Small Talk: Developers eye boom in London office demand

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The Independent Online

It's been a good couple of days for the London-focused property groups. Mid-cap developers Great Portland Estates and Derwent London enjoyed strong gains last week on news that the capital's office market was booming.

This upswing was expected, with analysts repeatedly pointing to a revival after projects were pulled during the financial crisis.

But last week saw confirmation in the shape of updates from both Derwent and blue-chip peer Land Securities. The latter was particularly upbeat, and said it planned to embark on a speculative building spree to capitalise on the expected shortage in office space.

In Derwent's case, the news was also good. The company issued a strong update, and it launched a convertible bond,bolstering its resources to make the most of the boom.

The show of strength came on the heels of some telling research from CB Richard Ellis showing that overall availability in the London office market had barely moved at the end of April, coming in at 13.9 million square feet, "a 35 per cent decrease from the market peak" back in 2009.

And although transactions were down over the month, falling to just 391,500 square feet, the lowest since February 2009, this was in line with expectations of weak activity during the first half of the year.

"We expect this to give way to stronger levels of take up towards the end of the year, with pre-letting becoming more prevalent," Digby Flower, the head of CBRE's central London agency, said.

It is also worth bearing in mind that the pullback came after a strong 2010, which saw central London offices shining as the country's top-performing property market. A brief pause does not seem out of step following that performance.

For those looking for more than predictions, last week also saw some encouraging news on the lettings front, with Google UK signing the biggest rental deal of the year. The UK arm of the search engine giant sealed an agreement to rent 160,000 square feet at the Central Saint Giles development. The group will take up office space on the entire fourth, fifth and ninth floors, along with parts of the third and sixth floors, and has signed a 10-year lease.



Canaccord sees strong deal flow

Last year marked a revival for many small-cap brokers. After being bruised during the recession as deals dried up, they made a comeback as their clients regained their composure.

The TSX and Alternative Investment Market-listed Canaccord Financial is a case in point.

Last week, it said that revenues for the year to the end of March had rocketed to $803.6m (£494.7m), an all-time high, and up by nearly 40 per cent on the previous period.

Canaccord's London arm – known as Canaccord Genuity – also had a good year.

Though perhaps not as well know as some of the other small brokerages, the business, which employs some 150 people, is not to be scoffed at. In the year to March, revenue per head in the London arm stood at £408,000, putting it ahead of many of its better-known peers. Canaccord Genuity also stands out when you consider the growth in revenues since 2009.

The gains make sense when you look at the span of their work. 2010 saw the completion of 25 transactions with a total value of £2.4bn. That included 24 financings in which Canaccord helped raise £2bn. They played a part in a number of well-known deals, including Rockhopper Exploration's placing in October.

In January, Canaccord was also involved in Petra Diamonds's placing, one of the largest-ever secondary fundraisings on Aim. It also acted on the Eastplats placing in December, and won five new retained clients over the first quarter of the year, giving it a total of 64.

As for the road ahead, analysts at Charles Stanley recently played down any concerns prompted by the postponement of three Russian IPOs, including Nord Gold, which involved Canaccord.

"While this might be seen as a cautionary point for Canaccord's London-based activities, particularly as it was co-manager on the Nord Gold issue, the company's outlook here is upbeat, reflecting benefits being seen from investment[s] made in the business, and continuing prospects of increased mergers & acquisitions, and other activity," they explained.

On another positive note, they highlighted the weighting of new issues on Aim, with oil & gas, and mining, returning to form.

Canaccord, Charles Stanley said, boasts a strong reputation in both resource-related sectors.

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