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RESEARCH
AT A GLANCE
CENTRAL LONDON OFFICE MARKET
Q4 2012
REVIEW AND OUTLOOK
INVESTMENT
yy 2012 saw the TMT sector continue to grow across central
London, representing 26% of the market share, compared to 22%
in 2011. Leasing activity from the banking and finance sector
has continued to drop and now accounts for only 12% of the
market, a fall from 18% in 2011.
yy Continued growth in the tech and media sectors will drive rents
and take-up in emerging locations such as Clerkenwell,
Shoreditch and Southbank.
yy We expect to see few new schemes get started in the near term
which may lead to shortages of grade A space being delivered
in 2015.
yy Looking ahead, we expect 2013 to be another challenging year
for City core and Docklands, but many fringe markets (e.g. City
fringe, Southbank, King’s Cross and Hammersmith) will see
continued TMT demand and modest rental growth.
yy 2012 was another strong year for investment activity. London
continues to be perceived as a safe location and overseas investors
remained active, especially within the West End and the City.
yy Investment volumes across central London office market rose 33%
to £12.5bn during 2012. The West End saw the biggest increase,
rising 44% to £4bn, whilst City investment rose 17% to £6.4bn.
yy Overseas investors have continued to dominate purchasing
activity with 69% of transactions being undertaken by foreign
buyers during 2012. Overseas interest was led by investors from
North America and Asia Pacific which together accounted for
53% of all overseas purchases.
yy The amount of deals over £100m is a key drive behind the
high level of investment volumes in 2012. In 2011, there were
26 deals which were more than £100m, totalling £4.8bn. In 2012
the figures rose to 38 deals and £7.5bn.
Central London key indicators
Central London investment transactions
Take-up (m sq ft)
Supply (m sq ft)
Q4
2012
Q3
2012
Change
Q-on-Q
2.47
2.19
13% p
14.73 15.17
2011
Annual
change
9.03 10.02
-10% q
-3% q 14.73 15.11
-3% q
Vacancy rate (%)
6.6%
6.8% -20bp q
Investment volume (£b)
2.60
3.04
West End prime yields (%)
4.00
4.00
0bp u
City prime yields (%)
5.00
5.00
0bp u
2012
6.6%
-14% q 12.53
6.8% -20bp q
9.44
33% p
4.00
4.00
0bp u
5.00
5.00
0bp u
Source: BNP Paribas Real Estate
Note: From Q1 2012 NW1 is included with the West End submarket and N1 is included with the Midtown submarket.
2011 take-up
Property
Property
&&
construction
construction
3%3%
West End
Corporate
Corporate
3%3%
Association
Association
3%3%
TMT
TMT
22%
22%
Retail
Retail
4%4%
Public
Public
9%9%
Retail
Retail
4%4%
Property
Property
&&
Retail
4%4%
construction
construction Retail
7%7%
Public
Public
7%7%
Insurance
Banking
Banking
& & Insurance
10%
finance
finance
18%
18% 10%
Service
Service
10%
10%
Professional
Professional
services
services
17%
17%
Service
Service
12%
12%
City
Docklands
4
2
0
2007
2008
2009
2010
2011
2012
Source: Property Data
Serviced
Serviced
office
office
2%2%
TMT
TMT
26%
26%
Professional
Professional
services
services
14%
14%
Banking
Banking
&&
finance
finance
12%
12%
Key investment transactions, Q4 2012
Property
Sale price Yield Size
(£m)
(%) (sq ft)
260
7.5
292,000 Blackstone Real
Estate
Winchester House
EC2
245
5.5
310,000 China Investment
Corporation
78 St James’s Street
SW1
177
5.1
118,400 The State Oil Fund
of Azerbaijan
The Peak, 5 Wilton Road SW1 115
5.0
98,000
CONTACTS
Paul Henwood
Investment Agency
020 7338 4391
[email protected]
Purchaser
Adelphi, 1-11 John Adam
Street WC2
Source: Property Data
Dan Bayley
Letting and Sales
020 7338 4444
[email protected]
Midtown
6
2012 take-up
Corporate
Corporate
3%3%
Association
Association
3%3%
Retail
Retail
3%3%
Insurance
Insurance
10%
10%
£ billion
8
Shan Shan Qi
Research
020 7338 4397
[email protected]
Cityhold
WEST END
yy The final quarter saw take-up reach 0.7m sq ft – the same as
West End take-up
the level achieved in Q3, but the full year total of 2.9m sq ft
1.5
Quarterly take-up
was down 18% on 2011.
5 year average
yy Despite the drop in take-up, there has been an increase in
pre-letting during the course of 2012, with activity focusing
yy There was a lack of sizeable deals in 2012 partly due to
large occupiers being priced out to other locations as rents
1.0
Million sq ft
on schemes north of Oxford Street and in Victoria.
0.5
in the core remain high.
yy We have seen rental growth in some West End sub-markets
during Q4. Most significantly, prime rents in North of Oxford
0.0
Street West increased by 15% in Q4 as it becomes a viable
2008
2009
2010
2011
2012
Source: BNP Paribas Real Estate
alternative to Mayfair and St James’s for larger occupiers.
yy The trend of residential conversion will continue in the West
End which will lead to a lack of supply. This is also a factor in
West End identified take-up by sector
driving up rents.
Professional services 6%
yy 2013 is set to be a busy year for the West End development
market with circa 1.6m sq ft scheduled for delivery.
Public 4%
Service 21%
Insurance 7%
Corporate 9%
Market statistics (W1, W2, W8, SW1, SW3, SW7, NW1)
Demand & supply
Take-up
Availability
Vacancy
Sq ft
(000s)
Sq m
(000s)
Change
Q-on-Q
Change
Y-on-Y
706
66
0% u
-36% q
3,836
356
-1% q
0% u
-10bp q
0bp u
TMT 21%
Property &
construction 13%
% of stock
Vacancy rate
4.1%
Banking & finance 19%
Source: BNP Paribas Real Estate
Prime rents
£/sq ft
£/sq m
Mayfair/St James’s
100.00
1,076
0% u
0% u
Victoria
67.50
727
4% p
7% p
Soho
75.00
807
0% u
7% p
140
North of Oxford Street (East)
60.00
646
4% p
4% p
120
North of Oxford Street (West)
77.50
834
15% p
15% p
West End prime rents and vacancy rate
Prime rents
Vacancy rate
9
100
Source: BNP Paribas Real Estate
12
Major office lettings, Q4 2012
Property
Size
(sq ft)
Rent
(£/sq ft)
Tenant
82 Baker Street W1
62,986
Confidential
1a Wimpole Street W1
60,604
65.00 overall Coca-Cola
Publicis
95 Wigmore Street W1
40,003
77.50
Lane Clark &
Peacock LLP
50-52 George Street W1
32,200
Confidential
Colliers
International
10 Portman Square W1
25,000
90.00
Saudi Aramco
6
60
40
3
20
0
0
2007
2008
2009
CONTACTS
Justin James
Investment Agency
020 7338 4228
[email protected]
2011
2012
Source: BNP Paribas Real Estate
Source: BNP Paribas Real Estate
Nick Rock
Letting and Sales
020 7338 4485
[email protected]
2010
Colin Mumford
Lease Advisory
020 7338 4279
[email protected]
%
£/sq ft
80
CITY
yy The City market ended with a strong final quarter with a
City take-up
total of 1.45m transacted, bringing the full year take-up
3.0
level to 4.6m sq ft, an increase of 7% on 2011.
yy TMT and insurance occupiers have dominated demand in the
City market in 2012, with Q4 continuing to witness significant
sector again in 2013 but will not be as strong as 2012.
yy Financial sector demand remains weak and jobs continue
5 year average
2.0
Million sq ft
activity within the insurance sector. This will be an active
Quarterly take-up
2.5
to be lost – we are unlikely to see take-up improve in the
medium term.
1.5
1.0
0.5
yy Activity from the legal sector should pick up during the
0.0
course of 2013 as mergers between mid-tier firms are likely
2008
2009
2010
2011
to increase letting activity.
2012
Source: BNP Paribas Real Estate
yy We have started to see some surplus space being released
back to the market from larger financial institutions and
City identified take-up by sector
lawyers, which may cause availability to experience a short
term uplift.
Serviced office 2%
Corporate 2%
Property & construction 3%
yy Prime rents have not moved in the City core during the
Association 1%
Service 10%
Insurance 34%
course of 2012 but in City fringe rents have gone up due
to strong letting activity from the TMT sector. Core rental
values are likely to remain flat in 2013 and start to increase
in 2014.
Banking &
finance 11%
Market statistics (E1, EC1, EC2, EC3, EC4)
Sq ft
(000s)
Sq m
(000s)
Change
Q-on-Q
Change
Y-on-Y
Take-up
1,453
135
51% p
29% p
Availability
7,583
704
-5% q
-8% q
-50bp q
-70bp q
Demand & supply
Vacancy
TMT 16%
Professional services 21%
Source: BNP Paribas Real Estate
% of stock
Vacancy rate
8.5%
City prime rents and vacancy rate
Prime rents
£/sq ft
£/sq m
Non-towers
54.50
587
0% u
0% u
Towers
65.00
700
0% u
4% p
80
Prime rents
Vacancy rate
Source: BNP Paribas Real Estate
20
16
60
Property
Size (sq ft) Rent (£/sq ft) Tenant
The St Botolph Building
EC3
276,320
125 London Wall EC2
127,110
45.00
Nabarro LLP
70 Mark Lane EC3
84,000
55.00
Miller Insurance
Services
The Walbrook Building
EC4
45.00
40
%
£/sq ft
12
Major office lettings, Q4 2012
8
JLT Insurance
4
20
61,000
Circa 55.00
0
0
2007
2008
2009
Arthur J Gallagher
CONTACTS
Richard Garside
Investment Agency
020 7338 4034
[email protected]
2011
2012
Source: BNP Paribas Real Estate
Source: BNP Paribas Real Estate
Fred Hargreaves
Letting and Sales
020 7338 4430
[email protected]
2010
Colin Bell
Lease Advisory
020 7338 4098
[email protected]
MIDTOWN
DOCKLANDS
yy The fourth quarter has seen below average take-up in
yy Leasing activity totalled just 90,000 sq ft, down 50% on the
Midtown, with only 219,000 sq ft let. For the year as a
previous quarter. Annual take-up has decreased by 24% from
whole, 2012 saw take-up fall significantly to 1.05m sq ft,
0.67m sq ft in 2011 to 0.51m sq ft.
down 32% on 2011.
yy There has been a lack of occupier demand in the Docklands
yy The restricted development pipeline combined with low
office market over the last 12 months, particularly from the
vacancy rate of grade A space will support modest rental
financial sector.
growth over the next two years.
yy The largest available space is at 30 North Colonnade,
yy Two medium sized schemes have reached completion in Q4,
comprising 205,300 sq ft across eight floors. There remains
which are Hines’ 62,000 sq ft 280 High Holborn and Legal &
a large amount of grey space off market in Canary Wharf.
General’s 58,000 sq ft 6 Agar Street.
yy Prime rents in both Canary Wharf and the wider Docklands
yy Stanhope is to begin speculatively developing its 90,000 sq ft
remained unchanged in Q4 due to a lack of transactional
office refurbishment of One Mabledon Place at King’s Cross,
evidence. Going forward, we are unlikely to see any rental
with completion scheduled in 2014.
growth in Canary Wharf until 2015.
Market statistics (WC1, WC2, N1)
Market statistics (E14, E16)
Sq ft
(000s)
Demand & supply
Take-up
Availability
Vacancy
Sq m
(000s)
Change
Q-on-Q
Change
Y-on-Y
Demand & supply
219
20
-34% q
-41% q
Take-up
1,533
142
-6% q
4% p
-10bp q
80bp p
% of stock
Vacancy rate
Availability
Vacancy
5.8%
Prime rents
Sq ft
(000s)
Sq m
(000s)
Change
Q-on-Q
Change
Y-on-Y
88
8
-52% q
-65% q
1,775
165
7% p
5% p
60bp p
50bp p
% of stock
Vacancy rate
9.5%
£/sq ft
£/sq m
£/sq ft
£/sq m
Holborn
52.50
565
0% u
0% u
Prime rents
Canary Wharf
37.50
404
0% u
-6% q
Covent Garden
65.00
700
4% p
4% p
Rest of Docklands
25.00
269
0% u
0% u
Source: BNP Paribas Real Estate
Source: BNP Paribas Real Estate
Midtown take-up and vacancy rate
Docklands take-up and vacancy rate
0.5
Take-up
Vacancy rate
Take-up
Vacancy rate
12
20
15
9
0.2
6
10
%
0.3
Million sq ft
1.0
%
Million sq ft
0.4
1.5
15
0.5
0.1
0.0
2007
5
3
0
2008
2009
2010
2011
2012
0.0
2006
0
2007
2008
2009
2010
Source: BNP Paribas Real Estate
Major office lettings, Q4 2012
Property
2011
2012
Source: BNP Paribas Real Estate
Major office lettings, Q4 2012
Size (sq ft) Rent (£/sq ft)Tenant
Property
Size (sq ft) Rent (£/sq ft) Tenant
Castlewood House
45,633
77-91 New Oxford Street WC1
45.00*
LinkedIn
11 Westferry Circus E14 22,500
Chancery House
53-64 Chancery Lane WC2
30.00
CRU International
Source: BNP Paribas Real Estate
*Asking rent
Victoria House
13,487
36-67 Southampton Row WC1
35.00*
WH Smith
Alexandra House
33 Kingsway WC2
45.74
Cannes Lions
17,342
11,476
Source: BNP Paribas Real Estate
*Asking rent
CONTACTS
Chris Williams-Ellis
Letting and Sales
020 7338 4442
[email protected]
Tim Hugill
Investment Agency
020 7338 4269
[email protected]
Colin Bell
Lease Advisory
020 7338 4098
[email protected]
32.50*
Clearstream Banking
UK