Willing...But Able? A 2015 Update
this 2015 update Newton Perkins partner, Jon Beilin, looks at the current City
office market and assesses whether occupiers can still negotiate great deals
(with Newton Perkins help!).
start by looking at what has been happening in the market.
saw the highest amount of take-up ever recorded! Total City take-up reached 8.2 million sq ft.
This is 16% up on 2013 and 78% up on take-up for 2012, underscoring a major
return in confidence amongst London occupiers in the light of an improved
TMT (Technology Media and Telecommunications) sector once again accounted for
an above average share of occupier activity with 23% of annual take-up. This compares with a long term average of
around 11%, although skewed by large lettings to Amazon (445,000 sq ft) and
Omnicom (374,000 sq ft). The 23% market
share taken by banking and finance was the highest since 2010 though still some
way short of the annual average of 30%.
The service sector accounted for 26% of take-up with legal firms
are therefore now seeing a notably more limited amount of current supply. Furthermore,
there is only 2.3 million sq ft due to be delivered in 2015 of which 52% is
already pre-let leaving just 1.1 million sq ft of speculative accommodation coming
on line. This will result in downward movement
in the City vacancy rate, while upward pressure on rents will continue. Forecasted prime rents for mid-2015 are
between £65.00-£68.50 per sq ft but we are seeing instances of rents in to the
£70.00 per sq ft bracket and indeed £80.00 per sq ft for top floors of the
market has clearly moved on. What does
this mean for occupiers?
occupier (i.e. with no existing premises to get rid of) can still expect “dealing”
rents a little lower than quoting levels with inducement packages offering around
1.5 months rent free for each year of occupation. Lease
flexibility to break after say 5 years is still available for smaller lettings
but in lettings of greater than 10,000 sq ft, landlords are increasingly
holding out for leases without break options.
City also continues to offer the lowest Central London outgoings as compared
with the West End and Mid-town equivalents.
However, one time “ugly sister” pitches such as
Old Street, Aldgate and the South Bank have largely transformed into vibrant mixed use
locations and no longer offer the opportunity for cheap rents. Indeed, the likes of Resolution’s Alpha Beta
scheme on Finsbury Square (marketed as “South Shoreditch”!) have achieved rents
in the mid-£60’s per sq ft to embarrass all but the most prime Central City
further notable trend amongst larger occupiers is a willingness to look at
pre-letting opportunities whereby they commit some 2-3 years ahead of a lease
change is a greater likelihood of landlords accepting surrenders which may assist occupiers in their moving aspirations. This would not have been considered by
landlords say 2 to 3 years ago when the re-letting scenario was fraught with too
much uncertainty and holding cost.
some occupiers have still to appreciate the change in market conditions
or simply leave it too late to start their re-location. For companies seeking less than 10,000 sq ft,
a 12 month head start is usually needed before a lease expiry or break option
in order for constructive discussion to take place with the landlord. Larger companies generally require a longer
lead-in time and we recommend planning up to 18 months ahead.
our advice to occupiers is still to take an active look at their lease, break
options and opportunities to move and/or restructure leases. They should seek to exploit the opportunities
presented by the current market… where they are willing and able to do so.”
more discussion please contact Jon Beilin or David Alcock.
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