Lauren Mills investigates the impact of terrorist attacks and changing occupier needs on the City’s take-up rate.
The omens for City offices in 1994 are good. According to Hillier Parker’s Gillian North, take-up in the third quarter of 1993 amounted to about 3.76m sq ft. “This is only 240,000 sq ft short of the total for 1992, and we are optimistic, given the negotiations in hand, that the total for this year will reach 5m sq ft.”
Bomb damage, following the terrorist attack on Bishopsgate earlier this year, has been a major driving force. “About 800,000 sq ft of take-up can be directly attributed to occupiers displaced by the April bombing,” says North.
But, as Weatherall Green & Smith’s Fred Hargreaves points out, this is resulting in mainly short-term lettings, pending reinstatement of damaged buildings.
The Long Term Credit Bank of Japan is one of the most significant occupiers to be forced out by terrorism. It has taken 48,000 sq ft at Alban Gate, 125 London Wall. But the lease includes six-month break options so that the bank can move back into its former premises at 55 Bishopsgate once the building is habitable. In the meantime, LTCB is paying £30 per sq ft. Jones Lang Wootton and Herring Baker Harris were joint letting agents.
A spokesman for LTCB confirmed that London is still thought of, by many foreign concerns, as the financial capital of Europe: “After two bombs we have not changed our view on the importance of the City. It is still a very important operation for us.” However, he admitted that another “accident” could be the catalyst for considering alternatives.
Willis Corroon has also opted for a short-term solution. It has a 10-year lease, which includes a rolling break option for the first two and a half years, at Land Securities’ 75,000-sq ft Gracechurch House, on Gracechurch Street. The rent is believed to be about £20 per sq ft. Healey & Baker and Kinney & Green were joint letting agents, while WG&S advised the tenant.
Norton Rose is temporarily ousted from its headquarters at the corner of Bishopsgate and Camomile Street. The solicitor has taken two chunks of space: 63,000 sq ft at 25 Cannon Street, where it has an 18-month lease, including options to break, at £15 per sq ft; and 70,000 sq ft at Blackfriars House on New Bridge Street at about £10 per sq ft. Gooch & Wagstaff and WG&S let the Cannon Street space on behalf of Bank of America. Richard Ellis was letting agent at Blackfriars House.
Although many occupiers plan to return to their former buildings at Bishopsgate, others have decided to make a clean break. The Sanwa Bank was forced out of the Commercial Union building which was damaged by an earlier bomb attack in April 1992. But the bank has no plans to return. Instead it has taken 70,000 sq ft at City Place House in Basinghall Street. The rent is £32.50 per sq ft after three and a quarter years rent-free. The deal includes a break option at year 12. RE and HP were joint letting agents.
Some companies, worried by the threat of bomb attacks, are taking disaster-recovery space. As Gooch & Wagstaff’s David Alcock points out: “Many tenants have taken small units as back-up, but many cannot afford to do so because of expensive holding costs.”
By far the biggest deal of this type is County NatWest’s decision to take about 90,000 sq ft at Billingsgate Market Hall on Upper Thames Street. The bank is rumoured to be paying £1.25m pa for a 15-year lease including breaks. JLW and Richard Main were joint letting agents, while HP advised the bank.
Alcock expects more deals to happen as a result of this year’s bombings. He explains: “Some occupiers already had contingency plans in place but are now thinking of moving.”
For instance, G&W recently acquired 10,400 sq ft at Exchange House, Broadgate, on behalf of Banco di Sicilia. The bank retreated to the relative safety of its fall-back space in Chiswick immediately after the bomb. The rent at Broadgate is believed to be about £27.50 per sq ft for a 10-year lease with breaks after two years. St Quintin and HBH were joint letting agents.
Alcock is in no doubt that April’s bombings have boosted the City letting market, not least by speeding up transactions that were already in the pipeline. Eurobrokers, for instance, had to hurry its search for a new dealing floor. It took 36,000 sq ft at Five Acre Square, Houndsditch, which, according to Alcock, was one of the last available. The rent is about £25 per sq ft. G&W advised the tenant, while JLW and Richard Main were joint letting agents.
Eurobroker’s finance director, Michael Morrison, explains the reasons for this decision: “Location was important – we have to be in the City or we cannot fulfil our business – but dealing floors were thin on the ground. This was the best available.”
While HBH’s Angus Walker accepts that terrorist activity has been responsible for considerable take-up in the City market, he is adamant that it is not deterring potential occupiers from coming in. “There is no evidence that the bomb is affecting new tenants – people have very short memories.” Indeed, he cites LTCB’s decision to move to another “very high-profile building” at London Wall as an example to those who remain unsure.
North agrees, maintaining that the financial sector in particular continues to be extremely active.”During the past nine months the European banks have been most active.”
She believes that demand is driven by a desire to trade up and expand their London operations.
For instance, the Internationale Nederlanden Bank is believed to be moving from 15,000 sq ft at 2 Copthall Avenue to 40,000 sq ft at City Place House. HP and RE are joint letting agents.
North American banks are also trading up. Goldman Sachs is rumoured to have as much as 73,000 sq ft at 100 New Bridge Street, part of Rosehaugh Stanhope’s Ludgate development, under offer as overflow for its existing headquarters at Peterborough Court, Fleet Street. Savills is advising the bank, while JLW and HBH are jointly instructed on behalf of the developer.
Banque Indosuez is probably the largest financial mover in recent months. It has taken 90,000 sq ft at 122 Leadenhall Street. The rent is rumoured to be £30 per sq ft with just over three years rent-free. DTZ Debenham Thorpe was letting agent.
Walker believes that some market activity is driven by tenants’ continuing ability to achieve cheap deals. “With premium rents at about £30 per sq ft, tenants have the opportunity to upgrade.”
He says that one of the best examples of this is Wilde Sapte’s decision to move from Queens Bridge House to 130,500 sq ft at 1 Fleet Place, Ludgate. The rent is believed to be a little over £30 per sq ft for a 25-year lease.
Although some believe that occupiers might get their fingers burnt at first review, Walker shrugs this off as nothing but an idle threat. He maintains that tenants are far more secure post-boom: “If the market goes the way that we expect, we will not see such horrendous rises as in the late 1980s. The rate of increase will be slower.”
One tenant drawn by the attraction of a cheap deal is the Health & Safety Executive, which has taken the entire 157,000-sq ft Rose Court on Southwark Bridge Road at about £10 per sq ft. HP and Chapman Swabey are jointly instructed on behalf of developer Postel.
Although the City has seen a fair amount of activity in the past six to 12 months, Walker points out that few companies are venturing into the market from outside. But, he adds: “The exception is the communications sector. There is a big market for information technology. Companies prefer the City because it is where their market is – and terms tend to be more competitive.”
For instance, Reuters has taken ITN’s former building at 200 Gray’s Inn Road. It is paying an initial rent of £15 per sq ft for the 50,000-sq ft building. There is a fixed increase to £17 per sq ft at year five, but the rent is reviewed to open-market value at year 10. Chesterton and HBH were joint letting agents.
Although Chesterton’s Chris Jones accepts that many tenants are choosing the City because of its depressed market, he is keen to stress: “An increasing number of requirements are operationally driven.”
For example, Dow Jones Telerate needed room to expand. So it moved into 20,000 sq ft at 10 Fleet Place, Ludgate. G&W advised the tenant which is said to be paying about £22.50 per sq ft.
Telerate’s facilities manager, Tessa Perks, explains the move: “The majority of our customers are in the City and we wanted to be close to our existing premises at Fetter Lane. We also needed 20,000 sq ft on one floor and few buildings fitted this requirement.”
Jones is optimistic that demand for City offices will remain steady in the next 12 months.
He says: “The key is that there is more activity in the 3,000-sq ft to 5,000-sq ft bracket and there is underlying demand that is not bomb related. Some companies are having to make operational decisions that, although assisted by the fact that rents are probably at their lowest, are not driven by this fact alone.”
