Take-up
Take-up picked up in Q2 but it remained a relatively quiet quarter. 317,250 sq ft was let – a 17% improvement on Q1 but still below the five-year average for this market, which is 380,000 sq ft.
180,000 sq ft of space let had been recently built or refurbished, further reducing the availability of grade A stock. Two major lettings were completed in 2 Waterhouse Square, EC1. The first, to Skype, was for 89,000 sq ft and the second, to Weber Shandwick, was for 63,750 sq ft. Between them, these two transactions accounted for almost half the space let in the quarter.
Driven by the two large deals in Waterhouse Square, TMT dominated the breakdown by sector, accounting for 60% of all space taken in the quarter. All other sectors were dwarfed, although professional and financial made up around 10% each.
Supply
3.6 million sq ft was available at the end of Q2 2012, a decline over the quarter of 12%. The supply of new built or refurbished space fell by more than a third and just 232,000 sq ft remains on the market. The amount under construction also fell, by 27%, leaving 360,000 sq ft on the market. Even secondhand space declined over this quarter, reinforcing the view that is increasingly prominent in this market, that it is supply-constrained. Following the substantial letttings in Waterhouse Square, the largest new, ready-to-occupy building is 1 Kingsway, WC2, where 54,700 sq ft is available.
Availability rate
The availability rate was 7.5% at the end of Q2, having fallen from 8.7% in Q1. It remains well above the low point in 2007, when it dropped to 5% and triggered a spike in new development.
Asking rents
The average asking rent has fallen in Midtown since Q1, from £53.25 per sq ft to £49.00 per sq ft. This probably reflects the changing composition of the sample following the letting of a substantial volume of grade A space in Waterhouse Square.
The EGi Consensus rent survey found that the average view of rental value for space around Chancery Lane was £52.50 per sq ft with 24 months rent-free and in Covent Garden it was £62 per sq ft with 12 months rent-free.
Construction
No new construction began in Q2 and, in fact, there have been no developments put under construction in this market in the year to date.
There is 410,000 sq ft under construction and scheduled for completion later in 2012 or in 2013, but, so far, nothing in the pipeline for 2014. Since 2007, when 880,000 sq ft of development was started in Midtown in a single year, the volume of development starts has dropped to around 250,000 sq ft per annum, representing less than 1% of total stock.
Freshwater Group is refurbishing Africa House, 64-78 Kingsway, WC2, which has 147,000 sq ft of office space and it is the largest unit under construction. The largest new building being developed is Hines’ Chichester House, 278-282 High Holborn, WC1, (63,200 sq ft).
Investment
Just under 475,000 sq ft changed hands in Q2. The largest building was Aviation House (St Martin’s Court), 125-129 Kingsway, WC2, where the freehold sold for £100m – it is fully let to the Food Standards Agency until 2025.
The 87,000 sq ft 1 Southampton Row was sold in an off-market deal by Grandsoft to Deka Immobilien for £110 m. The long leasehold of 21 Tudor Street was sold by Lanebridge Investment Management to AFIAA for £73m, representing an initial yield of 5.4%. The 97,000 sq ft building is let to Jones Day until 2023.
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