City Office Space – What does the Cheesegrater deal mean for the City Office market?

Commercial property agents dealing with shiny City of London office buildings have had little to talk about in recent months with letting activity down in the square mile. But at last a headline grabbing deal has come along in the form of AON committing to office space in the Cheesegrater on Leadenhall Street, London EC3.

Like all large prelet deals in the City they take time and this one is no exception. AON have been building up to this moment for around 10 years and it’s no surprise that British Land is the talk of the town with property folk.

Landlord agents love to talk about big deals and in the City more than ever the AON deal was needed. Morgan Pryce being tenant only agents have come across some pretty depressed letting agents trying to let their buildings of late but in the last few days a bit of good news has improved sentiment notably. We fear though it could be short lived as the fundamentals of the market are unchanged.

Take up in the City is still lower than last year and the AON deal was well anticipated. Ryan Blanchard of Morgan Pryce commented that “although the Cheesegrater deal is good news, AON are going to leave behind a similar amount of floor space from a cluster of buildings so the net take up of office space will be fairly neutral. It does mean however that there will be some interesting short term sub let space to be considered for office seekers wanting cheap offices.”

The actual deal is reported by British Land as being for 191,000 sq ft for the 10 lower floors of a 47 storey building at a rent of £56.50 per sq ft p.a for 19 years and a 33 month rent free. It’s an interesting deal which in our view would have been better if AON could have committed to it 12 months ago and it’s on balance a better deal for the landlord than the tenant.

The deal obviously commits British Land to building out the rest of the building but the prelet will allow them to commit funds and raise debt to what promises to be one of the City’s best looking towers. Morgan Pryce is excited about the prospect of moving our clients into some of the upper floors should the economics makes sense, and there is a good choice with 28 to choose from. So well we’ll be watching closely the construction and further deals.