Only if the price is right
8 August 1995
23 October 2013
21 July 2014
21 October 2013
16 January 2014
21 March 2014
The main consideration for those organisations with a lease expiry or an option to determine in the next 12-18 months is timing. The amount of available accommodation has been declining steadily over the past few years from the peak of 3.5 million sq ft that was seen in the fourth quarter of 1991. Today, approximately 1.84 million sq ft is available in Holborn; no new accommodation will be completed in 1995 and only 90,000 sq ft will be completed in 1996.
In terms of the longer view, the market has still not strengthened sufficiently to encourage tenants to commit to a pre-letting, which can only be justified from a landlord's point of view subject to a tenant committing to a rent of approximately £35-£40 per sq ft per annum exclusive. As a result, the next wave of new buildings is unlikely to reach the market until 1997/98 at the earliest.
Because of this and subject to demand remaining consistent, levels of supply are set to continue to decline.
As a result, competition will increase for good quality accommodation.
This will naturally result in landlords re-appraising the lease structure and financial package they are prepared to offer to tenants.
Today a tenant seeking around 4-5,000 sq ft on a single floor in a good quality second-hand building providing air conditioning and raised floors can expect to pay a rent in the order of £17.50-£22.50 depending upon the location and quality of the premises.
In addition, a tenant can expect to receive approximately 15 months rent free if they are prepared to commit to a lease for a term of five years, or longer incorporating a tenants-only option to determine after five years.
In some circumstances this deal could be better still. If a tenant is prepared to extend their commitment to a 10-year lease or longer incorporating a tenants-only option after 10 years, then they could expect to receive in excess of 18 months rent free.
We expect over the next six months that rent free periods will undoubtedly decline and in 1996 we anticipate that rental growth will certainly be experienced in relation to good quality accommodation.
In addition, and most importantly for tenants, landlords of good quality accommodation will soon begin to resist granting tenants flexibility after five years, leading to tenants having to commit to leases of 10 and perhaps even 15 years.
In consideration of this situation, if an organisation has the ability to determine an occupational interest in the next 12 to 18 months then if only for financial reasons they should seriously consider relocation now as the rent free period that can still be negotiated will certainly go a long way towards eliminating any potential double overhead situation.
Further, if the flexibility of the lease is of paramount importance to the organisation's business strategy then relocation must be considered now as the window of opportunity looks set to close in the near future.
Finally, irrespective of the financial considerations, tenants must be aware that as supply decreases the choice of available options will decrease.
Undoubtedly tenants have been spoilt in the last few years as they have been able to identify a number of properties which satisfy all of their occupational criteria.
However, over the next 12 to 18 months we will see a situation where tenants will be unable to identify even a single property which satisfies all their criteria and they will have to settle for a compromise.
The message is simple. If an organisation has the ability to move within the next 12 to 18 months they should consider relocation now to satisfy not only their financial aspirations but also their requirements as to the physical elements of the property and the leasing structure they wish to secure.
Matthew Pullen is a surveyor and Rick Aspland-Robinson is a partner in the city business team at Richard Ellis.
The last two floors at 180 Fleet Street are under offer. The building, which comprises a total of 20,000 sq ft became available after the move of Taylor Joynson & Garrett. Other tenants include Fenners and Bracher Rawlins.