Ten days – just 64 working hours. That’s how long it took Hachette to make one of its biggest and boldest corporate real estate decisions in the UK. The French publishing giant’s decision to move its head office from Euston to Carmelite Riverside was one of the largest deals of last year but also possibly one of the speediest.
Quarter one showed that pressure on occupiers had intensified. With some going to best and final bids and even gazumping on the menu, occupiers needed to get a move on.
“People sat on their hands for a bit… there’s now this uncomfortable situation where prices are moving off and they’re asking, if we don’t get into the market now, what an earth will we be paying in 18 months?,” says Chris Lewis, director at Deloitte Real Estate.
Not long ago agents were scratching their heads and wondering if the West End would get back to £115 per sq ft. Now, adds Lewis, “it’s there and then some, so what does that mean for Portman Square, or The Strand or Covent Garden?”
As the economy improves, that pressure is intensifying. The Deloitte CFO survey, released this month, found industry leaders were on an expansion drive. The survey, which questioned 126 chief financial officers, including 27 FTSE 100 and 45 FTSE 250 companies, found that nearly 80% were expecting to hire, up from virtually none in Q1 2013. A record 95% expected merger and acquisition activity to rise in the next year.
Hachette might be forgiven for the speed of its move. It had been jilted once, having lost out at King’s Cross. Rumour has it that it was looking closely at 3 Pancras Square – for which Havas is now in advanced talks – and Google’s 6 Pancras Square.
That it lost out to two TMT firms will surprise few, and probably elicit yawns from many. The sector is the undisputed king of London. It made up 18% of all lettings in Q1, and was the largest sector by both number of deals and sq ft signed for.
While just one out of the top 10 deals was to a TMT firm – Google at York Way – what the sector lacked in size it more than made up for in number, penning 50 deals, nearly a fifth of all signings in Q1.
The next name on the occupier power list, missing out on the top spot by 1%, was financial companies.
But it was professional services that did the heavy lifting. The sector signed the largest deal of last year – E&Y at Churchill Place in Docklands – and stacked up the highest average deal size of 25,000 sq ft – two-and-a-half times the overall average deal size.
What happens next? Chris Vydra, executive director in the City leasing team at CBRE, believes that TMT’s dominance is unlikely to wane, but also that the amount and location of space TMT firms sign for – after Google’s HQ deal in 2013 – might.
“The majority of TMT subsectors are more footloose than ever before as they are realising that both the western City and City core often offer better value for money than the very hot districts of King’s Cross, Shoreditch and the South Bank,” he says.
The banks are now feeling less politically constrained, he adds, allowing them to make some sensible occupational decisions about relocations, “although mostly driven by lease events rather than expansion of office space occupied.”
A wave of lease events is looming on the horizon says Vydra. CBRE predicts the number of key lease events in the City and Midtown over 50,000 sq ft between 2017-2019 on will be up 50% on 2016’s levels – which will mark a low point.
That, says Vydra optimistically, “gives great hope to sustained rental growth beyond the next 12 months”.
Location: occupiers pick ‘n’ mix
Paddington or Pimlico? It used to be there was only one correct answer per occupier for a question like that. But as Knight Frank said recently: “Trying to second guess where a corporate is likely to relocate is more and more like picking a sweet out of a bag of pick ‘n’ mix.”
For example, financials used to mean City and tech meant out in the fringes, but with fin-tech gaining traction as a sector in its own right, will the fin move to the tech or the tech to the fin?
“Generation Y want to work together and there is a grey area between work and home life and that means places like Clerkenwell and Farringdon,” says Stephen Clifton, head of central London offices at Knight Frank.
“Over a long enough time it’s probably tidal, though,” he adds, pointing to what’s happened in New York.
“As tech has grown, its business requirements have too. Tech firms need more power, bigger floorplates and those are traditionally found in the core areas. In New York we’ve seen the financial district displaced by new media with Amazon moving in.”
This echoes Bloomberg’s move into the City of London.
On planet property most of the worry is about rents and development, but Deloitte director Chris Lewis believes that what’s creasing brows for occupiers is altogether different. Their biggest challenge in the next decade will be talent, he says.
“Companies are interacting with clients either virtually or at third-party locations, so retaining employees through the environment is more important,” he says.
What that means, says Lewis, is that whether you are a media company, a firm of accountants, or a bank, you are all going for the same graduates, with everyone wanting the brightest and the best.
For offices that will mean supersized break-outs, instead of an office, with anything you need to make it your office, whether that is good wifi, audio-visual equipment or good conferencing rooms and micro meeting pods.
