Rollercoaster ride for the Wharf
New arrival Canary Wharf is proving to be flavour of the month – with one agent becoming the first to open there. Nadia Elghamry reports
What a start to the second quarter for Canary Wharf. First, it loses Aon’s 225,000 sq ft prelet to the City only to be saved, in part, by Barclays stepping into the breach by entering advanced talks to take 110,000 sq ft at its building at 1 Churchill Place. Then Jones Lang LaSalle announces it will open a Canary Wharf office.
The Docklands estate seems to be an unstoppable force. With prelets signed to State Street (350,000 sq ft) and KPMG in exclusive negotiations for 400,000 sq ft, quarter one take-up was up by more than a third on the long-term average and Docklands is fast becoming the prelet destination of choice.
It continued its bull run in May with availability dropping 10% on April and a fifth on the same period last year. Take-up too improved, increasing 93% year on year registering 70,000 sq ft this month.
The above deals mark a move away from occupiers’ traditional City homes. With notional headline rents at the £18 per sq ft mark, it still trades at a substantial discount to the City (£47 per sq ft) and the West End, which last month reached £100 per sq ft. However, activity has led one City agency to note that the Wharf “will again act as a cap on rental growth in the City”.
Taking advantage of this rental discount is Jones Lang LaSalle. Its 40,000 sq ft letting at 25 Bank Street, E14, will make JLL the first global property services firm to open an office on the Wharf. Other London-based agents say this will help keep costs down on JLL’s West End offices search. The lease expires on its Hanover Square office in December 2008, but will others follow it eastwards? (see vox pop below).
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The move east: what do other agents think?
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“There is unlikely to be a ‘normal’ way of progressing with expansion, with each company finding a solution that relates to their operational structure, client needs and cost bases. Certainly at DTZ we are prepared to be flexible and creative in housing the growth of our business and we will certainly focus on the needs and views of our staff in providing the best working environments.”
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“Many firms have considered splitting their central London operations to include locations such as Paddington and Victoria as well as Canary Wharf. However, most of us have shied away from separating our larger business groups. Clearly it is cheaper than the West End and this may attract others over time. It will be interesting to see how JLL gets on.”
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“I would suspect they have got one very large eye on working towards a better relationship with Canary Wharf. Don’t forget Neil Prime, who is head of office agency, used to work on the Canary Wharf estate in a previous incarnation and they will want to capitalise on that relationship. Will others follow? Surveyors, like others, are looking for sensible cost-effective homes. Drivers Jonas has successfully decentralised some operations to the west of London – why not JLL to the east?”
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“We see this as a pioneering move, reflecting the needs of our clients and increasing business opportunities. The new location is a logical addition to our footprint, recognising and reinforcing the importance of Canary Wharf as a key business district. We’re responding to the our growth projections and the business opportunities we can see east of the City. If other firms see similar opportunities and business growth, they may choose to follow.”
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London statistics: availability, take-up and buildings under offer/withdrawn, May 2006
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Availability rose for the first time this year, albeit by a modest 0.71%, in May. But the year-on-year total is still down by 17% across all markets. Only Midtown shows zero change on May 2005. Compared with April, the City and the southern fringe both saw increases in May.
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£100 per sq ft at 25 Hanover Square, W1, will take the sting out of West End take-up figures. There was a 43% drop on April but year-on-year change is still up by a third. Deals under offer in central London in April failed to materialise with take-up down by 26% on the previous month.
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Space under offer in May was down by nearly 60% compared with April. City markets fared the worst, with only Midtown and the southern fringe registering an upturn. Space withdrawn fell by a tenth with only West End and fringe locations still showing growth.
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Source: London Office Database * no deals done this month
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Lazari deal keeps family in good health
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Location – or rather its potential – was a key factor in attracting Christos Lazari to his latest acquisition at 250 Euston Road. The 160,000 sq ft office is close to Euston station, NW1. It is also within striking distance of the massive regeneration under way at King’s Cross.
Lazari Investment paid £79.6m for the 160,000 sq ft office building, representing an initial yield of 4%. Of course, having the building let to University College London Hospitals NHS Trust until 2039 helped. However, Charles Godfrey, of West End-based Godfrey Vaughan, says: “It is a good location, but it is also a very shrewd investment. The building has a good covenant and it has great value long term.”
By this, Godfrey means there is potential in the long term for the 1.4-acre site to house a high-rise development. “The building was speculatively built in the 1980s, it has held up well and the site is an absolutely classic location from a planning point of view to build a tower on,” he says.
The building is on a crossroads and a precedent for tall buildings has been set by the nearby Euston Tower.
“The Lazari family can’t do much for the next 15 years but, if the tenants go, then it is possible. This is a long-term hold for them,” says Godfrey.
As developments under way at King’s Cross gather pace, the area will increasingly attract investors’ attention, believes Godfrey. He points to one building on his books in the Bloomsbury area that attracted 125 enquiries.
“People don’t appreciate that, by 2007, if they turn up at Waterloo to catch the Eurostar it won’t be there, they’ll have to go to King’s Cross,” says Godfrey.
The building is let to the NHS trust at a rent of £20 per sq ft for the next 15 years with fixed uplifts every five years. The trust recently announced it will sublet two floors at £34.50 per sq ft. Godfrey says: “The trust’s rent is low but the sublet is in accordance with our view for the area.”
There is further potential for rental growth. Pointing to the last high, Godfrey says rents in the area reached around two-thirds of prime Mayfair values: “The location is only probably at 40% now so I think it is primed for growth.”
As for the Lazari family, this acquisition takes their total property portfolio to nearly £1bn. In total, it owns 30 buildings in London. “There’s little question that they’ll keep buying,” adds Godfrey.
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New arrival Canary Wharf is proving to be flavour of the month – with one agent becoming the first to open there. Nadia Elghamry reports
What a start to the second quarter for Canary Wharf. First, it loses Aon’s 225,000 sq ft prelet to the City only to be saved, in part, by Barclays stepping into the breach by entering advanced talks to take 110,000 sq ft at its building at 1 Churchill Place. Then Jones Lang LaSalle announces it will open a Canary Wharf office.
The Docklands estate seems to be an unstoppable force. With prelets signed to State Street (350,000 sq ft) and KPMG in exclusive negotiations for 400,000 sq ft, quarter one take-up was up by more than a third on the long-term average and Docklands is fast becoming the prelet destination of choice.
It continued its bull run in May with availability dropping 10% on April and a fifth on the same period last year. Take-up too improved, increasing 93% year on year registering 70,000 sq ft this month.
The above deals mark a move away from occupiers’ traditional City homes. With notional headline rents at the £18 per sq ft mark, it still trades at a substantial discount to the City (£47 per sq ft) and the West End, which last month reached £100 per sq ft. However, activity has led one City agency to note that the Wharf “will again act as a cap on rental growth in the City”.
Taking advantage of this rental discount is Jones Lang LaSalle. Its 40,000 sq ft letting at 25 Bank Street, E14, will make JLL the first global property services firm to open an office on the Wharf. Other London-based agents say this will help keep costs down on JLL’s West End offices search. The lease expires on its Hanover Square office in December 2008, but will others follow it eastwards? (see vox pop below).
The move east: what do other agents think?
“There is unlikely to be a ‘normal’ way of progressing with expansion, with each company finding a solution that relates to their operational structure, client needs and cost bases. Certainly at DTZ we are prepared to be flexible and creative in housing the growth of our business and we will certainly focus on the needs and views of our staff in providing the best working environments.”
“Many firms have considered splitting their central London operations to include locations such as Paddington and Victoria as well as Canary Wharf. However, most of us have shied away from separating our larger business groups. Clearly it is cheaper than the West End and this may attract others over time. It will be interesting to see how JLL gets on.”
“I would suspect they have got one very large eye on working towards a better relationship with Canary Wharf. Don’t forget Neil Prime, who is head of office agency, used to work on the Canary Wharf estate in a previous incarnation and they will want to capitalise on that relationship. Will others follow? Surveyors, like others, are looking for sensible cost-effective homes. Drivers Jonas has successfully decentralised some operations to the west of London – why not JLL to the east?”
“We see this as a pioneering move, reflecting the needs of our clients and increasing business opportunities. The new location is a logical addition to our footprint, recognising and reinforcing the importance of Canary Wharf as a key business district. We’re responding to the our growth projections and the business opportunities we can see east of the City. If other firms see similar opportunities and business growth, they may choose to follow.”
London statistics: availability, take-up and buildings under offer/withdrawn, May 2006
Availability rose for the first time this year, albeit by a modest 0.71%, in May. But the year-on-year total is still down by 17% across all markets. Only Midtown shows zero change on May 2005. Compared with April, the City and the southern fringe both saw increases in May.
£100 per sq ft at 25 Hanover Square, W1, will take the sting out of West End take-up figures. There was a 43% drop on April but year-on-year change is still up by a third. Deals under offer in central London in April failed to materialise with take-up down by 26% on the previous month.
Space under offer in May was down by nearly 60% compared with April. City markets fared the worst, with only Midtown and the southern fringe registering an upturn. Space withdrawn fell by a tenth with only West End and fringe locations still showing growth.
Source: London Office Database * no deals done this month
Lazari deal keeps family in good health
Location – or rather its potential – was a key factor in attracting Christos Lazari to his latest acquisition at 250 Euston Road. The 160,000 sq ft office is close to Euston station, NW1. It is also within striking distance of the massive regeneration under way at King’s Cross.
Lazari Investment paid £79.6m for the 160,000 sq ft office building, representing an initial yield of 4%. Of course, having the building let to University College London Hospitals NHS Trust until 2039 helped. However, Charles Godfrey, of West End-based Godfrey Vaughan, says: “It is a good location, but it is also a very shrewd investment. The building has a good covenant and it has great value long term.”
By this, Godfrey means there is potential in the long term for the 1.4-acre site to house a high-rise development. “The building was speculatively built in the 1980s, it has held up well and the site is an absolutely classic location from a planning point of view to build a tower on,” he says.
The building is on a crossroads and a precedent for tall buildings has been set by the nearby Euston Tower.
“The Lazari family can’t do much for the next 15 years but, if the tenants go, then it is possible. This is a long-term hold for them,” says Godfrey.
As developments under way at King’s Cross gather pace, the area will increasingly attract investors’ attention, believes Godfrey. He points to one building on his books in the Bloomsbury area that attracted 125 enquiries.
“People don’t appreciate that, by 2007, if they turn up at Waterloo to catch the Eurostar it won’t be there, they’ll have to go to King’s Cross,” says Godfrey.
The building is let to the NHS trust at a rent of £20 per sq ft for the next 15 years with fixed uplifts every five years. The trust recently announced it will sublet two floors at £34.50 per sq ft. Godfrey says: “The trust’s rent is low but the sublet is in accordance with our view for the area.”
There is further potential for rental growth. Pointing to the last high, Godfrey says rents in the area reached around two-thirds of prime Mayfair values: “The location is only probably at 40% now so I think it is primed for growth.”
As for the Lazari family, this acquisition takes their total property portfolio to nearly £1bn. In total, it owns 30 buildings in London. “There’s little question that they’ll keep buying,” adds Godfrey.
