TMT's driving up office rents 19th October 2015

Technology, media and telecommunications (TMT) firms are driving up rents in Edinburgh and London, reflecting trends seen across global cities, reports Knight Frank.

According to KF's Global Cities: The 2016 Report, there has been a steady rise in rent for cities around the world that are now home to an increasing number of digital, creative and technology companies.

It found that these firms were boosting rental prices higher across London, particularly in areas where they have created hubs – such as Noho (North of Soho), Shoreditch and Southbank.

Meanwhile high profile deals in Edinburgh, such as FanDuel moving its HQ to Quartermile in the capital’s biggest pre-letting for a decade, have seen the TMT sector account for a significant proportion of the city’s total office occupier deals in 2015.

Analysis from Knight Frank from 2014 found that the TMT sector accounted for 34% of total take-up in Edinburgh last year, or 251,500 sq. ft.; higher than the city’s financial services sector. This year, TMT take-up has risen progressively with 39,457 sq ft let during Q1 and 41,534 sq ft in Q2. This more than doubled to 85,637 sq ft in Q3, taking the total to 166,628 sq ft for the first nine months of 2015.

Edinburgh city centre has been the principal beneficiary of the rise in TMT take-up. As a result, rents in city centre are showing strong signs of growth and could rise beyond £30 per sq ft for prime stock by the end of 2015.

Toby Withall, Office Agency Partner at Knight Frank, said: “TMT companies have performed strongly over the past two years, and now make up a substantial portion of the commercial property landscape in Edinburgh. Significant deals from the likes of FanDuel show that the sector is riding high and performing exceptionally well – mirroring some of the activity we have seen in London.

“Take-up in Edinburgh has been strong so far this year, with TMT companies accounting for nearly one fifth of the total in the first half of 2015. With a number of deals on the horizon, we only see that rising and this year’s figure could surpass 2014’s performance and register its best ever year.

“Access to transport links, Edinburgh’s strong academic institutions and a formidable skills base are just some of the reasons why it stands out as a prime location for up-and-coming tech firms. The younger workforce, which the TMT sector tends to attract, also has a need for a different mix of amenities and less corporate-focussed micro locations in the city. That could boost take-up from a variety of new businesses looking to provide services to this market.

“What’s particularly encouraging is that steep growth for the TMT sector is likely to have a knock-on effect for the property market, creating fresh demand in the city. Traditionally, other sectors that underpin the Edinburgh market tend to move around to offices of a similar size to their existing premises.”

The positive tenant story in Edinburgh was mirrored in London, with the Global Cities report finding Shoreditch witnessed a 26.3% growth and Southbank 19.8 per cent for the same period. In contrast, expensive but popular hubs like Mayfair only grew by 7% while the City Core saw only 2.4% growth.

It is clear that demand for office space in London remains high, and since 2000, the city has created more than 70m sq ft of new space in response to this demand, which is more than the total office stock in Singapore. But the fact remains that London’s vacancy rate is at a 14 year low and falling. This has partly resulted in London, alongside San Francisco, witnessing the fastest rental growth for high-rise offices, according to the Knight Frank Skyscraper index.

Philip Hobley, Head of West End Leasing at Knight Frank, said: “Noho has seen its rents increase by an impressive 35 per cent since Q3 2007. This is due to the continued interest from tech and creative firms such as Facebook and Estée Lauder who have been attracted to the area for its central location, dynamic street culture, strong connectivity network, all of which will be enhanced by Crossrail, and the scale and calibre of developments."

“Taking into consideration the constrained development pipeline for Central London, the Crossrail stations with over-site development and their surrounding schemes, as well as the continued demand from occupiers to house their increased headcount, we expect the area’s positive performance to continue.”

Global Cities : The 2016 Report also indicates a potential boost to office rents at properties near Crossrail stations in 2017 just before completion and in 2019 immediately following. Interchange property hotspots will also be created across the city where Crossrail 1 intersects with Thameslink rail at Farringdon, and where Crossrail 2 would meet Crossrail 1 at Tottenham Court Road and then Thameslink at St Pancras.

The report highlights investment opportunities in the capital, away from the CBD where the property market is less saturated. For example the report cites that Heathrow has more office stock in the surrounding area than there is in the CBD of Birmingham.