London midtown office news 21st October 2013

Fierce competition for prime space in Midtown is driving up rents at newly refurbished buildings. Central London agency specialist Farebrother reports that despite a paucity of prime stock in Midtown, leasing activity remained strong in the third quarter of 2013 with a total of 86 deals completing versus 75 in Q2.

Although overall take-up was down compared to the second quarter, owing to the large prelets agreed in that period by Bird & Bird and Publicis, the Q3 total (446,692 sq ft) was close to the five year average (468,000 sq ft).

A large proportion of activity, 170,621 sq ft, involved newly refurbished stock as landlords sought to capitalise on strong occupier demand and Midtown’s small development pipeline, writes Farebrother.

These deals included the largest single transaction of the quarter, which saw Sport England take just over 78,000 sq ft at 21 Bloomsbury Square, WC1, and an"eye-catching deal" which saw law firm Davenport Lyons relocate from Mayfair to 6 Agar Street (WC2), paying a reported £62 per sq ft.

Midtown’s occupier profile continues to evolve too Farebrother reports, with "diversity of take-up increasingly the norm quarter-on-quarter".

The third quarter saw a significant proportion of deals (13%) involving the Banking & Finance sector, which is indicative of a longer term trend it adds.

The Design, Media and Technology sector continues to be one of the main drivers of leasing activity, albeit only accounting for 14% of take-up in the third quarter. 41% of take-up over the past three years has been by these occupiers.

The market continues to be characterised by a shortage of supply, however.

Availability edged down to 4.7% in the three months to September despite completions totalling 195,000 sq ft, including the 118,000 sq ft Africa House (64 – 78 Kingsway, WC2). With 1.12m sq ft of speculative development underway, the squeeze on supply could ease by Q1 2015.

The acquisition of Shell Mex House for £610m by the Conley Family was the standout investment transaction in what was an exceptional quarter for Midtown, with turnover reaching £937m in the 3rd Quarter.

This follows a strong second quarter, where investment totalled £981m, meaning 2013 is on course to achieve similar levels of investment turnover to those seen in 2012.

Julian Hind, head of leasing, Sales & Development at Farebrother, said: "In years gone by £60 per sq ft represented the top of the market in Midtown, it is now becoming the norm. A shortage of supply, coupled with a strong demand across a breadth of sectors has created a perfect storm and the time is now for landlords to capitalise. We expect to see rental growth slow at the top-end of the market, we are seeing huge growth potential at the second tier, particularly where landlords are refurbishing and repositioning space.

"Well-configured, well-located space will always let, but improving the occupier’s experience and environment is absolutely critical, and we are seeing landlords starting to reap the benefits of that.

"Aldwych House, which we think will see strong demand in Q4, is a classic example, with a successful refurbishment elevating rents from the mid-forties, to £65 per sq ft."