London's Southbank Office Market Closing Price Gap with City's Core Rates

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Thanks to a flurry of office development, with more to come, rents in London's Southbank are biting at the heels of the Square Mile. The opportunity to exceed City rents arises in the premium buildings that will come on stream at Waterloo.

James Roberts, Head Economist at Knight Frank reports that the gap between average prime office rents in London's Southbank and the City Core is at its lowest level since records began. This reflects the seismic changes that have occurred south of the Thames, thanks to a wave of new iconic developments.

Prime office rents in the City Core stood at £66.50 per sq ft, compared to £62.50 per sq ft for Southbank. In the last year rents have increased 19% in Southbank, compared to 11% in the City Core. As the table below shows, the discount to City rents has been gradually diminishing, and looks set to disappear altogether, as Southbank matures as a front office location.



Moreover, the above figures are for standard, non-trophy prime offices. Upper floor rents in iconic towers are broadly similar for both City Core and Southbank.

The transformation largely reflects new development in the area. New office-led estates at More London, Bankside, and London Bridge Quarter, along with additional leisure and retail facilities, like the refurbishments of Borough Market and the Southbank Centre, have transformed the district.
Moreover, Southbank has been at the forefront of London's growth as a major Technology, Media and Telecoms (TMT) centre. In the last four years, 16% of office deals by TMT firms in London were in Southbank. Given the district accounts for 6.6% of London office stock, Southbank is clearly punching well above its weight on landing the TMT deals.

To maintain the momentum, Southbank will need to continue delivering modern office stock. Therefore the recent sale of One and Two Southbank Place to property investor and developer, Almacantar, should clear a path to the next wave of development. At £550 m, this is the largest property deal ever completed on London's South Bank (excluding estates) and the second largest commercial property deal in Central London, so far this year.

One Southbank Place is a proposed brand new office building, which is pre-let in entirety to energy giant, Shell. The neighboring Two Southbank Place is a 292,000 sq ft office building, offering panoramic views over the River Thames, with ground floor retail. It will be ready for occupation by the end of 2018. Canary Wharf and Qatari Diar will have full responsibility for the construction and delivery of the buildings.

Facing York Road, they are set within the wider redevelopment of the 1.5m sq. ft. Southbank Place, being undertaken by Braeburn Estates. This incorporates the historic Shell Centre tower, new residential towers, and extensive public areas. Given its direct underground links to the West End (Green Park - 2 stops), City (Bank of England - 1 stop) and Canary Wharf (5 stops), and the excellent transport links offered by Waterloo Station, we see Southbank Place adding to the area's appeal to the TMT sector, and businesses more broadly.

Further down the line, the Northern Line tube extension to the Battersea Power Station, via Nine Elms, will open up 195 hectares of former-industrial land for regeneration. There are plans to develop 1.25 m sq ft of office space at the Battersea site, with 470,000 sq ft in the power station itself.

Southbank is turning into a city in its own right. It has a larger office stock than Edinburgh or Leeds, and a list of major tenants that other cities would envy (PwC, EY, News UK, IBM, and Omnicom, to name a few). This is establishing it as a premier office location.