The
London Southbank
Office Market Q4 2011
B a n k s i d e
B o r o u g h
E l e p h a n t & C a s t l e
L o n d o n B r i d g e
S o u t h w a r k
W a t e r l o o
Introduction 3
Commentary 4
Take-up 6
Selected office lettings 7
Availability 8
Future supply 9
Investment 10
Selected Investment transactions 10
Definitions
Southbank – SE1
Stock – office accommodation, excluding offices under construction Floorspace – net internal area, unless otherwise stated
Available – office space available for immediate occupation Availability rate – available offices as a proportion of total stock
Take-up – completed transactions where offices are let or sold to an occupier New – brand new buildings or buildings developed behind a retained façade Refurbished – buildings which have undergone a major refurbishment
Secondhand Grade A – previously occupied higher quality space with features
such air-conditioning or raised floors
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
Hidden supply – space which is not currently on the open market, but likely to
come available in the near future.
BURGESS PARK
Vauxhall
Introduction
Farebrother is an established Practice of property consultants and Chartered Surveyors. The Practice’s services include Corporate Real Estate, Leasing, Sales, Development, Management, Lease Advisory, Rating, Valuation and Investment advice. Farebrother’s core market is Central London, specialising in Southbank and Midtown office and retail markets.
Farebrother’s extensive Research, is aimed at providing a short, sharp insight into what is one of the most dynamic
commercial property markets in the World. This quarterly report reviews the overall performance of the leasing market and is published alongside Farebrother’s Investment Reports, produced in partnership with IPD, together providing a
Lowest availability rate in Central London
as market improves
Julian Hind
Commentary
The performance of the Southbank office market in 2011 was stronger than we expected, particularly the leasing market. Take-up increased by 33% on 2010 to
872,000 sq ft. Investment also increased in 2011 by 33% to £532m although at a level very much lower than in West End, Midtown and City markets.
The amount of offices available for immediate occupation at the end of 2011 was reduced by 19% to 790,000 sq ft, lowering the availability rate to 4.1%. It is the lowest rate in Central London, compared to 5.2% in Midtown, 7.3% in the West End and 12% in the City. Rent levels were maintained but rental growth was not apparent despite that low availability rate. Top rents for the best quality space, such as More London, are currently circa £45 psf. It will be interesting to see what premium is attached to The Shard in 2012 and the impact it has on rents in the vicinity of London Bridge Quarter.
The Southern ticket hall of Blackfriars station was opened during the 4th Quarter making Blackfriars the only station in London accessible from both sides of the River. Final completion is due in the Summer of 2012. The Southern entrance will have significant implications for the ‘Blackfriars Corridor’ with the potential for future development and investment activity in the surrounding area.
During the 4th Quarter 2011, there were a number of significant transactions in that Blackfriars Corridor, including the purchase of the One Blackfriars site by Berkeley Group from the Receiver, a key gateway site to the station’s new entrance. The agreement of heads of terms between publisher UBM and Great Ropemaker Partnership for a pre-let of circa 100,000 sq ft at 240 Blackfriars Road was also significant. Plans for a major mixed-use development of up to 1,000 flats and up to 500,000 sq ft of commercial space on the site of UBM’s current headquarters at Ludgate House and neighbouring Sampson House was announced by the Carlyle Group. Israeli developer, Circleplane, appointed agents to market 20 Blackfriars Road which has consent for two towers consisting of office and residential space. Planning Consent was secured for the redevelopment of Sea Containers House into
280,000 sq ft of New and Refurbished offices and a Mondrian Hotel after a management agreement was signed with its parent Morgans Hotel Group.
This circle of prospective regeneration schemes illustrates how the Southbank market will continue to perform; offices, residential, hotel, leisure, retail, cultural space and
accessibility provide a strong environment for economic and office market value growth.
Pre-let Projection Secondhand New/Refurbished 0 2,000,000 1,750,000 1,500,000 1,250,000 1,000,000 750,000 500,000 250,000 sq ft 2006 2007 2008 2009 2010 2011 2012
Figure 1: Annual Office Take-up 2006-2012
Source:Farebrother 0 200,000 400,000 600,000 800,000 1,000,000 1,200,000 1,400,000 sq ft 2007 2008 2009 2010 2011 2012
Secondhand Grade B Secondhand Grade A New & Refurbished Projection
Figure 2: Annual Office Availability 2007-2012
Source:Farebrother
The Southern ticket hall of Blackfriars station was opened during Q4 2011 and is now the only station in London accessible from both sides of the River.
Q4 2011 Overview
% change % change % change on Q3 11 on Q4 10 on 2010 total
Availability 790,000 sq ft -17% -19%
Availability Rate 4.1% -0.8% pt -0.9% pt
Availability - New & Refurbished 102,000 sq ft -8% +7%
Availability - Secondhand 688,000 sq ft -18% -22%
Speculative Construction 1,121,000 sq ft +4% +6%
Take-up(Quarter) 162,000 sq ft -56% +3%
Take-up(Annual) 872,000 sq ft +33%
Investment(Quarter) £94 million +37%
In 2011, Southbank take-up increased for the second successive year but at a much higher rate than in 2010. Take-up rose from 654,000 sq ft in 2010 to 872,000 sq ft by the end of 2011, an increase of 33%, 24% above the four-year average. Take-up of New and Refurbished space continued to decline, however, falling by 59% from
75,000 sq ft to 31,000 sq ft. This was due to the lack of choice following four years of very low amounts of
speculative construction. Secondhand take-up was strong, increasing by 45% from 579,000 sq ft to 841,000 sq ft, as occupiers sought a central location but at lower rents than North of the River.
The increase in take-up in 2011 was largely the result of exceptional take-up in the 3rd Quarter when there was a 50% rise in the number of transactions on the previous Quarter, four of which exceeded 20,000 sq ft. Take-up fell in the 4th Quarter by 56% to 162,000 sq ft, with take-up of New and Refurbished at 9,000 sq ft and Secondhand at 153,000 sq ft. Despite this significant Quarterly reduction, take-up in the 4th Quarter was only 7% lower than the four year average of 174,000 sq ft per quarter.
Southbank take-up has been driven by demand from both local occupiers and from occupiers coming into the market from the West End, Midtown and the City, attracted by the location, quality of space and cost. The largest letting of the 4th Quarter, for example, was to local occupier Ernst & Young which took the 2nd floor of 23,471 sq ft at 6 More London Place at a rent of £45 psf. This was in addition to the 35,000 sq ft they had already taken on the lower ground, ground and 1st floors in the 3rd Quarter 2011 and in total, was an 11% increase on the firm’s existing space at 1 More London Place and Becket House, 1 Lambeth Palace Road. The second largest transaction was to former Midtown occupier, The Carbon Trust, which took the refurbished 4th floor of 9,419 sq ft at Dorset House, 27-45 Stamford Street from Mapeley at a headline rent of £28.50 psf.
In 2012, we expect take-up from existing Southbank occupiers and new occupiers from other Central London markets to continue, boosted, however, by the first lettings at The Shard, London Bridge Quarter, which is currently scheduled to complete in the 2nd Quarter 2012. As a result, we project total take-up in 2012 to reach 800,000 sq ft, a 14% increase on the four-year average of 700,000 sq ft.
Take-up
Strong demand from across
Central London continues
0 100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 900,000 1,000,000 Q4 2005 2006Q1 2006Q2 2006Q3 2006Q4 2007Q1 2007Q2 2007Q3 2007Q4 2008Q1 2008Q2 2008Q3 2008Q4 2009Q1 2009Q2 sq ft New Pre-let Secondhand Grade B
Secondhand Grade A Refurbished
Q3
2009 2009Q4 2010Q1 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 2011Q3 2011Q4
Figure 3: Quarterly Office Take-up 2005-2011
Selected office lettings in Southbank
Occupier Address Grade Sq ft Rent
£psf
Ernst & Young LLP More London, 6 More London Place Secondhand Grade A 23,471 45.00
The Carbon Trust Dorset House, 27-45 Stamford Street Refurbished 9,419 28.50
Fleet Street Publications Limited Friars Bridge Court, 41-45 Blackfriars Road Secondhand Grade A 7,600 25.00
Home Fundraising Ltd Swan Court, 9 Tanner Street Secondhand Grade B 6,912 22.98
Quick Office India House, 45 Curlew Street Secondhand Grade A 6,327 26.00
Brand Addition Limited Salamanca Square, 9 Albert Embankment Secondhand Grade B 6,249 20.34
London Internet Exchange Limited 21 St Thomas Street Secondhand Grade A 4,932 24.25
Sunday Publishing Limited 207 Union Street Secondhand Grade B 4,773 28.28
Big Choice Group 127-129 Great Suffolk Street Secondhand Grade B 4,314 18.00
Ark Home Healthcare Ltd 22-28 Shand Street Secondhand Grade A 3,976 18.50
MSI Bickel’s Yard, 151-153 Bermondsey Street Secondhand Grade B 3,913 21.08
Eurostaff Group 135 Park Street Secondhand Grade B 3,604 16.50
SMI Group Ltd Harling House, 47-51 Great Suffolk Street Secondhand Grade B 3,585 22.51
Kempster Ltd 256-260 Waterloo Road Secondhand Grade B 3,240 19.00
Source:Farebrother
Ernst & Young’s acquisition of 23,471 sq ft on the 2nd floor at 6 More London Place was the largest transaction of Q4. The firm had already taken 35,000 sq ft on the lower ground, ground and 1st floors in the previous Quarter.
The second largest transaction of Q4 was to The Carbon Trust, which took 9,419 sq ft at Dorset House, 27-45 Stamford Street.
In 2011, office availability in Southbank declined significantly from 972,000 sq ft to 790,000 sq ft, a reduction of 19%. It was the first annual fall in supply since 2008, reducing the availability rate from 5% at the end of 2010 to just 4.1% at the end of 2011. The rate is the lowest in Central London and has contributed to rent levels being sustained. New and Refurbished availability increased marginally by 7% from 95,000 sq ft to 102,000 sq ft during 2011 as a result of modest take-up and new space coming on to the market. Secondhand space fell by 22% from 877,000 sq ft to 688,000 sq ft. Secondhand Grade B availability
increased by 39% from 318,000 sq ft to 442,000 sq ft, while Grade A space fell significantly by 56% from 559,000 to 246,000 sq ft.
The steep drop in availability in 2011 was in the second half of the year with a 17% reduction in both the 3rd and 4th Quarters. In the 4th Quarter, New and Refurbished supply fell by 9,000 sq ft to 102,000 sq ft. Secondhand supply fell by 18% from 839,000 to 688,000 sq ft but this was the result of a significant reduction to Secondhand Grade A stock which fell by 43% compared to Secondhand Grade B space which actually increased by 8%.
The steep fall in Secondhand Grade A supply in the 4th Quarter was mainly due to the withdrawal of space occupied by PricewaterhouseCoopers (PWC) at Hay’s Galleria. Space at Tea Auction House, Counter Street and Hay’s Lane House, Hay’s Lane, totalling 108,000 sq ft, was withdrawn after six months as PwC decided to renew its leases. PwC’s headquarters is located nearby at 7 More London Riverside.
Our projection for the end of 2012 is that Southbank’s office supply will rise significantly to 1.3 million sq ft, based on the completion of 667,000 sq ft during the year, 595,000 sq ft of which is located in The Shard.
Availability
Supply fell for the first time since 2008
0 200,000 400,000 600,000 800,000 1,000,000 1,200,000 Q2 2007 2007Q3 2007Q4 2008Q1 2008Q2 2008Q3 2008Q4 2009Q1 2009Q2 2009Q3 2009Q4 2010Q1 2010Q2 2010Q3 2010Q4 sq ft Q1 2011 2011Q2 2011Q3 2011Q4 New Secondhand Grade B
Secondhand Grade A Refurbished
Figure 4: Quarterly Office Availability 2007-2011
Source:Farebrother
Secondhand Grade A supply falls steeply in Q4 due to the withdrawal of space occupied by PricewaterhouseCoopers at Hay’s Galleria, London Bridge City.
The amount of stock under construction in Southbank remained stable during 2011 but continued to be
dominated by The Shard and The Place at London Bridge Quarter. By the end of the year, the scheme, which will add 1m sq ft to office supply by the 1st Quarter 2013,
accounted for 95% of all offices under construction on Southbank. Offices at The Shard will be located on 25 levels from the 4th to the 28th floors. On completion it will provide large floorplates ranging from 14,770 to 31,492 sq ft. There is little office construction activity elsewhere on Southbank to meet a greater range of occupier requirements. In the 4th Quarter, the amount of total construction
increased marginally by 4% to 1.1m sq ft due to the start of Dealfirst and Gemaco SA’s 21,000 sq ft new build at One Valentine Place. Unlike recent mixed-use schemes where offices have been ancillary to residential use, this will be a self-contained office building with a small A1 retail unit. The development, located on the site of a former petrol station on the West side of Blackfriars Road, is due for completion in the 4th Quarter 2012.
Stripping out of St Martins’ 330,000 sq ft refurbishment of 1 London Bridge and The Cottons Centre in London Bridge City also began in the 4th Quarter. Construction is expected to start in the 1st Quarter 2012 and scheduled to be completed by the 1st Quarter 2013. One Valentine Place and 50,000 sq ft at The Harlequin Building, 65 Southwark Street, are the only other large, stand-alone buildings that will be delivered in 2012 outside of London Bridge Quarter. As a result, occupiers will face a continued lack of choice on Southbank. The market needs to deliver good-sized units to meet current demand as interest from occupiers in other Central London markets is rising.
Future Supply
Only two self-contained schemes over
20,000 sq ft due to complete in 2012
outside London Bridge Quarter
Hidden Supply Delivered Space Scheduled Completions 0 800 700 600 500 400 300 200 100 000s sq ft Q4 2011 2012Q1 2012Q2 2012Q3 2012Q4 2013Q1
Figure 5: Future Supply in Southbank 2011-2013
Source:Farebrother
2012 take-up will be boosted by the first lettings at The Shard, London Bridge Quarter, currently scheduled to complete in Q2 2012.
In 2011, the value of Investment transactions in Southbank increased by 33%, from £401.2 million in 2010 to
£531.8 million. In the 4th Quarter, transactions rose by a significant 37% on the 3rd Quarter to £93.8 million. A year after it was placed into administration by The Royal Bank of Scotland, 1 Blackfriars Road was reported to have been acquired from the Receiver by Berkeley Group in the 4th Quarter for a price of £77.4 million. The site has an outstanding Planning Consent for a 52 storey mixed-use tower with 96 residential units and a 261 bedroom hotel.
Waterman Group, the owner-occupier of Pickford’s Wharf, Clink Street, undertook a sale-and-leaseback to GMS Estates for £11.9 million. The building is a substantial Victorian warehouse in a prominent location on the River between London Bridge and Southwark Bridge, previously redeveloped behind the retained façade in the 1980s. The occupier entered into a 15 year lease with a break at ten years. As well as 21,149 sq ft of offices, the sale included 2,827 sq ft retail, ground leases on eight apartments and the ground lease on The Old Thameside Inn. The overall rent equated to £28.45 psf on the office and retail space, with the best rent on the office space of £32.50 psf. This was GMS Estates’ second purchase in Southbank, having acquired 124-130 Southwark Street in 2010.
Looking forwards, we expect the opening of the Southern entrance to Blackfriars Station to attract Investor interest when looking at strategic reasons to invest on the Southbank.
Selected investment transactions on Southbank
Address Size Vendor Purchaser Reported
sq ft net Price £m
1 Blackfriars Road Cleared Site LPA Receiver Berkeley Group plc 77.4
Pickford’s Wharf, Clink Street 23,976 Waterman Group GMS Estates 11.9
88 Borough High Street 7,522 BW SIPP Trustees Cromdale Investments Ltd 1.825
1-2 Doyce Street 3,863 Private Investor Private Investor 1.1
Weller Street Lofts, 2,539 Toh Shimazaki Architects Ltd Waterfront Solicitors LLP 0.75
13-15 Weller Street (Unit 2) (Owner occupier)
1-5 Bear Lane (Unit 1) 2,857 Fontpress Ltd Private Investor 0.495
(999 year lease)
20-24 King’s Bench Street (pt 1st) 1,250 J Media UK Ltd Lyndon Scaffolding plc 0.366
(999 year lease)
Source:Farebrother
The value of Investments up 33% on 2010
Alastair Hilton
Investment
A significant transaction in Q4 was the sale-and-leaseback of Pickford’s Wharf, Clink Street, to GMS Estates for £11.9m.
Key Contacts
Julian Hind
Strategic Property Advice, Leasing, Sales & Development
+44 (0) 20 7855 3558 jhind@farebrother.net Andrew Glover Property Management +44 (0) 20 7855 3580 aglover@farebrother.net Alastair Hilton
Investment and Development +44 (0) 20 7855 3535 ahilton@farebrother.net
Malcolm Brackley
Lease Advisory and Valuation +44 (0) 20 7855 3566 mbrackley@farebrother.net Jeff Norris Business Rates +44 (0) 20 7855 3593 jnorris@farebrother.net Charlie Thompson
Office Leasing, Sales & Development +44 (0) 20 7855 3554
cthompson@farebrother.net
This research is available in .pdf format. Please email lcave@farebrother.net to receive a copy or visit farebrother.net/office_market.html for earlier editions.
This publication has been carefully prepared and it is intended for general guidance only. No responsibility is accepted by Farebrother 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. This research document is produced by Farebrother with the assistance of Chippendale Consulting & Research (CCR).
©2012 Farebrother. All rights reserved.
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