped back slightly in Q1 after a rush of large deals in the second half of 2013, but the underlying fundamentals remain sound, with strong demand from occupiers for Central London office space. Despite the strong take-up in recent quarters, demand remains very strong, with 3.3 million sq ft of space under offer at end Q1, the highest since Q3 2007.
• Q1 saw a strong performance from the Docklands market, which has under-performed relative to the City and West End over the past year. The market saw 476,000 sq ft of take-up in Q1, not far off the figure of the 505,000 sq ft for 2013 as a whole.
• Yields continue to trend in, with prime City yields now at 4.5%. Significant competition around prime lending has seen margins as low as 140-160 basis points, meaning that the total cost of finance is comfortably below 4%.
Market Indicators
(QoQ) West End City Docklands
Take-Up 707ã 1,158 ä 476 ã
Supply 3,322ä 1,936 ä 1,491 ã
Overall Vacancy Rate 3.6% ä 6.3% ä 7.3% ã
Grade A Vacancy Rate 2.7% ä 4.3% ä 7.1% ã
Occupier Demand 5,190ã 9,998 ä 3,121 ã
Prime Rent £105â £60â £38.50 â
Under Construction 2,017ä 3,202 ä 55 ã
Economic overview
Upgrades to forecasts continue
An already healthy GDP and employment growth outlook for the UK and London has been raised further this quarter, with both the IMF and the Bank of England signalling a brighter outlook with substantial upgrades. The Bank of England now predicts GDP growth of 3.4% for the UK, which would be a very strong result and well above trend, while the IMF is tipping growth of 2.9%. This growth path is setting the UK apart from other European nations which remain on a slower growth trajectory.
The upgrades indicate a return of upside risk, after a prolonged focus on downside risk in recent years. Q1 has seen evidence of a recovery in business investment, PMI surveys report strong growth in activity across manufacturing, construction and services, and retail sales remain very strong.
Employment growth has also surprised on the upside, with the pace of growth in London out-stripping other global business centres. London is benefitting from both internal labour migration and globalisation; young people want access to London’s bigger labour market and firms want to consolidate or expand where they can access large numbers of highly skilled staff and the largest client base.
Loan terms easing
Strong growth continues to lead to speculation regarding the timing of base rate hikes, but in spite of this, borrowing costs remain accommodative, with margins coming under pressure. A growing number of lenders are entering the market leading to increasing availability of capital. This is driving both the pricing of capital and the risk profile of lenders, who are prepared to lend at higher loan-to-value ratios and further up the risk curve.
Significant competition around prime lending has seen margins as low as 140-160 basis points, meaning that the total cost of finance is comfortably below 4%. There is little doubt that as the quantum of capital chasing financing opportunities increases, 2014 will see further
GDP growth (Index, Q1 2008 = 100) 90 95 100 105 110 115 120 2016 2015 2014 2013 2012 2011 2010 2009 2008
United Kingdom United States Germany France Italy Spain
Source: Oxford Economics
Financial and business services growth for selected global cities (Index, Q1 08 = 100) 90 100 110 120 130 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008
London New York Frankfurt Hong Kong Tokyo Paris Madrid
Source: Oxford Economics
increase in risk appetite, and increasingly innovative capital structures, leading to loans being advanced at higher loan to values at lower all in costs of capital.
“Bank of England now predicts
3.4% GDP growth for the UK”
The Central London market
Solid take-up continues in Q1
The volume of leasing activity slipped back slightly in Q1 after a rush of large deals in the second half of 2013, but the underlying fundamentals remain sound, with strong demand from occupiers for Central London office space.
Office take-up reached 2.3 million sq ft in Q1, dropping from 2.7 million sq ft in Q4 2013, but there are a number of significant requirements under offer which should boost activity in Q2. The trend to pre-let has remained strong throughout Q1 2014, signalling the strength of the market.
Docklands market returns to form
Q1 saw a strong performance from the Docklands market, which has under-performed relative to the City and West End over the past year. The market saw 476,000 sq ft of take-up in Q1, not far off the figure of the 505,000 sq ft for 2013 as a whole.
The Docklands market compares favourably with other London locations in terms of affordability, with a prime rent of £38.50 per sq ft compared to £105 per sq ft and £60 per sq ft in City and West End respectively, and we expect to see continued strength in demand as more price-sensitive occupiers with larger space requirements look to secure space.
Market buoyed by high volume of space under offer and strong replacement demand
Despite the strong take-up in recent quarters, demand remains very strong, with 3.3 million sq ft of space under offer at end Q1, the highest since Q3 2007. There was a particularly large increase in the West End, where active demand now stands at 3.6 million sq ft; up from 2.5 million sq ft last quarter.
Replacement demand continues to come through, with new requirements boosting the level of active demand, reflecting the strength of occupier sentiment and employment growth.
“There are a number of significant
requirements under offer which
should boost activity in Q2”
Central London take-up 2005 - 2014
West End City Docklands 0 2 4 6 8 10 12 14 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 millions sq ft Source: JLL
Central London demand 2005 - 2014
0 2 4 6 8 10 12 14 16 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 m sq ft
Active requirements Under offer
Quantum of new supply continues to erode
Supply continued to reduce in Q1 with vacancy rates falling further to 6.3% in the City and 3.7% in the West End. Whilst some large completions are soon expected to boost supply, notably The Leadenhall Building, EC3 and Moorgate Exchange, EC2 in the City, this is likely to be only temporary as the development pipeline beyond this is limited over the next two years.
Given this supply dynamic, larger occupiers are becoming less focused on location and driven more by the quality and deliverability of supply in their search for office space. Occupiers are increasingly viewing the Central London market as a whole, rather than having a traditional City or West End focus, including the emerging markets to the north, south and east.
Occupier migration increased during 2013, largely from the West End, with the key beneficiaries being Regent’s Place, Kings Cross, Farringdon and Shoreditch to the north of the core markets, London Bridge and Bankside in the Southbank and Midtown generally. We expect this trend to continue, at least until we see a return to higher levels of speculative delivery across Central London.
Upward pressure on rents
Rents in the benchmark Mayfair and Central City markets were stable in Q1, but upward pressure remains and we expect prime rents to reach £115 and £65 per sq ft respectively by the end of 2014. Rental growth has continued, however, in several London sub-markets outside of the core, such as Soho, Hammersmith and the northern side of the City, reflecting demand from occupier migration and the improvements in the quality of supply (we discuss the transformation of the northern ‘fringe’ on page seven).
“3.3 million sq ft under offer
at end of Q1, the highest since
Q3 2007”
Central London vacancy rates 2005 - 2014
0% 3% 6% 9% 12% 15% 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005
Availability (%) of overall stock
West End City Docklands
Source: JLL
Central London prime headline rents 2005 - 2014
£0 £20 £40 £60 £80 £100 £120 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 £ per sq ft
West End City Docklands
The Central London market
Investment market pauses for breath in Q1
Trading volumes tapered off in Q1 after a rush of large deals in the second half of 2013, totalling £1.9 billion, with £1.3 billion in the City and £502 million in the West End. This made Q1 the lowest quarter since Q1 2010.
Despite the reduced turnover, investor demand for Central London office stock remains very robust. The market is underpinned by a healthy occupier market, which offers prospects for rent driven capital value growth over the next few years. Reflecting this, asset management plays are highly sought after, especially by UK funds and property companies.
The market is also supported by improving credit conditions, with more favourable terms on offer than this time last year. A pick-up in bank’s appetite for lending has been accompanied by the continued emergence of non-bank capital, and the increasing number of lenders in the market will lead lenders to take more risk in order to access the market, both in terms of loan to value and asset quality.
As the year progresses, we expect trading volumes to accelerate once more, as rising values motivate sellers to bring more stock to market. Yields continue to trend stronger
Yields for smaller lot sizes came in to 4.5% in the City in Q1, with the West End stable at 3.75%. Yields are trending stronger across the whole UK market on the back of the improving economic outlook and the support this will provide for the occupier market. The weight of capital seeking London office stock is expected to maintain the downward pressure on yields in the near term.
“Investor demand for
Central London office stock
remains very robust”
Central London investment volumes 2005 - 2014
Overseas United Kingdom 0 2 4 6 8 10 12 14 16 18 20 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 £ billions Source: JLL
Central London prime yields and the cost of money 2005 - 2014
0% 1% 2% 3% 4% 5% 6% 7% 8% Dec-13 Dec-12 Dec-11 Dec-10 Dec-09 Dec-08 Dec-07 Dec-06 (%)
West End City 5-year swap Bank rate
Issue to watch:
Redefining the City fringe
One of the great success stories of London over recent years has been the transformation of the areas to the north and east of the City into thriving neighbourhoods which appear to mix vibrant new businesses with cutting-edge youth culture. Shoreditch, Hoxton and Clerkenwell have become established parts of the Central London office and residential market – remarkable given that they were distinctly ‘fringe’ only a decade or two ago. The delivery of Crossrail in 2018/2019 will have a transformational effect on the area, establishing Farringdon as one of the major Central London transport hubs and acting as a catalyst for the redevelopment of the areas office stock.
Shoreditch and Clerkenwell are developing different characteristics – and will continue to diverge
It is very evident that occupiers in Clerkenwell and Shoreditch are distinct, however there are some similarities, for example companies in the digital commerce and media space are widespread in both locations. However, conventional advertising agencies are almost absent in Shoreditch, and are clustering in Clerkenwell – medialand is moving from Soho to the area around Farringdon station.
Meanwhile, the software development, technical web development, cloud computing/big data and social media spheres are concentrated in Shoreditch. This represents a definite cluster of harder ‘tech’ expertise in the area, representing 12.7% of take-up over the three years to 2013. However, these companies appear to take slightly smaller units of space than the average.
Aldgate is the real city fringe
Aldgate has quite a different character from Shoreditch and Clerkenwell, and in some ways appears to be closer to the core City market. Financial services accounted for around a third of all take-up between 2011 and 2013. Unlike the other two submarkets, the advertising, marketing & communications sector is not particularly significant. While ‘tech’ is important here, it is heavily concentrated in providers of data and cloud services (22.0%) and online financial services (12.5%); the digital and creative tech / tech commerce sectors that are so much a feature of Shoreditch are virtually absent in Aldgate. Redefining the fringe
Given the transformation of the area, we believe it is time to retire the idea of the City ‘fringe’. Clerkenwell attracts different businesses to Shoreditch, and Aldgate has entirely different dynamics altogether and as such each can be viewed as separate sub-markets within the wider ‘City’ market The area’s office market has become more important and has developed a very unique character. The idea that it is simply the
The West End office market
Occupier take-up
• 707,200 sq ft was let in 43 transactions, 15% below the long term quarterly average of 833,000 sq ft.
• There is a further 890,000 sq ft under offer, the highest since Q1 2000 and 54% higher than the long term average of 576,700 sq ft, indicating that take-up volumes in 2014 should be robust.
• Almost a third of letting activity was pre-let in Q1 and 41% of the space under offer is on a pre-let basis. This is a continuation of the trend we saw emerge in 2013.
• The TMT sector represented 53% of total take-up, and the largest transaction was 160,000 sq ft let by Google at 6 Pancras Square, N1.
• Other significant transactions in Q1 include: Golden Tree Asset Management acquired 6,005 sq ft at 33 Davies Street, W1 at £115 psf, OMV completed on 20,645 sq ft at 62 Buckingham Gate, SW1 at £67.50 psf and UK TV let 26,855 sq ft at 10 Hammersmith Grove, W6 at an average rent of £48 psf.
Occupier demand
• Overall demand increased by 23% to 5.2 million sq ft q-o-q, this is in-line with the 10 year average.
• The TMT sector continues to account for the largest share (39%) of overall demand, although we have also seen a recent resurgence in demand from other sectors, notably professional, banking and finance, and service sectors, which all recorded quarter-on-quarter increases in demand.
• Active demand stands at 3.6 million sq ft, up 45% from 2.5 million sq ft in Q4 2013 and 8% higher than in Q1 last year.
• Significant requirements include Sony 200,000 sq ft plus, Apple 150,000 – 200,000 sq ft and DONG Energy 80,000 – 100,000 sq ft. Existing supply and the development pipeline
• Total supply fell 4% q-o-q to 3.4 million sq ft. 63% of supply is second-hand.
• Speculative development under construction fell 16% q-o-q to 2.0 million sq ft, marginally higher than the long term average of 1.9 million sq ft.
“Bucking recent trends,
UK investment outstripped
overseas investment”
West End take-up 2005 - 2014
New Secondhand Under construction Off plan 0 1 2 3 4 5 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 m sq ft Source: JLL
West End demand 2005 - 2014
0 1 2 3 4 5 6 7 8 2013 2012 2011 2010 2009 2008 2007 2006 2005 m sq ft
Active Potential Rolling 12 month take-up
• Building completions totalled 389,800 sq ft of which, 53% was pre-let or under offer. Completions include: 10 New Burlington, W1 (94,250 sq ft), 5-6 St James’s Square, SW1 (126,500 sq ft), 39 Victoria Street, SW1 (88,400 sq ft) and Regent Quarter Block D, N1 (80,700 sq ft).
• 1 Welbeck Street, W1 (53,100 sq ft) was the only scheme to commence construction in Q1.
• Overall vacancy decreased by 10 basis points to 3.7% and remains significantly lower than the long term average of 5.0%. • Grade A vacancy is 2.7%, a decrease from 2.8% in Q4 2013 and
lower than the long term average of 2.9%. Rents
• Prime rents remained stable at £105.00 per sq ft (assuming a 10,000 sq ft floor plate and a 10 year term), an increase of 8% year-on-year. Rent free periods remain at 16 months.
Investment volumes and yields
• £501 million was traded in 22 transactions in Q1. This was the lowest quarterly total since Q2 2009 and is 61% below the 10 year quarterly average of £1.3 billion. The decline in investment volumes can be attributed solely to a limited supply of tradable assets in the West End, as investor demand remains very strong. • Smaller lot sizes dominated the market in Q1, with 76% of
transactions sub £50 million.
• Bucking recent trends, UK investment outstripped overseas investment and represented 71% of total transactions.
• Key deals include: 141-142 New Bond Street, W1 acquired by a private UK investor for £80 million, UK investor Meyer Bergman purchased 203-206 Piccadilly, W1 for £70 million and Canada Life disposed of 1 Queen Anne’s Gate, SW1 to Henley Investment for £43 million.
• The weight of money (both UK and overseas) looking to invest in the West End market, coupled with forecast rental growth will continue to place pressure on pricing and yields.
• Yields remain unchanged at 3.75% for sub £10 million, 4.0% for £10 to £80 million lot sizes and 4.50% for lot sizes over £80 million, but are trending stronger.
West End vacancy rates 2005 - 2014
0 1% 2% 3% 4% 5% 6% 7% 8% 9% 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005
Availability (%) of overall stock
Overall Grade A
Source: JLL
West End prime headline rents 2005 - 2014
£0 £20 £40 £60 £80 £100 £120 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 £ per sq ft
Prime Net effective
Source: JLL
West End investment purchases 2005 - 2014
Property companies Institutions Others 0 1 2 3 4 5 6 7 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 £ billion Source: JLL
The City office market
Occupier take-up
• 1.2 million sq ft was let in 62 transactions, a 40% fall on the exceptional total recorded in the final quarter of 2013 and 13% below the 10 year quarterly average.
• Despite the quarter-on-quarter fall, year to date take-up is slightly ahead of the equivalent period in 2013.
• Service industries were again the dominant sector in Q1, accounting for 45% of quarterly transactions. Banking and finance, and professional services each accounted for a further 27% market share.
• The 120,000 sq ft acquired by ING at 8-10 Moorgate, EC2 was the largest transaction of the quarter.
• Other notable transactions in Q1 include: 59,000 sq ft let to SEI Investments at Alphabeta, EC2 at a rent of £52.50 psf; The Walbrook, EC4 where GSMA have signed for 50,000 sq ft; and 48,000 sq ft pre-let to Macfarlanes at 98 Fetter Lane, EC4. • The amount of space under offer more than doubled to 1.8 million
sq ft, compared to 850,000 sq ft at the end of 2013 and the highest quarterly total since Q4 2007, indicating that take-up will continue to be strong in coming months.
Occupier demand
• Active demand decreased 8% to 6.3 million sq ft, compared to 6.8 million sq ft in Q4 2013 but remains ahead of the 10 year quarterly average of 5.6 million sq ft.
• The service (44%), banking and finance (26%) and professional (20%) sectors account for the largest shares of active demand. • Notable requirements currently considering options include
Sony (200,000 sq ft plus), Omnicom (300,000 sq ft) and Deloitte (200,000 sq ft).
Existing supply and the development pipeline
• Total supply decreased 3% to 6.8 million sq ft, and is now 16% below the 10 year quarterly average.
• The volume of Grade A supply also fell slightly to 4.7 million sq ft, equating to a vacancy rate of 4.4%.
“Year to date take-up is
slightly ahead of the equivalent
period in 2013”
City take-up 2005 - 2014
New Secondhand Under construction Off plan 0 1 2 3 4 5 6 7 8 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 m sq ft Source: JLL City demand 2005 - 2014 0 3 6 9 12 15 2013 2012 2011 2010 2009 2008 2007 2006 2005 m sq ft
Active Potential Rolling 12 month take-up
• The office element of 20 Fenchurch Street, EC3 was the only City development scheme to reach practical completion in Q1 2014. • Development started on two City schemes in Q1 2014 totalling 510,000 sq ft. The refurbishment of Angel Court Tower (350,000 sq ft) is scheduled to complete in Q2 2016 and the first phase of Helical Bar and Crosstree’s redevelopment of The Bower, 207 Old Street, EC1 will be available in Q2 2015.
Rents
• Prime rents and incentives remained stable at £60 per sq ft and 24 months rents free, on an assumed 10 year term.
• We expect prime rents to reach £65 per sq ft before the end of the year, while incentives will move in by 3-6 months as the market becomes more landlord favourable and competition for space intensifies.
Investment volumes and yields
• £1.3 billion was traded in 24 transactions in Q1 2014, a significant fall on the record £5.9 billion traded in Q4 2013 but slightly higher than the £1.2 billion traded in Q1 2013.
• UK purchasers accounted for a 47% share of quarterly
transactions, a significant increase compared to the 19% in 2012 and 22% in 2013.
• Notable transactions included Riverside House, SE1, which was purchased by M&G for £122 million, London and Regional’s acquisition of 99 City Road, EC1 for £104 million and 12 Arthur Street, EC4, which was purchased by M&G for £70 million. • Prime yields moved in 25 basis points to 4.50% for sub £40 million
lot sizes, 4.75% for lot sizes of £40 to £125 million lot sizes and 5.00% for lot sizes of above £125 million.
“This was the highest quarterly
take-up since Q4 2010”
City vacancy rates 2005 - 2014
0% 2% 4% 6% 8% 10% 12% 14% 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005
Availability (%) of overall stock
Overall Grade A
Source: JLL
City prime headline rents 2005 - 2014
£0 £10 £20 £30 £40 £50 £60 £70 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 £ per sq ft
Prime Net effective
Source: JLL
City investment purchases 2005 - 2014
Property companies Institutions Others 0 2 4 6 8 10 12 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 £ billion Source: JLL
Occupier take-up
• 476,000 sq ft was let in 11 transactions. This was the highest quarterly take-up since Q4 2010 when JP Morgan acquired 25 Bank Street (circa 1 million sq ft).
• Year to date take-up is already only 12% behind the 542,000 sq ft transacted during the whole of 2013.
• The largest transaction of the quarter was the 205,000 sq ft acquired by EY (Ernst & Young) at 25 Churchill Place • Other notable transactions included: 55,000 sq ft to HS2 at 1
Canada Square, 28,000 sq ft to EMA at 25 Churchill Place and 27,000 sq ft to Total Oil at 10 Upper Bank Street.
• There is an additional 556,000 sq ft under offer, including TFL (250,000 sq ft), Truphone (61,000 sq ft) and International Power (57,000 sq ft), indicating that take-up will continue at above average levels in the short term.
Occupier demand
• Overall demand increased 45% to 3.1 million sq ft in Q1, compared to 2.2 million at the end of 2013.
• The significant increase in overall demand was driven by an uptick in the level of potential demand which increased to 1.5 million sq ft, up from 425,000 sq ft at the end of 2013
• Occupiers with large requirements are increasingly considering options in Docklands due to the lack of suitable supply and rising rents in the City and elsewhere in Central London.
• Services (44%) and Banking & Finance sectors (37%) account for the largest proportion of overall demand.
Existing supply and the development pipeline
• Total supply increased 7% to 1.5 million sq ft due to additional space brought to market at 10 Upper Bank Street, which was immediately placed under offer, and 25 Canada Square.
• Supply increased despite the strong take-up with a half of quarterly transactions pre-let or let during construction and therefore not affecting current supply.
• As a result the overall vacancy rate increased to 7.3%.
• 25 Churchill Place, the only scheme currently under construction in Docklands is now majority let ahead of completion in Q2 2014, following the lettings to EY and EMA.
Rents
• Prime rents remained unchanged at £38.50 per sq ft, however we expect to see rental growth in H2 2014 due to the recent increase in occupier demand and the lack of newly developed stock.
Investment volumes and yields
• £83 million was traded in three transactions in Q1 2014 – 3,4&5 Harbour Exchange was acquired by Clearbell Capital for £37 million, Tristan Capital Partners acquired 6 Mitre Passage for £33.75 million and Delancey sold Quay House to Investin Properties for £12 million.
Docklands take-up 2005 - 2014
New Secondhand Under construction Off plan 0 0.5 1 1.5 2 2.5 3 3.5 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 m sq ft Source: JLL Docklands demand 2005 - 2014 0 1 2 3 4 5 2013 2012 2011 2010 2009 2008 2007 2006 2005 m sq ft
Active Potential Rolling 12 month take-up 0
Source: JLL
The Docklands & East
London office markets
Headline
transactions
West End 6 Pancras Square, N1C Area: 158,879 sq ft Tenant: Google Rent: £65 per sq ftBuilding Status: Under construction 33 Davies Street, W1
Area: 6,007 sq ft
Tenant: Golden Tree Asset Management Rent: £115 per sq ft
Building Status: New
57 Broadwick Street, W1 Area: 25,120 sq ft Purchaser: Shaftesbury Reported Price: £30.75 million Est Initial Yield: Development 1 Queen Anne’s Gate, SW1 Area: 53,854 sq ft
Purchaser: Henley Investment Reported Price: £43 million Est Initial Yield: 3.72% City
8-10 Moorgate, EC2 Area: 120,183 sq ft Tenant: ING Barings Rent: Confidential
Building Status: Under construction Alphabeta, EC2
Area: 59,010 sq ft Tenant: SEI Investments Rent: £52.50 per sq ft
Building Status: Under construction
Riverside House, SE1 Area: 171,942 sq ft Purchaser: M&G
Reported Price: £122 million Est Initial Yield: 5.73% 99 City Road, EC1 Area: 162,170 sq ft
Purchaser: London & Regional Price: £104 million
Est Initial Yield: 5.35% Docklands & East London
25 Churchill Place, E14 Area: 205,064 sq ft Tenant: EY
Rent: £48.50 (estimated)
Building Status: Under construction
3,4 & 5 Harbour Exchange, E14 Area: 190,006 sq ft
Purchaser: Clearbell Capital Reported Price: £12 million Est Initial Yield: 11.24%
Rental conditions
across Central London
West End village Knightsbridge Covent GardenBelgravia & Marylebone& Euston Mayfair Oxford StreetNorth of Paddington Soho St James’s Victoria
Max £67.50 £65.00 £67.50 £105.00 £92.50 £55.00 £80.00 £105.00 £72.50 min £40.00 £42.00 £40.00 £70.00 £40.00 £32.50 £40.00 £57.50 £12.00 % annual change (average) 2.0% 9.3% 12.5% 13.7% 11.4% -1.1% 28.7% 21.2% 9.5%
City village Central Core City Midtown Eastern Eastern Fringe Northern Northern Fringe Southbank Southern Western
max £60.00 £57.50 £55.00 £42.50 £55.00 £52.50 £52.50 £55.00 £55.00 min £50.00 £40.00 £35.00 £25.00 £40.00 £37.50 £40.00 £42.50 £35.00 % annual change (average) 2.5% 9.0% 8.6% 12.9% 4.6% 25.3% 8.0% 3.7% 5.0%
Planning policy and
development update
Definition of Terms
Floorspace Threshold – Data refers to office floorspace in units of 5,380 sq ft and above. Grading – A subjective assessment taking into account specification, floorplate efficiency and image. Take-Up – Floorspace acquired for occupation by leasing, pre-leasing or purchasing a freehold or long leasehold interest.
Supply – Floorspace which is on the market and available for occupation. Floorspace which is under offer prior to a contractual commitment is included. Speculative development prior to practical completion is excluded. Speculative Development – Floorspace under construction or comprehensive modernisation which will be available for speculative letting (or sale). The forecast of development completions relates only to developments currently under construction.
Net Absorption – a measure of the change in occupied stock between periods.
Demand – Some applicants search across two or three market areas. In such cases their demand appears in the total for each area. However, when calculating total Central London demand, duplicates are eliminated.
Active Demand – Organisations with a declared requirement for office accommodation which are actively in the market to acquire floorspace in the short term.
Potential Demand – Organisations with a potential requirement for office accommodation, but without a finalised brief in terms of timing.
Prime Rent – An opinion of the highest rent (excluding incentives) achievable upon a letting agreed at the quarter-end of a notional 10,000 sq ft unit of the best quality office space in a prime location. Net effective rents are calculated against our prime headline rent values and assume a 10-year term, a notional three month fit-out period and amortisation over 10 years. In practice net effective rents are subject to far more variability related to the specific characteristics of the individual premises.
Prime Yield – An opinion of the yield which would be appropriate for a freehold Grade A office investment in a prime location let at a current market rent to a tenant with a strong financial covenant.
Investment Turnover – Capital transactions comprising freehold and long leasehold acquisitions
Permitted development rights for changes from shop premises to banks and building societies
In accordance with the Town and Country Planning (General Permitted Development) (Amendment and Consequential Provisions) (England) Order 2014, new Permitted Development Rights will allow the
movement from shops to banks and building societies without the need for planning permission. The regulations came into force 6th April 2014. The legislation will allow under ‘Class CA’ for shops (Class A1) to become banks, building societies, friendly societies or credit unions (A2). Less favoured uses such as betting shops and pay day loan shops are excluded from the use definition. This change in legislation aims to retain the vitality of town centres by stimulating occupancy levels for uses that provide services and encourage footfall. Community Infrastructure Levy (Amendment) Regulations 2014 On the 24th February, the latest set of amendments to the Community Infrastructure Levy Regulations came into force. The changes reflect those set out in draft legislation laid before Parliament on 9 December. Changes include the ability for the LPA to set different rates for developments of different scales. The rules on payment in kind are relaxed, as is the vacancy test, and there are wider provisions for phased developments. Also introduced is an entitlement to credit where buildings are demolished and in certain cases where a development is revised. Additionally, the restriction on the pooling of planning obligations has been pushed back to April 2015.
Applications
In February the City of London Corporation resolved to grant planning permission to Henderson Global Investors’ proposal for a 170m office tower at 40 Leadenhall Street (the Leadenhall Triangle site). The building ranges from 7 and 34 storeys, reaching a maximum height of 170m AOD. It includes 890,000 sq ft of office floorspace and 20,000 sq ft of retail space at ground floor level. The scheme has been dubbed ‘Gotham City’.
In March Southwark Council’s planning committee resolved to grant planning permission to Londonewcastle and investor The Third Quarter for a residential-led mixed-use scheme at 19 Queen Elizabeth Street in London’s SE1. Under the plans the existing four storey building will be extended and refurbished to provide nine warehouse style flats as well as 1,397 square metres of office space spread across two floors. The building, which was built in 1903, is located at Butler’s Wharf on the south bank of the River Thames.
The London Borough of Tower Hamlets’ strategic development committee resolved to grant planning permission in March to Canary Wharf Group’s 58-storey Newfoundland scheme in London’s E14. The scheme at Westferry Road will comprise a 226 metre tower and a linked two storey building to comprise 568 new homes as well as 1,412 square metres of commercial space and internal and external amenity space. Off-site affordable housing will be provided across three donor sites at Burdett Road, Barchester Street and Lovegrove Walk
To discuss how these changes may affect your development, contact Guy Bransby on 0207 399 5409 or Jeff Field on 020 7852 4742.
Contacts
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The Central London Market – Q1 2014
On Point reports from JLL include quarterly and annual highlights of real estate activity, performance and
specialised surveys and forecasts that uncover emerging trends.
jll.co.uk LEASING Neil Prime
Director
Head of UK Office Agency +44 (0)20 7399 5190 neil.prime@eu.jll.com
Adrian Crooks
Director
West End Agency & Development +44 (0)20 7399 5135 adrian.crooks@eu.jll.com Dan Burn Director City Agency +44 (0)20 7399 5966 dan.burn@eu.jll.com CAPITAL MARKETS Damian Corbett Director
Head of London Capital Markets +44 (0)20 7399 5286
damian.corbett@eu.jll.com
Julian Sandbach
Director
West End Investment +44 (0)20 7399 5973 julian.sandbach@eu.jll.com Chris Northam Director City Investment +44 (0)20 7399 5826 chris.northam@eu.jll.com RESEARCH Jon Neale Head of UK Research UK Research +44 (0)20 7852 4685 jon.neale@eu.jll.com Ben Burston
Head of UK Office Research UK Research
+44 (0)20 7399 5289 ben.burston@eu.jll.com
Alex Hodge
Business Development Manager UK Marketing
+44 (0)20 7399 5735 alex.hodge@eu.jll.com
