Victoria Office Report 

The last year has seen the radical transformation of Victoria and Westminster continue unabated. Development stepped up a gear with the commencement of the Nova and Zig Zag schemes on Victoria Street. New high profile tenants vied with existing local occupiers to take space within the new buildings.

New consents for mainly residential conversion promise to further transform the area, if they are all built out. However, as increasing office rents narrow the margins between commercial and residential, this may well prevent further loss to residential from the commercial stock.

Take up outstripped the previous year by just shy of 10%, the highest since 2007. The total number of deals was down, despite there being a rise in the number of deals above 10,000 sq ft. Unsurprisingly, the average let floor plate size has risen again to 6,700 sq ft and looks set to continue getting higher as smaller units are lost to residential, and with the expected increased activity asthe larger schemes lease up.

The loss of commercial stock to residential continues to change the area. The values and planning regime have been favourable to conversion for many years resulting in a significant net loss of offices.

However, both aspects are now in a state of flux as the planning becomes more restrictive and commercial values compete more closely with residential levels. Investment properties attracted UK funds back into the market for the first time in five years, with more transactions to UK pension funds than overseas investors. The level of investment in terms of both total turnover and number of deals was significantly up on last year. As the transport infrastructure works around Victoria Station and the major schemes complete, Victoria will start to get back to "business as usual" during late 2015/16. However, with the hugely improving amenity offering and the streamlined office supply, the ‘’old Victoria’’ is perhaps now gone forever, creating even more scope for mainstream investors to extract value in this area and an exciting new hub for occupiers.

Victoria Office Report 


2014 ended with supply down almost 65% at 313,818 sq. ft. from 2013, leaving Victoria with the lowest stock this century and a vacancy rate of 2.3%, based on a supply of 13.5 million sq. ft. As a snapshot, Grade A space available at the year end represented only 25% of total availability, although this will rise significantly during 2015 and 2016 as Zig Zag and then Nova are completed. Availability below 10,000 sq ft was squeezed by 66%, as the conversion of smaller office buildings to residential of gathered pace. It resulted in sharp rental growth within this sector as tenants battled to secure the few available units. With little new stock likely to fill this gap we expect further strong rental growth during 2015.

Availability above 10,000 sq ft fell 37.5%, although with new schemes set to complete and come to the open market in 2015, including Land Securities’ Zig-Zag on Victoria Street this statistic will change sharply.

Take up during 2014 outstripped 2013 by almost 10%, at 817,962 sq ft, the highest total since 2007, when 1,150,000 sq ft was let, although the actual number of transactions fell 17.5% to 122. However, drilling a little deeper into the figures reveals that whilst there was a 22% rise in the number of deals above 10,000 sq ft (33% rise by square footage), activity sub-10,000 sq ft actually fell 20% on 2013, albeit this was more a factor of dwindling supply than of falling demand. Office rents in this sector have risen sharply on the back of very strong competition for limited space. Unsurprisingly, the average letting size has risen 27% to 6,700 sq ft, almost 1,500 sq ft above the ten year average, and looks set to continue to increase as further smaller units are lost to residential, together with the increased activity that will come as the larger schemes at Zig Zag and Nova come online.

Demand in Victoria remained strong through 2014, and will continue in this vein in 2015, owing to a combination of lack of stock and increasing rental levels in the core West End pushing tenants across the park. This combined with the continuing improvements to Victoria making it a more fashionable and desirable location. Add to this the impact of residential conversion displacing long-standing local tenants, and it is no surprise take up was at near record levels.

Grade A space represented 52% of the total space let, including two notable lettings over 80,000 sq ft. 39 Victoria Street was let to the Parliamentary Estate in one of the largest government-backed deals in the area for ten years. After a slow start, Terrace Hill’s Howick Place secured its last tenants, including the 81,000 sq ft letting to Dong Energy, and PR firm Edelman soaking up much of the remainder as overflow space from their HQ at 105 Victoria Street. The success story at 62 Buckingham Gate was similar, with 83,000 sq ft let over the year.

Tenants for the larger space came from across the capital, although its worth noting that of the 500,595 sq ft let above 10,000 sq ft, 309,000 sq ft was let to existing Victoria occupiers. A number of these were displaced by developments at Portland House and 65 Buckingham Gate. Although not included in 2014’s figures, it is worth nothing that ZigZag secured a pre-let to Jupiter Asset Management, another Victoria tenant, of three floors, with a headline rental level in excess of £80 psf, the first open market letting to do so in Victoria.

The predominance of larger floor plates had been expected to be an issue but with the lack of new Grade A floorplates in the rest of the West End, tenants have looked to Victoria to satisfy demand. The letting to Kering at 62 Buckingham Gate and Armani at Howick Place showed that the influx of fashion houses to the area is set to continue.

Victoria Office Report 

Future Supply

At the year-end there were 10 floor plates immediately available over 10,000 sq ft and 12 between 5,000 and 10,000 sq ft. With ZigZag coming on line in Q3 2015 and Nova and VerdeSW1 following suit in 2015/16 this is due to change and the availability will suddenly and massively increase as each of the five buildings become available to provide a further 480,000 sq ft of space.

Lack of stock at the lower size ranges is likely to deteriorate as no new developments cater to this bracket, and this will naturally continue to have an effect on rental values, particularly between 2,000 and 5,000 sq ft. The impending loss of Portland House to residential will compound this position markedly, which is of concern, given the "incubator" status that Victoria has held for some time, enabling firms to grow in to the larger buildings, within the same geographic area.

This will rise significantly during 2015 and 2016. Nova and Zig Zag are currently ongoing in Victoria providing 480,000 sq ft and 190,000 sq ft of space respectively, with 80,000 sq ft and 7,500 sq ft of retail and leisure units. VerdeSW1 provides a further 281,000 sq ft.

TFL is nearing completion of the tube platforms at Bressenden Place which will better service the commuter flow through the station. Loss of commercial space to residential remains at the heart of Victoria’s transformation. Many government buildings located in more secondary areas have been redeveloped to create a range of apartment sizes which are likely to create communities, rather than exclusively wealthy ghettos.

The total loss of office space in the area over the last eight years will reach 2.8 million square feet if all the schemes with planning are developed. This reflects around 19% of the total office floor space. However, analyzing these figures further, only 800,000 sq. ft of this comes from the commercial office supply, rather than the Government estate. Also of the total, only about a third is in what can be deemed ‘primary’ commercial locations, with the remainder being too far from transport or already within predominantly residential areas.

The redevelopment of the dilapidated Victoria Circle site (now Nova) will transform 650,000 sq. ft. of commercial space and regenerate the area in front of the Station. The redevelopment of Scotland Yard’s Broadway office will also turn a defunct Government building of 350,000 sq ft into a vibrant 1.7 acre mixed-use scheme. Grosvenor Gardens House provided poor quality offices in a stunning listed building and will now be rejuvenated as top-end residential and retail.

The main negative result of this elevated level of development is the loss of office space in commercial locations, which were originally built as commercial and can still function as such. Whilst a commercial reality, the differential in values has resulted in the loss of various buildings which could and perhaps should have been retained. The result of this is that many tenants will be forced to relocate to other areas of the capital and rents will inevitably increase for those occupiers who stay in the area.Changes to the planning regime will limit future losses of commercial in the CAZ. However, as commercial values are now almost at parity with residential, this is perhaps academic.

Victoria Office Report 


The quantity of investment sales increased by 25%, taking it well over a billion pounds worth of turnover, in slightly fewer deals than 2013. The sale of New Scotland Yard for an unprecedented £370 million at the very end of the year pushed the total into new territory.

Unfortunately, almost half the deals, or 30% of the total, will take commercial space out of the total Victoria stock level, for conversion to either residential or hotel uses. However, for the first time in many years, two of the transactions were for buildings with residential consent, but will be retained as commercial as private offices, showing that values are reaching parity for some buildings. The origin of the funds was predominantly UK based, and most have development or comprehensive refurbishment as a focus. This clearly shows the appetite for asset management heavy stock and the projection for growth for the area. American based funds purchased the largest properties at 123 and 111 Buckingham Palace Road, 33 Chester Street and Sanctuary Buildings. All have short to medium term asset management work to be carried out.

Threadneedle came back into the market buying Warwick House on Buckingham Palace Road and DTZIM purchased Sanctuary Buildings. We see further funds buys being very likely during the course of 2015 as the area matures and the market continues to strengthen.

Victoria is a vibrant part of the West End of London and provides an electric mixture of history, art, culture and commerce. As the political heart of the United Kingdom and home to the second busiest train station in the country, there is an incredibly diverse range of people who both live and work in the area.

We see supply reducing significantly in the short term before the transformation around the station is complete at the end of 2016/17 when a number of significant floor plates will be launched at Nova, VerdeSW1 and 33 Grosvenor Place.

The appeal of Victoria is becoming wider as the supply improves in quality and the local amenities are enhanced to cope with the changing tenant profile. Whilst the appetite within the area itself is significant for higher quality space, interest will need to be captured from the wider London market to ensure that potential tenants are not missed.

The loss of commercial space to residential continues to be a major issue. Development has rejuvenated much of the area, and has soaked up much redundant commercial space, but is now being recognized by the planners as something that needs to be slowed.

Hopefully, residential prices will not become prohibitive and communities will be created rather than deserted. Around 20% of the commercial supply has been lost in the last seven years and more is under threat. However, corporates will be attracted by the new large Grade A floor plates, whilst rental levels for smaller SMEs will become significantly higher.

The pivotal investment by Land Securities and TFL has (literally) created a platform for Victoria to build on. Proximity to the river, parks and the Palaces of Buckingham and Westminster gives Victoria the fundamentals on paper that overseas investors understand.

Other UK investors, who were previously wary of Victoria as an uninspiring location will now hopefully change their views.

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Victoria Office Report 

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