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Central london offiCes q4

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					January 2011 | Central london offiCes Q4




RESEARCH & FORECASTING uk

Central london offiCes q4




   CENTRAl lONdON
                                 Central London Highlights
   AbSORpTION
                                 •	 net       stock absorption of office space across Central london continued its positive trend
   AvAIlAbIlITy                           in q4 2010 by surpassing 1 million sq ft for the third half year period in succession.
                                          although the increase in the rate of occupation has slowed, demand continues to drive
   TAkE-up
                                          positive absorption, particularly in the West end.
   RENTS                         •	 the       Central london office market saw annual take-up rise by 40% during 2010 as total
                                          transaction levels reached 13.4 million sq ft compared to 9.6 million sq ft in 2009. quarterly
   CITy                                   take-up surpassed 3 million sq ft for the fifth successive quarter. take-up of second-hand
                                          space rose for the second quarter in succession and stood at its highest quarterly total
   AbSORpTION                             since q3 2000.
   AvAIlAbIlITy                  •	 Central       london availability fell by over 3% in q4 2010 and has fallen by 12% year on year
                                          (see Figure 1). availability of new and refurbished accommodation stands at 8.5 million sq ft
   TAkE-up
                                          – down by 27% over the past year.
   RENTS                         •	 While       vacancy rates continue to fall, we anticipate a slowing of take-up for existing space
                                          during 2011 as top quality offering diminishes further. We expect a number of large pre-letting
                                          agreements over the next 12 months as major occupiers with outstanding requirements look
   WEST ENd
                                          to secure space at pending developments in core locations.
   AbSORpTION                    •	 Competition         for top quality product in prime locations will remain strong throughout 2011.
   AvAIlAbIlITy                           Prime rents in the West end and City will see further uplift with growth rates only constrained
                                          by a likely shortage of product during the second half of the year. the average Central london
   TAkE-up                                figure stands at £45.42 psf, rising for the sixth quarter in a row.
   RENTS



                                 figure 1: Central london availability
                                                                                                            New or Refurbished                      Second-hand
                                                 28.0

“during 2011, we expect a                        24.0

 further increase of 10-15%                                                                                                                     10 year quarterly average
                                                 20.0
 for headline rents and, as
                               sq ft (million)




 quality product reduces,
                                                 16.0


 we would anticipate                             12.0


 healthy uplift for a- and                        8.0

 b+ quality space.”                               4.0


                                                  0.0
                                                    00 Q4




                                                                            02 Q2

                                                                                    02 Q4




                                                                                                            04 Q2

                                                                                                                    04 Q4




                                                                                                                                            06 Q2

                                                                                                                                                     06 Q4




                                                                                                                                                                             08 Q2

                                                                                                                                                                                     08 Q4
                                                                                                                            05 Q2

                                                                                                                                    05 Q4




                                                                                                                                                                                             09 Q2

                                                                                                                                                                                                     09 Q4
                                                                                            03 Q2

                                                                                                    03 Q4




                                                                                                                                                             07 Q2

                                                                                                                                                                     07 Q4
                                                            01 Q2

                                                                    01 Q4




                                                                                                                                                                                                             10 Q2

                                                                                                                                                                                                                     10 Q4




                                source: Colliers international, focus



www.colliers.com/uk
Central london offiCes Q4 | January 2011



City
•	 H22010 saw net stock absorption in the
                                                    figure 2: City net stoCk absorPtion
 City exceed 1 million sq ft for the third
                                                                            2.0
 consecutive half year period (see Figure 2).
 despite 30% (1.2 million sq ft) of half year
 take-up being for future development space,                                1.5

 occupancy in the City market increased by
 1.9 million sq ft over the course of 2010. since

                                                     sq ft (million)
                                                                            1.0
 H1 2008, City office stock has risen by just
 under 5 million sq ft. in conjunction, City                                0.5
 occupancy has risen by 3.6 million sq ft,
 showing that 73% of new stock has been
                                                                            0.0
 absorbed over the past two and a half years.
•	 totaltake-up in the City reached
                                                                           -0.5
 7.4 million sq ft in 2010, which constitutes a
 rise of 37% year on year. Major pre-letting
                                                                           -1.0
 deals to ubs at broadgate (725,000 sq ft)
                                                                                  2006 H2   2007 H1     2007 H2    2008 H1      2008 H2    2009 H1    2009 H2   2010 H1     2010 H2
 in q3 and bloomberg at legal & general’s
                                                    source: Colliers international
 Walbrook square scheme (500,000 sq ft) in
 q4 helped to boost the figure (see Figure 3).      figure 3: City take-uP by grade
 nevertheless, pre-letting activity accounted for                                                          Grade A      Grade B      Grade C       Pre-let
 19% of total annual take-up in 2010, compared
                                                                            2.5
 to 18% in 2009, suggesting a steady increase
 in line with improving demand. We anticipate
 pre-letting deals increasing their share of                                2.0
 take-up during 2011 as built options above
 200,000 sq ft evaporate.
•	 despitethe healthy demand for space during                               1.5
                                                         sq ft (million)




 2010, the sharp falls in vacancy seen at the
 start of 2010 were not sustained. although
                                                                            1.0
 the vacancy rate stands at its lowest level for
 two years (10.3%), it has fallen by only 0.3%
 in the past nine months. this suggests that
                                                                            0.5
 new space coming onto the market is not
 being absorbed as quickly as take-up statistics
 might imply. for availability of units over
                                                                            0.0
 5,000 sq ft, 54% are currently classified as                                       Q3 2009           Q4 2009         Q1 2010          Q2 2010           Q3 2010          Q4 2010
 grade a (see Figure 4). this percentage has        source: Colliers international
 actually risen half year on half year – up by
 3%. equally, the amount of grade a space in        figure 4: City PerCentage availability by grade
 units over 50,000 sq ft has risen by 30%                                                                         Grade A        Grade B       Grade C
 between June 2010 and January 2011.                                                                                    (Units over 5,000 sq ft)

•	 2010                                                                    100%
      saw 2.1 million sq ft of new developments
 complete in the City. 35% of that was let prior                           90%
 to completion. as at the end of q4 2010, of the                           80%
 remaining 1.2 million sq ft that completed
                                                                           70%
 speculatively, over 90% still remains available.
•	 However, competition for the best space in                              60%

 the City Core remains healthy. Headline rents                             50%
 saw growth of 28% year on year, rising from
                                                                           40%
 £45.00 psf in december 2009 to their current
 level of £57.50 psf. during 2011, we expect a                             30%

 further increase of 10-15% for headline rents                             20%
 and, as quality product reduces, we would
                                                                           10%
 anticipate healthy uplift for a- and b+ quality
 space as cost conscious occupiers are forced                               0%
                                                                                     H2 2008              H1 2009               H2 2009              H1 2010          H2 2010
 to look at alternatives to ‘tower space’.
                                                    source: Colliers international


p. 2       | COllIERS INTERNATIONAl
                                                                                                                  Central london offiCes Q4 | January 2011



West End
•	 occupationof office space continued to rise in
 the West end in the second half of 2010 (see           figure 5: West end net stoCk absorPtion
 Figure 5). net stock absorption increased by                            1.5
 437,000 sq ft, the highest half yearly total since
 H1 2008. While the West end market has yet to                           1.0
 fully absorb the glut of space vacated
 in H1 2009 (1.4 million sq ft), the market has
                                                                         0.5

                                                       sq ft (million)
 witnessed positive absorption of 808,000 sq ft
 over the past 18 months.
                                                                         0.0
•	 quarterly take-upin the West end continued to
 surge in q4 2010 reaching 1.2 million sq ft, the
 highest level since q3 2007. annual take-up                             -0.5
 was 4.3 million sq ft in 2010 – the highest
 annual figure since 2006. encouragingly,                                -1.0
 transaction levels remained broadly consistent
 throughout 2010.
                                                                         -1.5
•	 occupiers with a flexible relocation strategy                                2006 H2   2007 H1     2007 H2    2008 H1   2008 H2   2009 H1    2009 H2   2010 H1   2010 H2
 have shown strong interest in new development           source: Colliers international
 space coming to the market or second-hand
 grade a space being brought back to market.
                                                        figure 6: West end take-uP by grade
 a cluster of confirmed and potential deals at
                                                                                                                      Grade A   Grade B    Grade C
 legal & general’s Central st giles scheme,
 coupled with the likes of exane at one Hanover                          1.4

 street and la salle investment Management at
 1 Curzon street are prime examples. grade a                             1.2
 product in non-core locations and b+ quality
 space in prime submarkets performed well                                1.0
 throughout 2010 (see Figure 6) and we expect
 this trend to continue.
                                                       sq ft (million)




                                                                         0.8

•	 office vacancy continued to fall throughout
 2010 and ended the year at 8.2%, a two year                             0.6

 low. of greater significance is the accelerating
 reduction in grade a space. total grade a                               0.4
 availability in the West end has fallen by 20%
 (418,000 sq ft) in the past six months alone.                           0.2
 in addition, the geographical distribution of
 top quality space has changed significantly                             0.0
 over the past two years (see Figure 7). While                                        Q1 2010                   Q2 2010               Q3 2010                Q4 2010

 Mayfair retains a similar level of grade a              source: Colliers international

 product, non-core markets, such as Paddington,
 victoria and Covent garden, have experienced             figure 7: West end availability by subMarket
 significant increases in grade a supply through
                                                                                                                     Aug-09     Jan-11
 major speculative completions.                                          0.5
•	 suchdownward movements in grade a
 availability are likely to be further pronounced
                                                                         0.4
 by a shortfall of new supply during 2011.
 Just six schemes in excess of 10,000 sq ft are
 scheduled to complete in the West end over                              0.3
                                                      sq ft (million)




 the next 12 months, with the bulk of that in two
 developments at uk and european’s Crown
                                                                         0.2
 House (133,807 sq ft) and aub’s 7-15 baker
 street (55,000 sq ft).
                                                                         0.1
•	 Headlinerents have remained at £85.00 psf.
 We still predict headline uplift of circa
 9% during 2011, although top quality sub                                0.0
                                                                                Mayfair   Noho      Paddington Marylebone St James's Victoria   Covent    Euston       Soho
 5,000 sq ft units in core locations should                                                                                                     Garden
 continue to achieve in excess of this.                    source: Colliers international


                                                                                                                                                     COllIERS INTERNATIONAl |   p. 3
Central london offiCes Q4 | January 2011



Summary
                                                                                                                       480 offices in
•	 2010was a strong year statistically with take-up rising substantially year on year and demand                       61 countries on
 for quality product undimmed.
•	 the
                                                                                                                       6 continents
     grade a vacancy rate has declined year on year but we expect further erosion of
 grade b+ availability as 2011 develops.                                                                               united states: 95
                                                                                                                       Canada: 17
          locations with top quality offering should continue to attract occupiers as
•	 non-core
                                                                                                                       latin america: 17
 2011 progresses.                                                                                                      asia Pacific: 52
•	 2011
      will see a continued increase in pre-letting activity as large scale occupiers seek to                           eMea: 85
 guarantee future space amid a shortage of appropriate built stock.
                                                                                                                       lONdON – CITy
•	 furtherheadline rental uplift expected in 2011, with the best quality second-hand space seeing                      level 20, tower 42
 significant growth in top achievable rents.                                                                           25 old broad street
                                                                                                                       london eC2n 1Hq
                                                                                                                       +44 20 7935 4499

                                                                                                                       lONdON – WEST ENd
figure 8: Central london Market suMMary                                                                                9 Marylebone lane
                                                                                                                       london W1u 1Hl
                                            Take-up              Availability     vacancy   prime Rents prime yields
                                          (000s sq ft)          (000s sq ft)       Rate         £psf        %          +44 20 7935 4499

                                  q3 2010         q4 2010    q3 2010    q4 2010   q4 2010   q4 2010      q4 2010       RESEARCH & FORECASTING
                                                                                                                       guy grantham
 West end                                                                                                              guy.grantham@colliers.com
               new / refurb             485          418      2,780       2,462
                                                                                                                       CITy AGENCy
                second-hand             531         777       4,312       4,157                                        Julie rees
                        total           1,016      1,195      7,092       6,619    8.2%      £85.00        4.00        julie.rees@colliers.com
 belgravia / knightsbridge               51          55        386         355     9.7%      £50.00        5.00        Mark Mcalister
 Covent garden / strand                  88         299        972        1,028    10.7%     £45.00        5.50        mark.mcalister@colliers.com
 euston                                 194         109        571         462     6.1%      £42.50        6.25        WEST ENd AGENCy
 Marylebone                              119         58        482         543     9.0%      £55.00        5.50        Mike Mackeith
                                                                                                                       mike.mackeith@colliers.com
 Mayfair                                175         232       1,039       1,027    8.8%      £85.00        4.00
                                                                                                                       robert few
 noho                                   102          85        704         696     8.7%      £45.00        5.50
                                                                                                                       robert.few@colliers.com
 Paddington                              26          70        415         440     16.2%     £47.50        5.75
                                                                                                                       INvESTmENT
 soho                                    73          33        259         297     6.2%      £45.00        5.50
                                                                                                                       andrew Whitaker
 st James’s                              35          63        528         517     10.7%     £65.00        4.50        andrew.whitaker@colliers.com
 victoria                                77          135       909         867     6.7%      £52.50        5.75        nick Pemberton
 City                                                                                                                  nick.pemberton@colliers.com
 new / refurb                           1,503       1,154     5,369       5,071
 second-hand                            718         637       4,546       4,817
                        total       2,221           1,791     9,915       9,888   10.3%      £55.00        5.25
 City Core                              1,651       1,220     6,064       5,830    9.3%      £57.50        5.25        disclaimer: this report gives information based primarily
                                                                                                                       on published data which may be helpful in anticipating
 City Midtown                           124         140        529         522     6.7%      £52.50        5.25        trends in the property sector. However, no warranty is
 eastern City                            88          74        992         963     13.8%     £22.50        6.00        given as to the accuracy of, and no liability for negligence
                                                                                                                       is accepted in relation to the forecasts, ures or
 northern City                          358         357       2,330       2,573    13.5%     £27.50        6.00        conclusions contained in it and they must not be relied on
                                                                                                                       for investment purposes. this report does not constitute
 doCKlands                                                                                                             and must not be treated as investment advice or an offer
                                                                                                                       to buy or sell property. January 2011                  11010
 new / refurb                            5               4     185         171
                                                                                                                       Colliers international is the licensed trading name of
 second-hand                             67          23        397         455                                         Colliers international uk plc. Company registered in
                                                                                                                       england & Wales no. 4195561.
                        total            72          27        582         626    14.9%      £25.00        6.25
                                                                                                                       registered office: 9 Marylebone lane, london W1u 1Hl.
 Canary WHarf
 new / refurb                            26          129       675         576
 second-hand                              -          165       426         371
                        total            26         294       1,101        947     6.4%      £35.00        5.50
 soutHBanK
 new / refurb                            45          16        287         228
 second-hand                             79          118       750         715
                        total           124         134       1,037        943     5.0%      £40.00        5.50
                                                                                                                                          accelerating success.
source: Colliers international, focus




www.colliers.com/uk

				
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