According to the 1997 edition of the Oxford English Dictionary, the word “trend” means general direction and tendency, especially of events, fashion or opinion. For West End agents, however, it appears that a trend comes about when there is a slight movement, even by just two occupiers in roughly the same sector.
It follows that, when you ask an agent to identify a trend, you will get several different answers. Occupiers in the TMT sector, serviced offices, hedge funds, oil companies, finance or government have taken space over the past two quarters, prompting eager agents to suggest a trend is appearing.
In fairness to the agents, relative to the poor state of the market over the past two years, any take-up is likely to provoke excitement. At its worst, West End vacancy levels hit their highest at 6.9%, from 2.1% in December 2001, and rents in some areas of London have fallen by 35% in the past 18 months.
But do a few lettings constitute a trend? There are those that still believe it is too early to start suggesting this is the case. “These take-ups are more a flurry of activity than a trend,” says King Sturge’s Nick Rock, a partner in West End agency.
Michael Nicholas, director at Nelson Bakewell, is more forthcoming. “In the past, there have been trends that you can pinpoint. But there is no particular trend, and activity is just led by lease expiry or occupiers taking advantage of depressed rentals.”
Business pick-up
One thing everyone agrees on is that the market has now bottomed out. What is not agreed on is how long it will stay at the bottom before it starts to rise.
Phil Howells, Jones Lang LaSalle’s European director, believes it will be at least 12 months, while Ken Cohen, partner at DE&J Levy, is predicting that most businesses will start picking up in spring next year. “The rent-free periods will be harder to get, and by next September a lot of the firms will start taking their own space back. There will be less on the market,” he says.
There are definitely groups of occupiers looking for opportunities now that the market is offering reasonable rents. Prominent among them is the TMT brigade. Figures from Cushman & Wakefield Healey & Baker show a 141% increase in requirements from the sector between the second and the third quarters (see chart, opposite). Although TMT requirements are not as high as other sectors, there have been some high profile deals.
Google moving to London and taking 15,000 sq ft at Derwent Valley’s Courtyard scheme, and publisher Emap, which needs 40,000-100,000 sq ft, are just two examples.
“The market has dramatically changed at the bigger end of the scale, and in six weeks during the summer it has boomed. That is genuine requirements from the likes of the Economist and Emap,” says CWHB’s partner and head of West End offices, Guy Taylor.
The deals have created excitement because, as Cohen says: “Media is always the sector that signals the market is starting to recover.”
The TMT deals are not big, but some say they are still a good sign, given it was the dot.com crash that heaped space onto the market in the first place. “We don’t see the level of activity we once saw, but they were new firms. The companies now are not so space-oriented because once bitten, twice shy,” says Rock.
Only Adam Hetherington, head of West End agency at FPDSavills, is throwing cold water on the TMT resurgence. “There is no firm evidence yet that TMT has come back to the market. And only 10% of the space leased in the West End in the first half was to these companies,” he warns.
Lyons report
Other trends offered by agents have been dismissed. Hedge funds have been taking space, but this is considered too small to hit the Richter Scale, and it is something hedge funds do continually.
The serviced office “trend” has been given even shorter shrift. “It’s not going to make much difference,” says Howells.
Occupiers in the finance sector could be moving toward setting a trend. The CWHB pie chart, for example, shows a 17.5 % increase in requirements. The other potential trend is the government. But the Lyons report on the possible relocation of government departments out of the capital is complicating assessments (EG, 9 Aug, 2003).
If Lyons decides they should move, it would be a crippling blow to Victoria. Because of the number of public-sector offices, it has the lowest submarket vacancy rate in the West End at just 6.3%, and also the highest number of buildings under construction.
More than 1m sq ft is being built on a speculative basis, and buildings such as CGI/Howard Ronson’s 250,000 sq ft Victoria Plaza are due to open in November. There are still some lettings going through. Three weeks ago, the DoT signed for more than 30,000 sq ft at Equitable Life’s Southside, 105 Victoria Street. But this could be the last deal of that size until the Lyons report is delivered.
If occupiers do start taking space, it would certainly be a signal that the market is improving. But at the moment, most agents are just happy that the main trend seems to be that things are not getting any worse.
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Is there a recovery in sight? |
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Chris Thompson, ATIS REAL Weatheralls “Victoria has a low vacancy rate of less than 5%. But when Belgrade House and Victoria Plaza are complete that rate could rise to 8%. We need the government there, and I can’t believe that it can just rehouse tens of thousands of workers outside London.” Andrew Barnes, DTZ “We are definitely seeing the first green shoots of recovery in the West End, but it will take a reasonable amount of time before we see a return to rental growth. Market sentiment is that we have reached the bottom of the downturn, but concern must exist as to how long we sit at the bottom waiting for definitive signs of recovery.” Ralph Pearson, head of West End offices, Chesterton “The jury is still out on the overall trend, and just after August is a particularly difficult time to judge. However, we are seeing more activity among occupiers, and in the last week we have three new acquisitions starting at around 5,000 sq ft. Certainly, most of our investor clients are optimistic of a return of rental growth by early next year, and both the schemes launched this week Curzon Place and The Corner have adopted aggressive rents.” Simon Tann, director, West End leasing team,CB Richard Ellis “The public sector remains the strongest source of demand. It makes up 33% of West End demand compared with 15% this time last year. A significant number of large requirements exist, despite the forthcoming Lyons review. This may slow the process down, but a number of government departments are preparing a robust case for taking further space in central London, particularly Victoria and Westminster.” |
