London TMT office update 7th May 2014

Google continues to grab the headlines in 2014 with the acquisition of 165,000 sq ft at AXA’s 6 Pancras Square, boosting the success story of King’s Cross as a new business district in Central London. The story is further enhanced by Havas going under offer on 160,000 sq ft at 3 Pancras Square. King.com is also grabbing headlines in the press and is the talk of the real estate market by going under offer on 36,000 sq ft at Facebook’s Seven Dials warehouse, whilst retaining its presence in Central St Giles, taking its London portfolio to circa 60,000 sq ft.

Although there have been some rumblings in the press about UK companies succumbing to the tech bubble fears and a potential second dotcom bubble about to burst, most of the real estate market does not seem to be too concerned by this yet. The values of internet companies on both sides of the Atlantic fell in early April with billions being wiped off their stock market values.

However, it was still a ‘thumbs up’ for Facebook which recently reported a 72% increase in revenues. Perhaps with so many tech companies floating and the required abnormal growth expectations, a cold has been caught by some investors. From a property perspective, although we are seeing large TMT transactions continuing, our Q1 2014 figures revealed that the TMT sector’s share of the market in Central London has gone from 34% to 22%. This has been due to the resurgence of the banking and finance sector, now accounting for 20% of the market, which was helped by a 205,000 sq ft letting to EY at 25 Churchill Place.

Of particular interest at the moment, is the increase in rents in the popular TMT locations, such as Farringdon, Clerkenwell, Shoreditch and the Silicon Roundabout areas. The lack of supply for circa 2,000 to 5,000 sq ft floor plates has lead to a number of tech companies competing for the same space and pushing rents above quoting prices in some circumstances. There is therefore a growing concern within the market that some companies will be priced out of these preferred areas and that this will in turn push out the geographical boundaries. All this appears to be good news for landlords and developers going forwards. From a tenant’s perspective, a deal today is certainly going to be better than tomorrow.