South Bank office news 27th May 2014

London’s South Bank office market outperformed the West End for the first time in 2013 according to research by IPD and Union Street Partners shows that South Bank offices showed an 18.6% total return year on year in 2013.

The London South Bank Investment Market Report 2013, measuring 39 properties worth approximately £1bn, showed the South Bank outperforming overall Central London offices (15.8% return), West End (16.3%) and the City of London (15.8%).

After South Bank the next best performing London market was Midtown, which achieved a 16.7% return in 2013. Comprising core office locations such as Southwark and Waterloo, with a periphery including Kennington, Bermondsey, Battersea and Nine Elms, the South Bank market was set alight by several new office developments which consistently achieved rents of more than £50 per sq ft.

IPD reported that infrastructure improvements at Southwark, Bermondsey and London Bridge had created a `build it and they will come’ reaction, with developers now understanding that they could make stronger returns in the South Bank than some more established markets. This had led to new developments being leased at very strong rents. In addition, global attention paid to the opening of The Shard at London Bridge, and News UK’s planned relocation to 428,000 sq ft of offices at The Place at London Bridge Quarter, also strengthened perceptions of the South Bank.

Phil Tily, Executive Director and Head of UK & Ireland, IPD, said: “South Bank has traditionally tracked or under-performed versus the overall central London figure, so this is a significant moment for the market. By out-performing West End, South Bank has firmly established itself as a growth area of the market which has strong appeal to investors.”

Alastair Hilton, Head of Investment, Union Street Partners, said: “South Bank still offers lower costs options for occupiers to take office space, but the rental profile is changing; two years ago, average prime rents per sq ft were in the late £30s or early £40s, now they have exceeded £50. “Rents at these levels are a game-changer as they support full-scale redevelopment, as opposed to the refurbishments for which South Bank was previously known.”

Mark Fisher, Head of Investment at Union Street Partners, added: “It is important to note the opportunities for investors to extend beyond the river frontage. Investment and leasing activity has traditionally been concentrated around London Bridge and Bankside, where the bulk of South Bank’s office stock is located, but the significant schemes at Waterloo and Elephant and Castle, as well as Nine Elms, will have a transformative effect. We believe they will be re-defined in the coming years, with less of an imbalance and weighting towards the river front.”

Capital growth outpaced income return as the main component of South Bank total returns, with the Southwark and Waterloo submarket producing an impressive total return of 19.1% year-on-year. The amount of office space let across the South Bank in 2013 was the highest for seven years, with take up reaching almost 1.7m sq ft, more than double the corresponding figures for the previous two years. Investment transactions surpassed the previous year by 50%, making 2013 the strongest year of Annual Investment turnover on record.