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London Commercial Property News - Monday, October 3, 2016

Issue #73

CITY Strength

London News

If there is one part of the UK that needs to be nervous about the impact of Brexit then itmust surely be the City with its unparalleled network of international connections and trading.

Given its wide range of expertise there is, naturally, a considerable amount of analysis of what the changed relationship with the European Union will mean.

In suggesting that the commercial property market’s current positive cycle will slow over the next 18 months, John Ostroumoff, of City property advisors, Ostroumoff, counsels caution about the impact of Brexit given the vast range of the strength and skills of the markets in the City, quoting the current strength of the insurance market.

“But I believe it would be useful if the City had a committee or group of top executives that was solely devoted to the impact of Brexit and would be able to protect the position of the Square Mile”.

An obvious choice to provide a fulcrum for such an organisation would be the City of London Corporation with its wide ranging administrative strength.

Above all it is in the interests of the Corporation that the City remains the world’s leading financial centre. It could be argued that it is also in the interests of the European Union that this continues, rather than shifting to Shanghai or New York.

One group that is concerned about the impact of Brexit is the educational sector. The UK universities, boarding schools and other educational establishments attract huge numbers of foreign students. Apart from accommodation for such groups as language schools, it is also important for the residential market.

Michael Boardman of MB&A is a specialist in property for educational and office establishments, notably in Bloomsbury where there are clusters of educational groups operating, either universities or language schools.

“To illustrate how important this is for Bloomsbury and London in general”, said Boardman, “our research shows that 51% of the occupiers in Bedford Square are devoted to education. This has increased over the past few years”.

At the moment he has a number of foreign institutions seeking teaching and administrative space in the area with requirements of over 2,787 sq.metres (30,000 sq.ft.).

So far the Brexit vote has not deterred them from wanting to locate in London, Boardman said, but this is early days in the leaving process. Decisions may be helped by the decline in the value of sterling against foreign currencies, making it cheaper to take space in London.

An example of the deals highlighted by Boardman is the recent letting of 1,068 sq.metres (11,500 sq.ft.) at 46/47 Russell Square, WC1 to US overseas education services provider, CIEE.

The company has taken a new 15 year lease (at a mid £50s per sq.ft. rent) from the Bedford Estates, the leading landowner of Bloomsbury. Furthermore, the latest addition to Bedford Square, French school, L’Ecole Jeannine Manuel, is currently looking to expand its operation in the area and seeking new premises to teach from

Foreign investment WILL FLOW

London News

As could be expected there has been a variety of reactions in London to Brexit.

There is the detailed and largely optimistic analysis by BMO Real Estate Partners that “UK property is likely to be supported by the income return and the UK’s position as a large, transparent and established market and weaker sterling will encourage overseas investment”.

London offices are most vulnerable to Brexit, said BMO.

Also positive is the survey by the CBI/CBRE of London companies that showed they remain resilient after the vote with investment and hiring intentions remaining relatively robust.

On the other hand, Canary Wharf Group says it may slow construction of its next phase (Wood Wharf) in Docklands. Yet Cluttons’ research showed that Canary Wharf was the star office market performer in central London in the past 12 months with rental growth of 26.7%.

The most detailed analysis has come from Rhys Evans of Monmouth Dean who noted that the firm had let 12 offices and acquired 7 since June. He added: “This average of circa 2.5 deals a week is in line with our long term average. Furthermore, the number of deals signing seems set to continue because currently a third of our total disposal instructions (71) are under offer”. He also highlighted the fact that there has been an increase in foreign

InBrief #1

London News

In a vote of confidence after the Brexit vote, Wells Fargo, the American Bank, has purchased 33 Central, King William Street, in the City for around £300 million, from HB Reavis, for its London HQ.

South Bank GAINS

London News

With the opening of a substantial section of the rebuilt London Bridge railway station it has become clear what impact this will have on the rapidly expanding South Bank market.

Two-thirds of the new station has now been opened with construction started on the lines and platforms handling services into Cannon Street. The station will handle expanded Thameslink services and has a vast concourse with substantial retailing.

Thameslink’s Simon Blanchflower said: “This is the first time we have been able to build what is effectively a brand new station while keeping it open for the 56 million passengers that travel through it each year”.

Given its position as a transport hub, the impact for the South Bank will be substantial and will also stretch south through Bermondsey.

However, the key to its impact is the fact that 24 trains an hour will run through Blackfriars and St Pancras, thus linking Eurostar passengers to the South Bank.

Meanwhile, Union Street said that office take up in South Bank is continuing to be driven by businesses from the design/advertising marketing and PR/media/Internet/ technology and telecoms sectors (DAMIT). This sector accounted for 32% of the office lettings of 17,588 sq.metres (189,927 sq.ft.) in the second quarter of the year. Union Street figures show that creative businesseshavetaken185,800sq.metres (2 million sq.ft.) in the past three years. Simon Smith of Union Street said: “They are increasingly drawn from other parts of London by the quality of the space on offer, the much lower occupancy cost and the transport links”. He added that the problem of a shortage of retailing and restaurants is being addressed by new shops at London Bridge station and other upcoming schemes.

Record RENT

London News

Among the uncertainty about how the City will cope with leaving the EU, a record rent has been set in a landmark tower block known as the Cheesegrater.

Kames Capital, which occupies level 26 of the 48 storey Leadenhall Building has paid £1,976 a sq.metre (£100 a sq.ft.) in level 43. That beat the previous record in the same building which was set in April 2015.

Owned by British Land and Oxford Properties, the building is now fully let, with two out of three of the latest lettings after the Brexit vote.

Tim Roberts of British Land commented: “This is a significant milestone and underlines that our decision to hold our nerve early in the cycle and attract lettings on the upper floors post completion was the correct one”.

EVER upwards

London News

Taking the long term view is vital in the case of London where there is an encouraging move by the City of London Corporation to extend the area of high capacity, skyscraper offices southwards in the Square Mile.

This would be in the area dominated by the ‘Walkie Talkie’ high rise office building. The existing cluster already has new buildings coming, such as 212 Bishopsgate and One Undershaft.

The Corporation has started on a three months’ consultation on the plans with a report due in early 2017.

Christopher Hayward, Chairman of the Corporation’s Planning and Transportation Committee said “Our business could go south of the river or to Westminster unless we expand”.

THE LONG view prevails

London News

Wait long enough and changes to your advantage often come along as opinions shift or altered geographical factors kick in.

That is surely true of the Bedford Estates where its location between the bustling West End and the City financial markets is now viewed as an advantage, particularly given its strengths as a centre for educational establishments (indeed it is home to the University of London) and a range of businesses, such as publishing.

Now we have Crossrail to supplement the tube system and the mainline stations of Kings Cross and Euston. However, it is the perception of Bloomsbury, so carefully fostered by the estate over the decades, that has drawn in the occupiers. For a start, the British Museum has 6.5 million visitors a year which brings potential occupiers to the area. The Bedford Estates also benefits from the large number of hotels in Bloomsbury, with a total of more than 1,000 bedrooms.

Simon Elmer, formerly of the Grosvenor Estate, is the new Steward of the estate and has arrived at an opportune time in its history. For example, “The need to change means that it is now appropriate to expand the retail offer in Bloomsbury”.

Here he refers to the possibility of more retailing throughout Bloomsbury, but notably in Bailey Street close to their new development in Bedford Avenue and Tottenham Court Road of 10,498 sq.metres (113,000 sq.ft.) of offices and retailing.

Another positive change highlighted by Elmer is “the return of Gower Street to a two way traffic system with buses being diverted away from the street. We view Gower Street as a strong area for growth and change, and it illustrates the improved relationship with Camden and recognition of what the estate does in terms of upgrading the public environment”.

HIGH IN Docklands

London News

To a large extent the development of Docklands opened the eyes of the property business to building offices outside the centre of London but it has also brought huge residential schemes.

The Chinese Greenland Group plans to build the Spire, a 67 storey tower in Hertsmere Road, E14, adjacent to Canary Wharf, that would be the tallest residential building in Europe.

It will have 891 flats, 91 of which are affordable, as well as gardens and a spa and bar. One of the areas that benefited from the change of attitude to location is, of course, Shoreditch.

Here, the Singapore based City Developments has paid Ethical Property Company £37.4 million for the 2,626 sq.metres (28,266 sq.ft.) Development House at the junction of Leonard Street and Paul Street, EC2. The plan is to build a £115 million technology hub. This could be 8,361 sq.metres (90,000 sq.ft.) and would include retailing and leisure.

Another company to expand the offer to tech companies is Techspace, which is to create 450 workstations in a 2,508 sq.metres (27,000 sq.ft.) in Leman Street, Aldgate.

David Galsworthy of Techspace said: “It is a vibrant area that has already seen a number of giant tech companies move in recently and we expect demand to continue to grow”.

PROPERTY profile

London News

7 Savoy Court WC2 DESCRIPTION: 7 Savoy Court has been extensively refurbished to provide high quality contemporary offices in a prominent location on the doorstep of Covent Garden and the Strand.

TUBE AND CROSSRAIL: Savoy Court benefits from excellent Transport links including Covent Garden (Piccadilly Line), Charing Cross (Bakerloo Line, Northern Line and National Rail) and Temple (Circle and District Lines) underground stations, all of which are within walking distance.

AMENITIES: The office floors have been comprehensively refurbished to provide Grade A flexible efficient office space with excellent natural light.

FLOORS: 4th 8,223 sq.ft. (764 sq.m.) 3rd 8,197 sq.ft. (762 sq.m.) 2nd 3,425 sq.ft. (318 sq.m.) 1st 758 sq.ft. (70 sq.m.) Total 20,603 sq.ft. (1914 sq.m.) CONTACT Rhys Evans, Monmouth Dean Tel: 020 7025 1393 Paul Grindal, JLL Tel: 020 7087 5768

Lego TO LAND in Kings Cross

London News

The transformation of the South Bank is an example of the wider scope of development and change in London as the population increases and companies expand.

Kings Cross is another example and continues to attract new occupiers, such as Lego which has been negotiating to take 9,290 sq.metres (100,000 sq.ft.) in Argent’s development. JLL is acting for Lego which intends expanding its presence in the UK to meet increasing demand.

In another deal in Kings Cross, the Office Group has paid private overseas investors £30 million for the 3,902 sq.metres (42,000 sq.ft.) York House. Office Group is another serviced office provider and now has 31 buildings in London, three of which are in Kings Cross.

Charlie Green of Office Group commented: “Buying another freehold, particularly in Kings Cross, gives us the freedom to create something interesting and we’re hopeful we can add some extra space as well”.

Chinese BUY, AGAIN

London News

One sector that appears to be benefiting from the Brexit vote and economic uncertainty is serviced offices.

An indication of this is that the Shanghai-based Kailong, a Chinese real estate asset manager, has invested in Office in Town’s (OSIT) two London serviced offices.

Kailong is taking majority stakes in both LSO1 and LSO2, which OSIT says has a combined value of £160 million. LSO1 started in 2012 and has three serviced offices at Liverpool Street, St Paul’s and Waterloo while LSO2 is located at 20 St Dunstan’s Hill.

Giles Fuchs of OSIT said: “To date, both have generated significant value and returns and serviced offices have emerged as a separate asset class offering attractive returns for institutional investors”.

According to serviced office firm, the Instant Group, demand for serviced offices has increased in the UK by 11% in the last year and now represents a third of the UK office market.

Managing Director, Tim Rodber, said: “Growth in what might be considered secondary locations in the fringe and outer fringe of London have been driven by occupiers seeking more competitive workstations in a booming market”.

He added that “there is still huge demand in traditionally popular areas with strong transport links such as Kings Cross, Euston, London Bridge and Oxford Circus but operators are struggling to acquire the right floor plates at competitive rates”.

US rates LONDON

London News

In a post Brexit poll of two hundred senior US tech executives commissioned by London & Partners, the Mayor of London’s promotional company, London was viewed as the leading tech hub ahead of other cities in Europe.

Furthermore, US tech executives highlighted London’s favourable time zones, the common language of English, the expertise of the labour market and ease of access to finance.

InBrief #2

London News

Threadneedle has instructed CBRE to market the Centro Buildings, a portfolio of warehouse style offices in Camden for £98 million. The portfolio currently generates an annual income of £5.8 million.

The 180,480 sq. ft. London HQ of the bank Coutts has been bought by RBS for £198 million, a yield of 4%.

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