More growth in offices take-up expected from strong TMT sector – Savills
The technology, media and telecoms (TMT) sector accounted for 20% of take-up of office space in Central London last year, Savills notes. The last time TMT was this prominent in terms of take-up was just before the dotcom crash of 2000, but the firm says that the stronger financial position and more restrained valuations of TMT companies now suggest that the market is sustainable.
Savills also says the strong TMT take-up also reflects the relative weakness of the banking and finance sector, the traditional source of large-scale demand. “The lack of major deals done by banking and finance in 2011 both inflates TMT’s share of demand but also left opportunities for others to acquire high-quality space on favourable terms,” it notes.
While the traditional homes for TMT occupiers are in the Soho, Noho, and Covent Garden areas of the West End, the area surrounding the Old Street roundabout (“Silicon Roundabout”) has become a “hotbed of start-up activity”. Larger TMT companies are also increasingly likely to take space in areas with a better supply of large Grade A offices in Paddington, Victoria and Kings Cross, which also enjoy strong transport links and rents below what would be paid in core submarkets. “Meanwhile, rents for Grade A space in City fringe areas are in the region of £35 per sq ft, compared with nearer £60 per sq ft in Soho. So cost-conscious companies with smaller space requirements are more likely to locate in Clerkenwell, Farringdon or Shoreditch,” the firm adds.
Beyond London, Savills notes that computing giants such as Microsoft and Cisco remain rooted in their M4 corridor locations, while there are also strong TMT occupier markets for office space in Bristol and offices in Manchester.
Looking ahead, Savills notes that 33% of the 2.2m sq ft of current active requirements for office space in Central London are by TMT companies, and that this includes four companies seeking more than 100,000 sq ft. On average, these requirements are 48,000 sq ft, significantly above the market average of 33,000 sq ft – this is in contrast to the trend seen over the past decade, where TMT deals were consistently below average size. “This likely shift to larger deals reflects not only the relative strength of the TMT sector, but also their improved negotiation position in the absence of other business sectors,” the firm says.
Oxford Economics expects London’s TMT workforce to grow by 40,000 to more than 300,000 by 2016. “Based on a simplistic average amount of space per employee of 100 sq ft, this would result in the need for a further 4m sq ft,” Savills says.
