City Office Market Watch

City expected to finish the year with take-up surpassing 7m sq ft and a vacancy rate of sub 6%

Market comment and notable deals

  • Take-up showed no signs of slowing down in October with 812,298 sq ft being transacted, of which Grade A accounted for 97%. There were a total of 34 transactions with an average deal size of 23,891 sq ft.
  • This brings total take-up for 2018 to 5.9m sq ft, which is actually 2% up on this point last year, and 26% up on the 10-year average for take-up to the end of October. There have been a total of 348 transactions so far this year, which is down on this point last year (381), but up on the 10-year average of 325.
Table 1

TABLE 1 | Key October stats
Source: Savills Research

  • At the end of Q3, the City fringe has only accounted for 35% of take-up, significantly down on last year (47%), but slightly up on the 10-year average (34%).
  • Last month saw TP ICAP pre-let levels 2 - 4 & 11 (122,525 sq ft) at 135 Bishopsgate, EC2 on a 15-year lease. The refurbished British Land scheme is scheduled to complete in Q1 next year. The remaining space is either under-offer or under-option.
  • Also in September, LinkedIn pre-let the whole of The Ray, 119 Farringdon Road, EC1 (82,910 sq ft). The tech company will move from its current location at Castlewood House on New Oxford Street.
  • Insurance & Financial services continue to be the source of the majority of demand in the City, accounting for 20% of take-up at the end of Q3. However, the Tech & Media sector is close behind as expected, accounting for 19%. Appetite from Serviced Office Providers remains strong, as they account for 12%.
Graph 1

GRAPH 1 | City 12-month rolling take-up
Source: Savills Research

  • October saw some strong rents being achieved. Experian have taken part of level 34 (east) at the Salesforce Tower, 110 Bishopsgate, EC2 at £83.00/sq ft. While this is expected for a tower floor, The Farmiloe Building, EC1 achieved an overall average rent of £80.00/sq ft when Live Nation pre-let the entire 63,396 sq ft building constituting of lower ground to fourth floors.
  • Total City supply at the end of October stood at 6.5m sq ft, equating to a vacancy rate of 5.1%, which is down on this point last year by 90 bps, and down on the long-term average by 150 bps. This is the twelfth consecutive month of the vacancy rate being sub 6%, and the lowest it has been since May 2016.
  • Currently, 72% of supply is of a Grade A standard, which is down on the five-year average of 84%.
  • At the end of the year, we will be adding in to supply circa 412,000 sq ft of space scheduled to achieve completion in Q2 next year. Factoring in take-up in the last two months, it is highly likely the vacancy rate will finish the year below 6%. We won't see the anticipated rise of the vacancy rate to past the long-term average of 6.6% until the end of Q2 next year, as currently we are expecting 2.1m sq ft of space to complete in Q4 2019 alone.
  • However, we have seen a record number of pre-lets across central London this year, currently at 25 with two months remaining, which is already up on the previous record of 19 set in 2016. These pre-lets have accounted for 38% of total central London take-up so far this year, significantly up on the 19% share last year and the 10-year average of 16%. Therefore, if this pre-letting trend continues into next year, we could see the vacancy rate remaining low in a historic context.
Graph 2

GRAPH 2 | Central London pre-letting market share
Source: Savills Research

Analysis close up

Table 2

TABLE 2 | Monthly take-up
Source: Savills Research

Table 3

TABLE 3 | Year-to-date take-up
Source: Savills Research

Table 4

TABLE 4 | Rents
Source: Savills Research
*Average prime rents for preceding three months
** Average rent free on leases of 10 years with no breaks for preceding three months
N.B. We have amended our historic stock figures, resulting in a slight change of our historic vacancy rates (Aug 2015)

Table 5

TABLE 5 | Supply
Source: Savills Research
Completions due in the next six months are included in the supply figures

Table 6

TABLE 6 | Development pipeline
Source: Savills Research

Table 7

TABLE 7 | Demand & Under Offers
Source: Savills Research
Demand figures include central London requirements

Table 8

TABLE 8 | Significant October transactions
Source: Savills Research

Table 9

TABLE 9 | Significant supply
Source: Savills Research