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Viewpoint - 17/07/2013

Victoria office market: a resurgent 2013?

Total office stock in Victoria is approximately 12m sq ft, making it a sizeable submarket within the larger West End market, where total office stock is approximately 55m sq ft.

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Victoria’s proximity to the seat of the UK Government in Westminster has created a higher proportion of public sector occupiers than the rest of the Central London markets. However, non-governmental occupiers, like TMT companies, investment managers, corporates, PR firms and luxury retail brands, are also attracted to the market by good transport connections, the lower rents in comparison with the core West End markets in St James’s and Mayfair, and above average size floorplates.

Victoria had a strong 2012, and was one of the best performing markets in Central London and the whole of the UK, with take-up of office space up by 75% in comparison with 2011, and investment volumes increasing by 60%.

2013 resurgence in rent values

The first half of 2013 has seen a slight slow-down in terms of the volume of transactions in both the occupier and investment markets; however Q2 2013 stats show that headline rents in Victoria have increased to £70 per sq ft, the highest values since 2008, showing resurgence in the market.

In 2012 the largest deal was Burberry’s, a 127,000 sq ft refurbishment by Derwent London: this was the largest individual deal for office space in the West End for a number of years. So far in 2013, the largest lettings have been John Lewis taking 35,000 sq ft in 123 Victoria Street and World Fuel Service Europe  taking 24,000 sq ft in 62 Buckingham Gate.

62 Buckingham Gate, where Land Securities are speculatively developing 250,000 sq ft of offices, alongside a small amount of retail space, will complete in Q3 2013. Oil and gas firm Schlumberger are understood to be under offer on the top three floors of the building.

Public sector cuts increase availability

With the continued pressure on government departmental budgets, the drive to cut costs and over 600,000 q ft of public sector lease expiries due before 2015, it is likely that public sector occupiers will become net-providers of space to the market. In addition to the proposed sale of New Scotland Yard, the Department of Communities and Local Government (275,000 sq ft), Department of Transport (180,000 sq ft) and the Home Office (39,000 sq ft) are looking to relocate, downsize or consolidate.

750,000 sq ft of space under development

The total volume of space under construction in Victoria is 750,000 sq ft, of which 600,000 sq ft is available. Four of the five large-scale schemes in development are due to complete by the end of 2013, although the second largest, Land Securities’ redevelopment of the Zig Zag Building and Kings Gate on Victoria Street will finish in 2015.

The largest scheme in the pipeline is Victoria Circle, a 50/50 joint venture between Land Securities and the Canadian Pension Plan Investment Board. The first phase of development, which comprises 480,000 sq ft of offices, 80,000 sq ft of retail and 170 apartments, is scheduled to start imminently and has a completion date of 2016.

Office conversions to alternative use in demand

Victoria hosts potential opportunities for developers to convert ageing office stock to alternative use, especially when considering the difference between office and residential capital values. It is likely that some of the space released by the government in Victoria over the next two to three years will be taken out of the office market by investors, who will look to residential or hotel conversion to increase an asset’s value, thus easing some of the fears regarding oversupply.

For example, Land Securities, who are said to be investing £1.7bn in Victoria in the next decade, has secured planning permission by Westminster City Council for Portland House to be converted to 206 residential apartments and additional retail space at street level. Since 2011, £250m of office to residential deals in Victoria have completed.

Victoria attracts investment from overseas

The Victoria office market has attracted its fair share of investment from overseas, following the overall trend for Central London. The Malaysian pilgrims fund Lembaga Haji made their second London purchase in Q1 2013 when they bought 151 Buckingham Palace Gate for £205m. Other deals include Mitsubishi Estate’s purchase of 1-19 Victoria Street for £180m, and the National Pension Service of Korea’s acquisition of a 50% share in Hobart House on Grosvenor Place for £105m.


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