Central London office news 31st December 2012

The Central London office market proved resilient in 2012 with take-up coming in at 7.3m sq ft, just below the 7.8m sq ft seen in 2011. According to predictions for the year from Cushman & Wakefield, the emergence of the Media & Tech and also insurance sectors have been the key drivers of demand.

It writes that the continued growth of these sectors combined with a peak in lease expiry events in 2015, will result in a healthier leasing market over the next 12 months as occupiers are forced to consider their office space options. Within the subsectors, the West End is expected to see a drop in take up of space of 25% for the year compared to 2011 with overall take up levels reaching just 2.5m sq ft.

In the City & Docklands however, take up of space will be 4.8m sq ft around 10% up on 2011 levels which benefitted from a welcome upturn in activity from the insurance sector. During the year to date, take up of office space in the West End has been dominated by the Media & Tech sector which accounted for 30% of all leasing activity of office space. Notably, the West End saw a surge in pre-letting activity with a total of 11 pre-let transactions taking place in West End compared with the 10 year average of just threee pre-lets. Cushman said the surge illustrates the acute lack of Grade A stock, and very low availability of prime Grade A space with vacancy rates at just 2.4%.

The report suggests that the scarcity of development opportunities in the West End will see Grade A vacancy rates come under further downward pressure and are likely to dip below 2.0% in 2013. Guy Taylor, Head of West End office Agency at Cushman & Wakefield, said: “We are seeing a migration eastwards from some occupiers not only because rents in traditional locations such as Soho and Covent Garden are too high, but also because these new locations attract like minded sectors who like working near to each other but also because a high proportion of the staff live there too.”

In the City, take up from the insurance sector has doubled to 18% from 2011 levels with a significant proportion of transactions being pre-lets. Cushman said 740,000 sq ft has been leased to the insurance sector in 2012, with a further 300,000 sq ft under offer. This includes a total of circa 260,000 sq ft pre-let at 20 Fenchurch Street, EC3, with a further 118,000 sq ft currently under offer; 83,000 sq ft pre-let to Miller Insurance at 70 Mark Lane, EC3; 288,000 sq ft let to JLT at the St Botolphs Building; and 112,000 sq ft under offer to Amlin at the Leadenhall Building, 122 Leadenhall Street, EC3. Banking & Financial services accounted for 23% a similar level to 2011.

However the largest banking & financial transaction (excluding regulatory bodies P.R.A &F.O.S) was Nationwide Building Society which leased 49,000 sq ft at 1 Threadneedle Street. Grade A vacancy rates in the City are currently 4.4% and this is expected to move out towards 5.0% in 2013 with the completion in 2013 of 2.5 million sq ft of Grade A stock. According to Cushman & Wakefield, the amount of office space actively being sought by companies across Central London (active demand) has increased during 2012 and now totals almost of 8.7m sq ft compared to 7.5m sq ft at the start of the year.

The media & technology sector accounts for nearly 35% of active demand in Central London with the largest requirements being Google, Omnicom, Financial Times, and Ogilvy. Companies in this sector are relatively footloose, and are increasingly open to considering their property options right across Central London.

The financial sector accounts for 19% of active demand, with the majority of identified requirements being in units of below 50,000 sq ft. Demand from banks has fallen sharply, as the sector bears the brunt of the economic downturn and they account for just 2% of active enquiries across Central London. Andrew Parker, Head of City Agency at Cushman & Wakefield, said: “The media & tech sector will continue to exert an influence on the market and will increasingly fill the vacuum caused by the financial crisis.

The attractions of vibrant locations for young creative talent added to a lower cost base is causing traditional West End media & tech companies to broaden their horizons and review the suitability of locations such as Shoreditch, Clerkenwell, Kings Cross and other northern City fringe locations as potential long term homes.” Cushman & Wakefield highlights the high level of lease expiries due in 2015 as another key factor that will drive occupiers to review their office requirements.

The agent said: “This will potentially result in stronger levels of leasing activity in 2013 and continued pre-letting activity as occupiers act quickly to secure the best space available. Not all these lease events will result in relocation and we will continue to see occupiers regear, eg Old Mutual at 1 High Timber Street and Warner Brothers at 98 Theobalds Road.”