Savills Research UK Commercial West End Office Market Watch Supply squeeze predicted over the remainder of 2014 as vacancy rate falls to 3.4% n Jupiter Asset Management's 56,350 sq ft pre-let of Land Securities Zig Zag scheme, which is due for completion next year, provided a boost to take-up figures in September. This brings number of pre-lets so far this year to 12, ahead of 8 per annum seen on average over a 10 year period. n As a result of this uptick in pre-letting activity, 58% of 2014 and 35% of 2015 development completions are pre-let. This coupled with the vacancy rate falling to 3.4% in September, its lowest level since October 2007, will see the West End experience a significant supply squeeze over the remainder of the year. n Furthermore, Grade A supply fell to 2.7m sq ft in September, which equates for 68% of total supply, its lowest level since December 2012. This represents a 24% fall over a 12 month period with the most significant fall being felt on units of >15,000 sq ft as opposed to smaller units which have seen an increase. Q1 Q2 Q3 Q4 10 yr average 6 5 n The Business & Consumer Services sector is also performing ahead of its five year average of 10%, accounting for 17% share of 2014 take-up to end September. This is the result of the exponential rise in serviced office operator take-up across central London. n In September alone, serviced office operators accounted for 7 transactions totalling approximately 117,000 sq ft including Avanta at 5 Merchant Square, London Executive Offices at 23 King Street, SW1 and ServCorp at Devonshire House, 1 Mayfair Place, W1. n Total 2014 take-up from this sector has reached 313,000 sq ft, up 62% on 2013 and 350% on the five year average (2009-13) of 70,000 sq ft per annum. This a trend that is likely to continue as flexible leases and coworking which allows collaboration and networking opportunities become increasingly high on tenants agendas. 4 3 2 2014 2013 2012 2011 2010 2009 2008 2007 0 2006 1 2005 n The most active business sector driving demand in the West End so far this year has been the Technology, Media and Telecoms (TMT) sector, accounting for 28% of take-up. Over the last five years (2009-13) the TMT sector has averaged a 24% share per annum. 2004 n This solid performance by the West End will help take-up easily surpass the long term average take-up figure of 3.3m sq ft and potentially match takeup levels in 2014 of 4.1m sq ft. Take-up 2003 n Take-up reached 1.1m sq ft in Q3 2014, matching Q2 and exceeding Q1 take-up. This brings take-up for the first three quarters of the year to 3.1m sq ft, 25% ahead of the long term average take-up for this period. GRAPH 1 sq ft (million) Supply and demand snapshot October 2014 Source: Savills Research GRAPH 2 Business sector share of take-up 2014* 5 year avg (2009-2013) TMT Business & Consumer Services Insurance & Financial Services Retail & Leisure Public Services Extraction & Utilities Professional Property Manufacturing & Industry Banking 0% 10% 20% 30% Source: Savills Research, *data to end September 2014 TABLE 1 Key September stats Stats Monthly change Take-up 383,167 sq ft  Supply 4.1m sq ft  Vacancy Rate 3.4%  Top rent (psf) £107.50  2.7m sq ft  Demand Source: Savills Research savills.co.uk/research 01 Market Watch | West End offices Analysis close up TABLE 3 TABLE 2 Supply Take-up Month Year to date Sq ft Sq ft % change on previous year % change on average Total % Grade A % chg on prev mnth Vacancy rate (%) Sep-13 509,814 3,186,631 37% 29% 4,730,960 76% -3.7% 3.9% Oct-13 199,077 3,385,708 37% 23% 4,684,003 75% -1.0% 3.9% Nov-13 369,822 3,755,530 39% 28% 4,446,402 73% -5.1% 3.7% Dec-13 329,664 4,085,194 33% 22% 4,644,988 75% 4.5% 3.8% Jan-14 254,077 254,077 -75% -13% 4,438,999 74% -4.4% 3.7% Feb-14 265,389 519,466 -55% -3% 4,474,644 74% 0.8% 3.7% Mar-14 363,789 883,255 -38% 6% 4,622,003 73% 3.3% 3.8% Apr-14 386,685 1,269,940 -21% 24% 4,323,746 76% -6.5% 3.6% May-14 381,345 1,651,285 -7% 27% 4,175,057 74% -3.4% 3.5% Jun-14 326,527 1,977,812 -5% 18% 4,193,382 74% 0.4% 3.5% Jul-14 318,879 2,296,691 0% 22% 4,186,477 71% -0.2% 3.5% Aug-14 445,119 2,741,810 2% 30% 4,189,683 71% 0.1% 3.5% Sep-14 383,167 3,124,977 -2% 25% 4,053,774 68% -3.2% 3.4% TABLE 4 TABLE 5 Rents Demand & Under Offers Average £ per sq ft Top Grade A Grade B WE Potential demand (sq ft) Prime* Rent free** 822,000 WE Active demand (sq ft) 1,835,000 2,657,000 Sep-13 £97.50 £64.99 £42.38 £90.35 9 WE Total demand (sq ft) Oct-13 £90.00 £75.56 £34.00 - - % change on 12 month ave Nov-13 £75.00 £64.32 £39.40 - - Total under offer (sq ft) 651,690 Dec-13 £110.00 £67.11 £45.14 £99.85 8 Under offer this month (sq ft) 284,369 Jan-14 £115.00 £57.01 £41.34 - - % change on ave 9% Feb-14 £95.00 £67.31 £42.50 - - Landlord controlled supply 57% Mar-14 £115.00 £68.79 £33.88 £99.13 8 Tenant controlled supply 18% Apr-14 £100.00 £64.52 £37.86 - - May-14 £115.00 £58.30 £43.64 - - Jun-14 £110.00 £84.31 £34.83 £103.33 9 Jul-14 £90.00 £54.59 £30.00 - - Aug-14 £107.50 £74.81 £37.50 - - Sep-14 £107.50 £73.27 £35.99 £98.25 9 -12% TABLE 6 Development pipeline Sq ft Refurb Devs Total % Pre-let 2014 478,300 1,308,396 1,786,696 58% 2015 202,800 1,502,552 1,705,352 35% 2016 370,000 2,806,421 3,176,421 7% 2017 60,000 1,766,239 1,826,239 3% Total 1,111,100 7,383,608 8,494,708 Completions due in the next 6 months are included in the supply figures 02 23% *Average prime rents for preceeding 3 months ** Average rent free on leases of 5 years for preceeding 3 months Market Watch | West End offices TABLE 7 Significant September transactions Sq ft Grade Achieved rent Bldg A 90,596 Zig Zag, 70 Victoria Street, SW1 7, 8, 9 A 5 Merchant Square, W2 10-14 23 King Street, SW1 Address Floor/s Tenant Lessor 39 Victoria Street, SW1 £69.50 Parliamentary Estates British Land Company 56,357 £84.00 Jupiter Asset Management Land Securities A 36,650 Undisclosed Avanta European Land & Property 1-3 A 23,707 Confidential London Executive Offices Standard Life Devonshire House, 1 Mayfair Place, W1 1 A 14,500 £87.50 Servcorp Ponte Gadea Group 62 Buckingham Gate, SW1 pt 6 A 11,602 Undisclosed Kering Group Land Securities 10 Portman Square, W1 pt 1 A 10,250 £87.50 Ardagh Glass British Land 38 Seymour Street, W1 B-2 A 8,295 £62.69 Bridges Ventures LLP Portman Estate 76 Wardour Street, W1 2 A 7,093 £60.00 Pathfinders Legal & General The Heals Building, 196 Tottenham Court Road, W1 1 A 5,586 £65.00 Liverpool Football Club Threadneedle Property Investments TABLE 8 Significant supply Sq ft Grade Quoting rent G-9 145,142 A £60's Park House, Park Street, W1 2-5, 7, 8 143,010 A £97.50 QNB Telstar House, 2 Eastbourne Terrace, W2 1-6 105,642 A £47.19 Rio Tinto 62 Buckingham Gate, SW1 3-6 84,464 A £70.00 Land Securities 2 Fitzroy Place, Mortimer Street, W1 Bldg 81,233 A NQ Aviva / Exemplar 8 St James's Square, SW1 Bldg 67,500 A NQ Green Property Ampersand, 180 Wardour Street, W1** 1, 2, 3, 4 64,660 A NQ Resolution / Peterson Group 2 Kingdom Street, W2 7, 8 50,000 A £55.00 British Land 5 Merchant Square, W2 8, 9 45,770 A £60.00 European Land & Property Walmar House, 288 Regent Street, W1 B-6 45,152 A NQ Great Portland Estates Oxford House, 76 Oxford Street, W1 1-6 44,329 B NQ Great Portland Estates 2 Stephen Street, W1 1-4 42,538 A £70's 125 Shaftesbury Avenue, WC2 1, 2 41,792 A NQ 80 Strand. WC2 5 40,090 A £65.00 Pearson 50 Broadway, SW1 LG-3 39,826 A £39.50 Bircham Dyson Bell Address Floor/s 10 Bloomsbury Way, WC1* 03 Lessor London & Regional U/O pt u/o y Derwent London Almacantar *7th-9th floors, c.40,000 sq ft u/o, **4th floor, 13,300 sq ft u/o Market Watch | West End offices MAP 1 Savills West End office submarkets Please contact us for further information Tracy Collins Director 0207 409 8958 [email protected] Liell Francklin Director 0207 409 8712 [email protected] Nick Pearce Associate Director 0207 409 8740 [email protected] Freddie Corlett Associate Director 0207 409 8764 [email protected] Tim Wadhams Director 0207 409 8803 [email protected] Brian Allen Director 0207 409 8778 [email protected] Mark Gilbart-Smith Director 0207 409 5925 [email protected] Andrew Wedderspoon Kuldeep Lalli Associate Research 0207 409 8706 0207 016 3832 [email protected] [email protected] Savills plc Savills is a leading global real estate service provider listed on the London Stock Exchange. 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