Lambert Smith Hampton - General - West End Office Market
Date: 01 Oct 2001
Office take-up has been marginally lower in July/August. The slowdown in the IT and telecommunications sectors is impacting on demand from these occupiers, but the rest of the market remains healthy.
Availability has continued to increase over the past two months, although supply of Grade A accommodation remains low.
1. Lettings
Take-up was marginally lower in July/August at approximately 54,000 sq m. The fall in take-up has been particularly noticeable for Grade A space. The recent figures mean that a total of 273,200 sq m has been let in the West End in the first eight months of this year. Of this total 47% comprised Grade A and B space.
Despite the slowdown in demand from the technology and telecommunications sectors, the West End market remains relatively buoyant. Recent transactions include the 1,040 sq m letting of 6 Agar Street, WC2 to Sungard Treasury Systems. Treasury will pay £619 per sq m (£57.50 per sq ft) for the space. Chester House and Eccleston Place comprising a total of approximately 3,900 sq m in Victoria, SW1 have been let to Transport For London. A joint venture subsidiary of Ericsson has taken a significant part of the 6,040 sq m building at 105 Wigmore Street, W1 at a rent of £726.57 per sq m (£67.50 per sq ft).
Several buildings are also under offer. 372 sq m has gone under offer at Cleveland House, St James's Square, SW1 at a rent of over £969 per sq m (£90 per sq ft). At 16 St James's Square, SW1, Boeing is reportedly taking 650 sq m of space for its UK head office. The company is to pay over £861 per sq m (£80 per sq ft). Brambles, the Australian mining company is reportedly interested in taking space at Cassini House, St James's Street, SW1 at a rent of £915 per sq m (£85 per sq ft), whilst Conoco is thought to be close to taking 4,645 sq m at a rent exceeding £645 per sq m (£62.50 per sq ft).
Prime rental values in Mayfair/St James's have remained unchanged. Average rents as measured by IPD still show strong rental growth, although the pace has continued to slow down. The IPD monthly index shows a further decline in rental growth to around 14% in the year to the end of July.
2. Demand
The slowdown in the IT and telecommunications sectors is impacting on demand with some companies scaling down their requirements or disposing of space. For example, IT consultant, Cap Gemini, is reportedly reducing the amount of space it currently occupies. The company is believed to be looking to vacate one of three buildings it occupies in London - two of which are in the West End.
Demand from the more traditional occupiers remains healthy, with a number of companies having satisfied their space requirements recently. The oil company Trafigura is reported to be taking 2,785 sq m at Portman House, W1, whilst HSBC has taken space at 74 St James's Street, SW1.
Other occupiers seeking new accommodation in the West End include the Canadian High Commission. The occupier is said to be looking to take 6,030 sq m.
3. Investment
Investment activity has eased in recent months, although overseas and private investors are supporting the market. Investors are increasingly seeking active management opportunities in light of lower growth expectations.
Overseas activity has been dominated by private equity, fuelled by the availability of relatively cheap debt. Irish investors are particularly active although the majority are high net worth individuals. Middle Eastern purchasers are also active in the market, although they tend to focus on the higher-profile investments.
Key transactions recently have included Craven House, 25-32 Marshall Street, W1. The building (1,867 sq m) has been bought by Britannic Asset Management Ltd from Henderson Global Investors for £11m at a yield of 6.7%. Broadwick House, 15-17 Broadwick Street, W1 has been bought by Strategic Real Estate Advisors Ltd from Derwent Valley Holdings plc for £31.85m at a yield of 5%. 31 Old Burlington Street, W1 (1,300 sq m) has been bought a private investor from the Royal Pension Fund for Nurses for £7.9m at a yield of 6.4%. Compco is reportedly selling its long leasehold interest on Seymour Mews House, Seymour Mews, W1 for around £12m.
4. Availability
Availability has increased over the past two months to 502,370 sq m - representing a vacancy rate of 8.1%. The rise reflects the lower level of take-up as well as the new supply of premises. The amount of space ready for occupation has increased in all categories, although to a lesser extent in the Grade A category.
5. New Supply
New supply declined marginally in July/August. The fall has been most marked for Grade A space. Grade A and B accommodation placed on the market accounted for less than 40% of the total in July/August.
Buildings put on the market recently have included CNN House, 19-22 Rathbone Place, W1. Kinnaird House, Pall Mall East has also been placed on the market following McKinsey & Co's decision not to occupy the second to sixth floors. The company was to occupy approximately 4,643 sq m and is now looking to sub-let this space.
Among buildings to come on the market over the next few months is 1-3 Grosvenor Square, W1. Currently occupied by the Canadian High Commission, the building will become available when the High Commission relocates and should provide the market with one of the best redevelopment opportunities.
6. Planning Activity
The planning pipeline shows a number of high profile schemes. The comprehensive redevelopment of Victoria, SW1 has been bolstered by Westminster council's decision to give Land Securities the go ahead for the second phase of Stag Place. The proposal includes the demolition of Esso House, Glen House and 16 Palace Street, which will be replaced by 68,200 sq m of offices and 15,497 sq m of retail.
The BBC is also reported to be planning the refurbishment of Broadcasting House, Langham Place, W1. The 46,451 sq m building would increase the useable floorspace by 6,967 sq m to about 50,167 sq m.
Benchmark is planning to redevelop the southern side of Golden Square, W1. The scheme comprises 3,890 sq m of offices, 1,394 sq m of retail and 534 sq m of residential space. Legal & General is considering redeveloping St Giles Court on St Giles Circus near Tottenham Court Road. The Ministry of Defence currently occupies the 18,850 sq m building.
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