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City OfficeMarket Watch December 2016

Supply and demand snapshot

g Take-up for November was 795,695 sq ft, bringing the year-to-date City total to 5m sq ft, which is 25% down on this point last year but 8% up on the long-term average to the end of November. 77% of all transactions to date have been of a Grade A standard.

g November's activity has brought the 12-month rolling take-up figure to 5.8m sq ft, which is in-line with the 10-year average.

g A notable transaction to complete in the City in November was Fidelity International's acquisition of 4 Cannon Street, EC4. The 105,842 sq ft building was let on confidential terms from Pembroke Real Estate, who actually manages the lessee's investment capital.

g The remaining space at Cannon Place has now let. CMS, who already occupy three floors are merging with law firms Nabarro and Olswang, and have acquired the remaining 84,199 sq ft. The global legal firm will now become the world's sixth largest law firm by headcount.

g Insurance & Financial services have accounted for the greatest amount of take-up at 20% in 2016. They are followed by Tech & Media (13%), Professional Services (10%), and Serviced Office Providers (10%) who continue to provide the City market with high demand.

g Total City supply stood at 7.2m sq ft, equating to a vacancy rate of 5.8%, up on this point last year by 120 bps,

however still down on the 10-year average by 80bps.

g Total space under-offer is currently at 1.4m sq ft, which is up on the long-term average by 1%. Encouragingly, we saw 493,910 sq ft go under-offer in November alone, which is actually the greatest monthly amount seen this year.

g WeWork continued to increase their London footprint with two relatively large acquisitions in November. They took 73,000 sq ft at The Vivo Building at South Bank Central, SE1 at £57.50/sq ft, and 59,000 sq ft at The Tower Building of The Bower Estate, EC1 at £65.00/sq ft.

g For 2016, the average amount of month's rent free on a straight 10-year lease is 18.5. Looking forward, we expect this to slightly increase over the next 12 months.

g Total City & Central London demand is at 8.7m sq ft of requirements, which is in-line with the 12-month and long-term averages.

g With the end of 2016 approaching, total take-up will be circa 5.5m sq ft, the vacancy rate will be circa 6%, and the City average Grade A rent will be circa £63.00/ sq ft. With a very subdued Q2, which saw less than 1m sq ft of take-up, it is positive to see both Q3 and Q4 rebounding well, showing signs that businesses are committed to London as a destination for work. Certainly, questions regarding the Banking sector still loom, but overall the City office market has remained robust through a turbulent time.

An active November has pushed 2016 total take-up over the 5m sq ft mark

Source: Savills Research

Source: Savills Research

GRAPH 1

City take-up by business sector

GRAPH 2

City avg Grade A rent & vacancy rate

Savills Research UK Commercial

TABLE 1

Key November Stats

November stats

Take-up 795,695 sq ft

2016 Take-up 5,022,527sq ft

Supply 7,212,782 sq ft

Vacancy Rate 5.8%

Top Rent £78.00/sq ft

Avg Grade A Rent £62.10/sq ft

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Market Watch | City offices

TABLE 7

Demand & Under Offers

TABLE 6

Development pipeline

Analysis close upTABLE 2

Monthly take-up

Sq ft % Grade A 12 month rolling take-up Total % Grade A % chg on

prev monthVacancy rate (%)

Nov-15 558,912 93% 7,355,891 5,681,604 88% -3.0% 4.6%

Dec-15 772,590 87% 7,439,970 5,583,260 89% -1.7% 4.5%

Jan-16 424,544 83% 7,256,494 5,848,356 88% 4.7% 4.7%

Feb-16 388,436 82% 7,258,957 5,325,841 88% -8.9% 4.3%

Mar-16 855,691 83% 7,115,812 5,483,368 90% 3.0% 4.4%

Apr-16 333,190 86% 6,902,892 5,619,663 89% 2.5% 4.5%

May-16 211,332 98% 6,622,964 5,511,110 88% -1.9% 4.5%

Jun-16 442,939 72% 6,272,593 6,401,861 89% 16.2% 5.2%

Jul-16 592,828 83% 6,216,344 6,411,014 90% 0.1% 5.2%

Aug-16 185,405 100% 5,677,401 6,459,289 89% 0.8% 5.2%

Sep-16 537,493 61% 5,606,259 6,825,047 90% 5.7% 5.5%

Oct-16 254,974 93% 5,558,334 7,467,041 86% 9.4% 6.0%

Nov-16 795,695 55% 5,795,117 7,212,782 87% -3.4% 5.8%

TABLE 5

Supply

TABLE 4

Rents

£ per sq ft Top achieved

Average

Grade A Grade B Prime* Rent free**

Nov-15 £64.00 £58.45 £28.75

Dec-15 £76.79 £57.60 £44.08 £69.52 18

Jan-16 £95.00 £60.57 £21.00

Feb-16 £77.50 £62.84 £43.36

Mar-16 £75.00 £56.89 £46.77 £78.13 21

Apr-16 £79.50 £59.73 £42.17

May-16 £71.20 £63.70

Jun-16 £71.00 £58.11 £43.19 £74.14 17

Jul-16 £107.00 £64.19 £47.62

Aug-16 £77.50 £62.77

Sep-16 £71.50 £58.08 £42.12 £81.00 19

Oct-16 £90.00 £64.16 £42.67

Nov-16 £78.00 £62.10 £45.30

City Potential Requirements (sq ft) 3.2m

City Active Requirements (sq ft) 5.4m

City Total Requirements (sq ft) 8.7m

% change on 12 month ave 1%

Total under offer (sq ft) 1.4m

Under offer this month (sq ft) 493,910

% change on average 8%

Landlord controlled supply 75%

Tenant controlled supply 25%

*Average prime rents for preceeding 3 months

** Average rent free on leases of 10 years with no breaks for preceeding 3 months

N.B. We have amended our historic stock figures, resulting in a slight change of our historic vacancy rates (Aug 2015)

Completions due in the next 6 months are included in the supply figures

Sq ft Refurb Devs Total%

Pre-let

2017 2,598,112 2,246,280 4,844,392 47%

2018 1,010,577 3,858,145 4,868,722 40%

2019 1,073,109 2,779,644 3,852,753 1%

2020 471,000 694,000 1,165,000 0%

Total 5,152,798 9,578,069 14,730,867 29%

Sq ft% change on previous year

% Grade A

Jan 15 - Nov 15 6,667,380 -11% 86%

Jan 16 - Nov 16 5,022,527 -25% 77%

TABLE 3

Year to date take-up

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Market Watch | City offices

Address Floor/s Sq ft Grade Rent achieved Tenant Lessor

4 Cannon Street, EC4 Building 105,842 A Confidential Fidelity International Pembroke Real Estate

Cannon Place, EC4 6, Part 7 84,199 A Confidential CMS, Nabarro, Olswang Hines

South Bank Central, Vivo Building, SE1 1, 2, 3 72,709 A £57.50 WeWork Hermes

Blue Fin Building, 110 Southwark Street, SE1 6, Part 7 65,143 A Confidential HSBC Time Inc

Bastille Court, 1-2 Paris Garden, SE1 Building 62,425 B £42.50 Halkin Confidential

The Bower, The Tower, 207 Old Street, EC1 1 - 6 58,974 A £65.05 WeWork Helical Bar

The River Building, Cannon Bridge House, EC4 1 51,500 A Confidential Deliveroo Blackstone

The Scalpel, 52-54 Lime Street, EC3 2, 3 31,444 A Confidential Axis Speciality Limited WR Berkley

41 Luke Street, EC2 Building 29,997 A £66.00 Rise London Great Portland Estates plc

10 Aldermanbury, EC2 LG, G 28,635 A £40.00 Association of Commonwealth Universities JP Morgan

Address Postcode Available Sq ft Comments

Angel Court EC2 302,840 further 8,750 sq ft under offer

Creechurch Place EC3 278,609

20 Old Bailey EC4 240,617

Herbal House EC1 110,867

The Shard SE1 91,738

Lacon House WC1 79,561 further 79,623 sq ft under offer

International House E1 71,769

8 Finsbury Circus EC2 67,858 further 11,768 sq ft under offer

1 King William Street EC4 57,355

The Monument Building EC3 43,186 further 10,309 sq ft under offer

Whitechapel Building E1 40,904

TABLE 8

Significant November transactions

TABLE 9

Significant supply

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Market Watch | City offices

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Savills plcSavills is a leading global real estate service provider listed on the London Stock Exchange. The company established in 1855, has a rich heritage with unrivalled growth. It is a company that leads rather than follows, and now has over 700 offices and associates throughout the Americas, Europe, Asia Pacific, Africa and the Middle East.

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Peter ThursfieldCity Agency0207 409 8928pthursfield@savills.com

MAP 1

Savills City office market area (updated at the end of each quarter)

City 2016 Q3 stats

Ben RaywoodResearch Analyst0207 409 8791braywood@savills.com

Josh LambCity Agency0207 409 8891jlamb@savills.com