Midtown has over the last quarter reflected the state of the general London commercial office market with clearly defined characteristics seen in the other sub markets of the City and West End. Indeed Bloomsbury, the area that my firm MB&A is strongly associated, due to its work on the Bedford Estates, shows this most clearly.
We have recently been involved with the marketing and disposal of a number of buildings for the Estates on Bloomsbury and Russell Squares. As is usual now with this sector of Midtown the range of potential tenants is made up of professionals, associations and more commonly now private educational users. Currently private universities looking to provide graduate education for the massive number of students unable to find places in the traditional university haunts. St Patrick's University is a good example expanding into 15,000 sq ft in 17-19 Great Chapel Street W1 at £27.00 per sq ft near its HQ at no 24. On the Estates we have been in negotiation for sometime now on a refurbishment of approx. 9,000 sq ft to a similar occupier seeking to expand into the London market and to offer top end educational services to this growing market. After several months of planning, listed building and building issues, the pen is poised to sign on a classic 10 year tenancy at £30.00 per sq ft or thereabouts on the D1/B1 (Educational and Office Use) building.
The options are few for such occupiers and the pickings are good for landlords who have space to let right now. Availability decreased by 10% in the second quarter 2010. As a result, the vacancy rate dropped to approx 7.0% from almost 8.0% over quarter one. Supply has fallen for three consecutive quarters from its high in late 2009 when 2.2 million sq ft was available to let and the vacancy rate was nearing 9.0%. Take-up was a third higher than the first quarter 2010 and over 400,000 sq ft is under offer. As one major midtown surveying practice commented recently "headline rents in WC1 remained stable this quarter as the markets slowed during the election period. However (sic) letting incentives are continuing to reduce. We expect a quiet summer with a return to a more normal market in September". Interestingly the same commentators noted that "the number of new requirements registered by potential occupiers decreased by 25% between Q2 and Q1. But applicant numbers reflected an increase of 5% on the number registered twelve months earlier in mid 2009".
Well the summer is drawing to a close now and our experience continues to be one of steady interest from occupiers looking to relocate. Availability is a problem across London and with that comes growing confidence amongst landlords and developers that rental growth will continue (or maybe that rental incentives will fall). The two extremes of Midtown to the west and the north east have seen significant additions to the market. Derwent has launched AHMM's designed, part pre-let (to Cancer Research) Angel Building comprising approx. 264,000 sq ft with its "dramatic atrium" at the top end of St John Street. Legal and General launch Renzo Piano's 430,000 sq ft mixed use scheme at Central St Giles on the northern edge of Covent Garden. As one architectural commentator said "nothing prepares you for Central St Giles, where multi-storey planes of orange, lemon and lime appear in the middle of London" and contrast vividly against the former featureless government "grey" buildings that had existed there. It screams Covent Garden and is attracting typical occupiers. As Property Week announced recently "Ads giant brings colour to Central St Giles" to headline the news of WPP taking 170,000 sq ft of the 430,000 sq ft office element. Both these schemes aim to achieve rents in the mid to high £50's per sq ft and it would seem are likely to achieve these levels if activity and demand continues.
On the Bedford Estates we have been negotiating pre-lets on buildings that will never make it to the market and to accommodate the expansion needs of existing tenants looking for additional offices. Publishers, solicitors, associations and educational users are included in these situations. Rental levels in Bloomsbury are increasing to £32.-35.00 per sq ft whereas top end Midtown offices in general are estimated to reflect approx. £40.00 per sq ft. The more southerly regions of Covent Garden are achieving closer to £50.00 per sq ft plus. Recent transactions have included Carpmael and Ransford taking approx. 40,000 sq ft in One Southampton Row at £42.50 per sq ft and Age UK who have taken over 55,000 sq ft at Tallis House on Tavistock Square and no doubt to accommodate servicing there own growing market sector.
MB&A is expanding as well. We need to accommodate a greater research and marketing capacity in order to find an increasingly smaller range of available spaces on behalf of our occupier clients.
As last week drew to a hectic close a final phone call was received and a bombshell dropped. "Sorry, mate. A problem with funding. We have to pull out, you know what it's like". A tenant for Bloomsbury is no more. These things happen. There are always others.
More poignantly though, and bearing underlying economic issues in mind, a sign of things to come perhaps?