Room for City creativity – Colliers International
The range of City office space being marketed in the final quarter of 2012 serves as a reminder that there is room for creative deal-making, says Colliers International in its latest research into the sector.
Take-up of City offices reached 1.3m sq ft in Q4 2012, which was the highest quarterly total for 18 months, Colliers International notes. But despite this, net stock absorption in H2 2012 was down significantly from the first half of 2012, as JP Morgan vacated its surplus office space in the City – its move to Canary Wharf led to nearly 900,000 sq ft being released back onto the market – and 199 Bishopsgate (138,000 sq ft) was completed. City office occupation levels fell as a result, to 92.9% at the year-end from 93.5% in June 2012.
Colliers International says there is “considerable” activity at the moment at several high-profile office schemes in the City – 110,000 sq ft is under offer to Amlin at British Land and Oxford Properties’ Leadenhall Building; 120,000 sq ft is under offer to Liberty Mutual at 20 Fenchurch Street; and 60,000 sq ft has been taken by Gallagher Heath at The Walbrook.
While this is encouraging, there is some concern that demand is being driven by the insurance and media sectors, with banking take-up at a historic low. Last year was a modest one for banking activity in the City occupier market, Colliers International says; average deal sizes have been falling steadily for three years and declined once again in 2012 to a record low of 9,864 sq ft.
Colliers International expects a return to rental growth for City office space during the second half of the year as the gap between prime and secondary space becomes ever wider. The firm says occupiers with a pragmatic outlook are happy to secure good-quality secondary space if the location and pricing are right. “Difficulties will come with any ‘grey space’ that does not afford the outgoing tenant flexibility to be creative in terms of seeking to sublet or assign the space, due to the nature of the lease terms,” it notes.
There was a strong end to the year in the investment market for offices in the City, with a total of 36 deals concluded in the final quarter of 2012 at a total value of around £1.9bn. For the year as a whole, City investment transactions reached nearly £8.6bn, which is 37% higher than the previous year.