London Weathers Storm As City Leasing Stays Strong
Demand for City office space in London is holding strong, with around 2.5 million square feet of new properties let during the first half of the year. Many developments that are under construction continue to see steady leasing, nixing earlier fears the credit crunch would create chronic oversupply of space in the financial district.
Although the 2.5 million square foot figure represents a drop from the 3.8 million square feet leased during the same period last year, it shows a good level of demand given current economic circumstances. "It's well down on peak levels of the last few years, and a million down on '07 levels. But bear in mind the long term average for the City for the full year is around 4.2 to 4.3 million square feet," said Mat Oakley, research director at Savills in London. "In 2003, at the bottom of the last cycle, letting was only 2.8 million square feet for the entire year."
According to James Oliver, city agency director at DTZ, City take-ups could reach four million square feet by year-end. "There is around a further 1.6 million square feet under offer that we expect to go through to completion during the course of this year. We feel relatively confident," he told REFI. Mark Pollitt, partner at Cushman & Wakefield, added: "It's not untypical in a market to let just before or after completion. It's only when market is very frothy you get substantial pre-lets."
"Developers are expecting it to be harder than two years ago, but things like Hammerson's redevelopment of the Stock Exchange [125 Old Broad Street] has been pre-letting quite well," Oakley said. Last week King & Spalding took 34,000 square feet there, joining DTZ and French law firm Gide Loyrette Nouel (REFI 9/1), and Oakley said demand for space from legal firms in particular has been strong.
Oliver anticipates the remaining 80,000 square feet at 20 Gresham Street, a 238,367-square-foot office development due for delivery later this month, can be filled following Standard Bank's take-up of 150,000 square feet there. "We've been pleased about Gresham Street. There are three floors remaining, and we expect further success prior to Christmas."
Although there's between 5.5 to 6 million square feet expected to come to market over the next two to three years, Oliver pointed out things are not as bad as in the early 1990s. "There was a three-year period in the early 1990s of 18-20 million square feet being delivered," he said. "So while demand has been affected, the supply side is not nearly as much in the early 1990s."
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|City of London Development|
|Development||Expected Delivery Date||Size (sq ft)||Let||Developer||Agent|
|20 Gresham Street||8-Sep||238,367||150,000 prelet to Standard Bank, including||Hermes Real Estate||DTZ and Jones Lang LaSalle|
|30,000 sublet for them on a short-term|
|basis to allow them to expand|
|150 Cheapside||8-Oct||204,763||60,000 square feet to Fortis Bank||St Martins Property Group||CB Richard Ellis and Cushman & Wakefield|
|The Rolls Building, 110 Fetter Lane||9-Oct||250,000 approx.||155,000 sq ft to HM Court Service||Delancey||Farebrother, Morgan Pepper, Knight Frank|
|Watermark Place||Spring 2009||539,000||No tenants yet||Oxford Properties, UBS Global||CB Richard Ellis and Knight Frank|
|Asset Management, Core|
|Riverbank House||2010||320,000||Prelet entirely to the Man Group||Pace Investments||Atisreal, Savills|
|1 Southampton Row||9-May||102,708||No tenants yet||Englander Group||Cushman & Wakefield|
|7 More London Riverside||9-Jun||500,000 (incl. supermarket||Let to PriceWaterhouseCoopers||More London||Knight Frank and Jones Lang LaSalle|
|space on ground floor|
|The Walbrook||Summer 2009||445, 000 (410,000 office;||Minerva||Knight Frank and Cushman & Wakefield|
|35,000 retail/restaurant space)|
|St Botolphs||Summer 2010||560,000||84,000 square feet let to Lockton||Minerva||Cushman & Wakefield and Knight Frank|
|International , with an option to take a|
|further 40,000 sq ft|
|One New Change||2010||560,000 (340,000 office;||120,000 square feet||Land Securities and Beacon||DTZ|
|220,000 retail)||Capital Partners joint venture|
|Source: Real Estate Finance & Investment, Published reports.|