Savills says more development opportunities are being marketed than ever before, with a number of high profile sites attracting fierce competition from both UK and overseas investors, particularly in the South Bank. In the last six months, notable activity includes:
- Guy’s and St Thomas’ Charity choosing to partner with Stanhope and The Baupost Group on a major 5.5 acre (2.2 hectare) development opportunity at Royal Street, London SE1.
- LandSec’s £87.1 million purchase of 25 Lavington Street, consisting of two office buildings and up to 128,000 sq ft of space, to complement its already burgeoning development pipeline on the South Bank.
- M&G Real Estate acquiring The Financial Times‘ London headquarters at One Southwark Bridge from Pearson for £115 million, 28% above the asking price.
Fundamentally, Savills says the central London market as a whole is in good shape. London’s investment market has been remarkably strong since the EU referendum vote, with 2017/18 combined marking the third best two-year period for investment ever. The firm’s figures show take-up of new office space has also been operating at record levels with the same two year period marking the strongest ever.
With this backdrop, South Bank has the most constricted supply of good quality office space across the whole of London, with a vacancy rate of 3.2% – notably lower than the City (5.2%) and West End (3.9%). Adding to the recent announcements, ongoing sales in the area include the former ITV HQ at Upper Ground, Colechurch House next to London Bridge and the soon to be vacant Blackfriars Crown Court.
Rob Buchele, director in the central London investment team at Savills, expalins:
“The truly mixed-use composition of South Bank and its spread of office occupiers and business sectors continues to attract strong demand. This demand has seen rents increase by 25% in the last five years and with Grade A space in the area now marketed at over £60 per sq ft, as rents homogenise across central London, development has become an attractive option with the added potential to pre-let ahead of completion.
Savills says a rise in commercial values coupled with more stringent affordable housing requirements has led to central London office values in emerging markets such as South Bank, Shoreditch and Aldgate overtaking residential as the highest land use. With this reversal, Savills expects to see landowners re-appraising land values which may in turn lead to further site sales. The firm names Zone 2 hotspots including Whitechapel, Canada Water and areas around White City as ones to watch in 2019.
Oliver Fursdon, head of the central London development team at Savills, added:
“Recent activity is partly a result of landowners reacting to this market demand – but across town, the release of sites has also been driven by other strategic factors such as occupier vacant possession, pressures on public sector land owners and circumstance. Supply and demand feels well balanced at present, and as a result, pricing remains strong. South Bank has proved to be invariably top of the ‘wish list’ for investor developers in the last six months but we expect to see this focus spread in 2019 as opportunities continue to emerge across central London.”