What was The Buzz in September?The Buzz
Our monthly roundup of real estate industry news.
Here are a few of the stories that caught our attention in September. From increasing City space demand, a hefty lease forfeit for Meta and one of the decade’s largest shopping centre deals on the horizon, it’s all systems go for the UK property market. Plus there’s a new flexible workspace on the block.
Back to your desks! City banks take tough stance on hybrid working
Demand for London office space has climbed with banks the most active, according to new research. While many big firms accept that a hybrid working model is here to stay, City banks in particular are taking a tough stance.
JP Morgan and Goldman Sachs have made it clear they expect to see staff most days, if not all five, especially if they run a department. Are as result, demand for London office space has climbed with figures compiled for the Standard by JLL showing firms sought 11.8 million new square feet in August. This has increased for five consecutive months and is 44% higher than the same period a year earlier. It is also 31% above the long-term average.
British Land eyes blockbuster sale of Meadowhall
British Land is preparing a blockbuster £750 million sale of Meadowhall in Sheffield in a deal that will test the market’s appetite for prime shopping centres after years of turmoil.
A deal for Meadowhall, 50/50 owned by British Land and Norges, Norway’s sovereign wealth fund, would mark one of the largest shopping centre deals of the past decade. The £750 million asking price equates to a yield of between 7 and 8%. Property agents from CBRE have been appointed to handle the sale, which will kick off in the coming weeks.
Shopping centre values have crumbled over the past five years as the likes of Debenhams and Sir Philip Green’s Arcadia empire collapsed. The rise of online shopping and stubbornly high business rates have forced landlords to swallow steep rent reductions. But Meadowhall, which counts Marks & Spencer and Primark among hundreds of tenants, is 98% occupied.
Meta pays £149m to ditch London office as staff work from home
Facebook’s parent company Meta has paid £149m to forfeit its lease at a major London office as its staff continue to work from home. The social media giant made the payment to landlord British Land as part of its exit from the eight-storey office on 1 Triton Square, near Regent’s Park, with the break fee amounting to around seven years of rent.
Analysts at BNP Paribas Exane said Meta had paid a “huge surrender premium” to give up approximately 310,000 sq ft of prime real estate in central London, and had another 18 years outstanding on the office lease.
There’s a new flexible workspace in town
A ‘white label’ flexible workspace management company, Covalt, has formally launched to market, with over 100,000 sq ft of office and amenity space already under management.
Covalt was founded by former Cushman & Wakefield flexible workspace executives, Calum Russell (CEO) and Dave Moran (COO), as well as Julian Arlett (CFO) from luxury hospitality group Habitas. Combined, the team has more than forty years’ experience across the flexible workspace and hospitality sectors, having previously worked for the likes of NewFlex, Hilton, easyHotel, De Vere Hotel Group and the Malmaison & Hotel du Vin Group. The team will draw on this unique experience, bringing hospitality style-service and amenities to flexible workspaces.
Whether taking over an existing flexible workspace or developing a bespoke proposition, Covalt says it looks to offer improved returns and is the market’s “first genuinely white label service”, enabling landlords and investors to retain an existing brand or develop their own flexible workspace offering.
Covalt has already signed agreements with major industry players and has similarly ambitious growth plans. Within the next five years, the company aims to have over a million sq ft under management and a minimum of 30 centres, mainly across London and the South East, but targeting key cities including Bristol, Birmingham, Manchester and Leeds.
Covalt’s launch comes amid soaring demand for flexible office space, with the global flexible space market anticipated to grow by 17% between 2020-28, according to the Global Flexible Space Market Outlook 2028 report.
London office values are correcting faster than its European counterparts
The trajectory of capital values in London’s office sector is further ahead than almost every counterpart market in Europe, according to MSCI data analysed by BNP Paribas Real Estate, with capital growth for London’s office sector declining by 17.1% year-on-year (Q2 2022 – Q2 2023).
Further analysis of the data for office market capital growth over the same period across eight additional key markets – Amsterdam, Berlin, Dublin, Hamburg, Frankfurt, Milan, Paris, and The Hague – revealed the office sector in the UK capital had corrected the most since June 2022, with the exception of Amsterdam.
BNP Paribas Real Estate suggests London will likely be the market to lead a recovery in investment momentum in coming year, and investors focused on the medium-term outlook should be cautiously preparing for a turning point on the horizon.
Fergus Keane, head of central London investment markets at BNP Paribas Real Estate commented: “The London office sector is offering a very rare entry point for investors for either repriced core product, or those with the means to spend capex to reposition assets into the core market. For a decade, it’s been a seller’s market, and that’s now flipped, with buyers holding the upper hand, particularly if you’re an all equity player.”