30 October 2018
South Bank office take-up jumps but market remains tight

In the three months to the end of September, office take-up across London’s South Bank market increased by 51% quarter-on-quarter but the supply of space remains tight.  In our latest South Bank Market Update, Union Street Partners, reports that a total of 285,180 sq ft was leased in the third quarter of this year with the market being dominated by small-scale deals. In Q3, 82% of all transactions were in the 1,000 to 5,000 sq ft size bracket.

More sizable deals during the quarter included Informa’s acquisition of 40,000 sq ft at the Blue Fin building; WeWork taking 26,183 sq ft at South Bank Central and Runway East signing for 20,000sq ft at New City Court.

Simon Smith of Union Street Partners commented: “Letting activity during the quarter was solid and in line with the 10-year average but the market remains hampered by a lack of supply especially at the high quality end of the market.  Only 3.8% of the South Bank’s office stock is available and new space is finding occupiers before construction is complete. In SE1, 69% of the 500,000 sq ft of space under construction has already been let.   There is around 813,000 sq ft of space currently available, a large majority of which is made up of second-hand Grade A or B accommodation.  With more than 100,000 sq ft of offices now believed to be under offer in the Cottons building at London Bridge City, the momentum in the South bank market is continuing into the final quarter of the year.”

The area’s investment market also saw a quarter-on-quarter increase in volume with £373m of transactions being completed in Q3 – a more than fourfold increase on Q2.  Key deals included Alduwaliya’s £107.9m purchase of the Cooper & Southwark Building at a yield of 4.54%; Fore Partnerships £51m acquisition of Tower Bridge Court; and Knight Frank Investment Management’s £24.75m purchase of Mitre House on Borough High Street at a yield of 4.87%.

USP Investment Partner, Alastair Hilton, comments: “Throughout the year we have expressed  cautious optimism in respect of the South Bank’s capital markets.  Whilst Q1 and Q2 were disappointing in terms of turnover, Q3 demonstrated the depth of investor appetite if there is liquidity in the market. Furthermore, the pricing achieved on 100 Union Street at c£1,300 per sq ft and c£1,400 per sq ft on the Cooper and Southwark Building demonstrates how far this market has come.  The South Bank’s historical Achilles heel has been its inability to maintain value. This is now not the case as it has become a fully-fledged and key Central London market. Beyond this, appetite for risk remains strong which is again indicative of its  strategic appeal.”

In the South Bank retail & leisure sector, transactional activity has been dominated by restaurant and café lettings this quarter, but strong demand remains across all use classes for good space in the right location.

USP Retail & Leisure Partner, Matt Martin, comments: “The South Bank market has fared well in the face of recent market challenges, although landlords often need to be more flexible and creative in order to achieve the best results. It’s critical for Landlords to engage early with retail and leisure experts to ensure that space of the right use class, quantum and configuration is being delivered relative to the location.  There is a huge pipeline of new space being delivered during the next five years, a lot of which centres around major transport hubs such as Waterloo and London Bridge. We continue to see strong levels of demand further afield in areas such as Brixton however, demonstrating the huge opportunities for retail and leisure operators throughout the South Bank.”