Lettings activity and plans for development in the Docklands area have recovered well since February’s terrorist bombing, as David Sands reports.
More than 46,450m2 (500,000 sq ft) of office space was destroyed and the area around South Quay station sustained damage costing some £100m in February’s terrorist bombing. It was an appalling setback to Docklands’ newly acquired status as the capital’s third business district.
But few tenants have left the area and Canary Wharf pulled off a major coup in August by clinching the 53,882m2 (580,000 sq ft) Citibank requirement. This month, Canary Wharf added to this success by luring the US’ largest law firm, Skadden Arps Slate Meagher & Flom, from the City.
Office space of more than 127,273m2 (1.37m sq ft) was let in Docklands in the 1995/1996 financial year, according to the London Docklands Development Corporation. Research by Knight Frank reveals that available space fell by 8.7% in the third quarter of 1995 to 198,532m2 (2.14m sq ft). Outside Canary Wharf, available space fell by 19.4% to 112,494m2 (1.21m sq ft). Much of this reduction resulted from the withdrawal from the market of three buildings totalling 5,527m2 (59,494 sq ft) at Glengall Bridge, which were sold for conversion to residential use.
Excluding Canary Wharf, there are just four buildings available over 6,000m2 (64,586 sq ft). Two are at Harbour Exchange, while the largest two new buildings of 15,701m2 (169,009 sq ft) and 20,671m2 (222,508 sq ft), owned by SPP and NCC, are on the market at East India Dock. “In recent months, interest at this scheme has been encouraging, with no buildings of comparable size, specification and cost available elsewhere in central London,” says Knight Frank partner Rod Parker.
At the smaller end of the market, office space under 1,000m2 (10,764 sq ft) accounts for 79% of vacant units in the remainder of Docklands. More than half of this comprises secondhand air-conditioned space.
Take-up falls
Rents are static. At Canary Wharf Tower, Skadden Arps is paying approximately £248 per m2 (£23 per sq ft) on a 15-year lease without breaks and a rent-free period of about 18 months. Outside the Tower, quoting rents are slightly lower. Elsewhere in the district, prime headline rents remain at about £108 per m2 (£10 per sq ft) with rent-free periods at a maximum of 12 months for larger lettings on five-year terms.
Total take-up in July, August and September fell – for the second successive quarter. Demand is focused on smaller units, according to Knight Frank. But there are some requirements exceeding 2,000m2 (21,529 sq ft) and these are led by the media, marketing and IT sectors, which together account for 59% of the potential demand.
The first rebuild after the bombing is likely to be the Builder Group/Midland Group site, close to South Quay DLR station, which the London Docklands Development Coroporation is marketing. It is likely to go for mixed use, with a large element of housing.
The total number of shops and restaurants at Canary Wharf has reached 50, while B&Q has opened one of its largest outlets in the UK at Beckton. PSIT has won planning consent for a 9,755m2 (105,000 sq ft) retail warehouse scheme next to the existing Surrey Quays shopping centre on the south side of the river Thames.
Construction has started on the West Silvertown Urban Village in the Royal Docks and the LDDC has given the green light to the 92,900m2 (1m sq ft) International Exhibition Centre, to be built on 40.4ha (100 acres) on the north side of Royal Victoria Dock.
At the eastern end of the Royal Albert Dock, the Royals University Campus is on schedule to open in 1999, after Government funding was clinched for the core of the project, the Thames Gateway Technology Centre.
And at West India Quay, close to Canary Wharf, the last major LDDC-owned site went to a joint venture between Manhattan Loft Corporation and London & Easter Properties/ Marylebone Warwick Balfour. The Corporation wants to see a Covent Garden-style location evolve in this area.
Canary Wharf: gathering momentum
Although 74,320m2 (800,000 sq ft) of offices are still to be let at Canary Wharf, work will soon start on a new phase – a 46,450m2 (500,000 sq ft) headquarters for Citibank. Its decision to move to the area was based on the cheaper costs and planning certainty offered by the Docklands scheme. Canary Wharf will build the new HQ, designed by Sir Norman Foster, on a site south-east of the Tower. The bank will be able to offset all of the £200m building costs against profits.
According to joint letting agents Richard Ellis and Jones Lang Wootton, the current policy is to respond to tenants’ needs and requirements rather than adhere to existing planning consents. Richard Ellis’ Mark McAlister says: “The big financial institutions we are talking to have precise requirements for large trading floors and volumes of people. We have the luxury of having planning [consent] in place, no archeological digs, no heritage views and so on to worry about and there is an existing on-site construction team.
“So if a company has a break clause coming up in three years’ time we are confident we can deliver a building for them on time. Firms can factor in their own build programme, buying at 1996 prices, for an occupancy in 1999.”
Smaller suites
The agents’ latest strategy of letting smaller suites in the Tower on selected floors is bearing fruit. Tenants are offered space on five-year leases outside Landlord and Tenant legislation at £301 per m2 (£28 per sq ft) with an index-linked service charge. Companies which have elected to take space include Bank of China, Ciba Geigy, Coutts & Co, Agence du Medicament and Reader’s Digest; another two are under offer.
The initiative is gathering momentum. Says McAlister: “They are all expanding firms so if they want more accommodation after a few years then we can tear up the lease and put them elsewhere on the estate.”
A further widening of tenants at Canary Wharf is becoming a distinct possibility. The site is one stop away on the Jubilee Line from the Millennium site in Greenwich and, as McAlister points out, there is a lot of scope for tourism and leisure activities at Canary Wharf.
Already a joint venture is in place with Hotel Properties to develop the riverside site. Phase one will comprise approximately 46,450m2 (500,000 sq ft) and include residential, hotel and leisure components.
