Office redevelopment and receivership main themes in Q2 2011

Colliers research confirms rental growth in West End sub-markets due to lack of Grade A space

Article posted: 05 Aug 2011

According to the latest property snapshot from Colliers International’s office redevelopment and receivership were the main themes in Q2 2011. As for occupancy rates, the West End has seen rental growth in all sub-markets due to lack of Grade A space while the City is less pressured and regional leasing is sluggish with vacancies stable, but high.

Oxford Properties bought a 50% stake in office space in London’s Midtown at 71 High Holborn for £141m at 5.5% IY and NAMA sold 1 King William Street for £67.5m at 5.6% IY. It appears these were the only straight income deals. St Katherine’s Estate, with expiring leases, was sold to a JV for £156m. Receivers sold 6-8 Bishopsgate with lease expiries in 2015 for £95m at 7% IY. British Land bought Wardrobe Court with a lease expiry in 2014 as a residential resale or redevelopment opportunity for £57m at 4.7% IY. USS acquired a redevelopment project at 110 Canon Street for £48.5m.

Office space in the West End at 35 Marylebone High Street was sold to Scottish Widows for £32.2m; offices in Notting Hill at Newcombe House was bought for £47.5m at 3% IY with a mixed-use redevelopment in mind; and office space in Paddington at Eastborne Terrace was acquired for £76m by a pension fund with an eye toward the adjacent Crossrail development.

It was fairly quiet in the regions, but British Land purchased office space in Maidenhead, Berkshire at Grenfell Island (pictured) for £74m at 7.5% and receivers have sold office space in Bristol at Aztec West for £14.6m at 8% IY to a private investor. A few regional office secure income sales may be imminent.

In the occupier markets, take-up of office space in the City of London improved in Q2 11, due mostly to Aon’s 191,000 sq ft letting. Incentives and headline rents of £57.50 per sq ft are stable. Aside from Aon, no letting over 35,000 sq ft was reported in the City Core in Q2. Heron Tower rents have reached £62.50 per sq ft.

With leasing completing at Central St Giles and Regent’s Place, most office space activity in the West End is linked to churn. Headline rents have reached £95 per sq ft with Grade A space scarce. Rents are also rising in non-core areas with new Soho office schemes set to change the area’s rental tenor.

Meanwhile demand for office space in Birmingham is improving, with firms such as The Law Society looking for accommodation in the West Midlands capital. Lack of Grade A office space in Glasgow and Bristol has potential occupiers looking at non-core areas which may lead to an increase in pre-lettings in Bristol. Elsewhere, leasing is sluggish.

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Posted by Sam