West End Office Market Watch

Space under offer remains at a high level despite slow start to the year

Supply and demand snapshot

Take-up over the first month of the year reached 178,554 sq ft across 18 transactions, with an average deal size of 8,513 sq ft. Whilst this was 45% down on the long term average, and the volume of transactions was the lowest for January in over 10 years, this is to be expected with the continued ongoing Brexit negotiations. We expect to see a lower volume of transactions complete over the first quarter of this year.

Despite this, space under offer still remains well above the long-term average, with 237,000 sq ft going under offer during the month. This held the overall total at just over 1.2m sq ft, giving a strong indication that leasing activity over the course of 2019 will remain robust.

Pre-lets accounted for 42% of the overall sq ft let in January and there were five transactions to the Insurance & Financial sector and four to the Tech & Media sector. The largest transaction, (and pre-let) to complete so far this year has been Paymentsense’s acquisition of the 8th and 9th floors (33,000 sq ft) of the Brunel Building, W2, on a 15-year lease, at £77.50 per sq ft). Other notable pre-lets to complete include WeWork acquiring the entire building (23,363 sq ft) at 21 Soho Square, W1 and Lansdowne Partners taking the sixth to ninth floors (18,331 sq ft) at 25 Berkeley Square, W1, both on terms which remain confidential at present.

Currently we are tracking around 4.1m sq ft of West End & Central London requirements, 40% of which are between 10-20,000 sq ft. The Tech & Media and Insurance & Financial sectors continue to be main drivers of requirements, accounting for 38% and 22% of respectively.

Graph 1

GRAPH 1 | Central London/West End requirements
Source: Savills Research | Note: excludes Serviced Office Providers

The vacancy rate remained at 3.9% with 4.9m sq ft available at the end of the month. Sub 5,000 sq ft floorplates make up 60% of current supply in the West End, whilst floorplates >10,000 account for just 13%. The balance between landlord and tenant controlled space also remained unchanged from the previous month, with tenant controlled space accounting for 30% of supply.

Currently 8.8m sq ft of new developments and refurbishments are scheduled for delivery in the next four years, 34% of which has been pre-let. Over the next four years, 5.6m sq ft of speculative space is set to complete, which is an annual delivery of 1.4m sq ft, less than half the average annual Grade A take-up.

Graph 2

GRAPH 2 | West End development pipeline 
Source: Savills Research

Constricted supply across the West End is further illustrated when current supply and the speculative pipeline for the next four years is combined. In total this is around 10m sq ft, which equates to just over 2.5 years’ worth of take-up at the average rate we have seen over the last 10 years.

Only one speculative development over the next four years is set to deliver floorplates of 25,000 sq ft or more, which is not enough to meet the levels of demand we have seen for floorplates of this size over the last few years. Just over a quarter (26%) of speculative floorplates that will be delivered over this period will be between 10,000–15,000 sq ft.

Analysis close up

Table 1

TABLE 1 | Monthly take-up
Source: Savills Research

Table 2

TABLE 2 | Supply 
Source: Savills Research

Table 3

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

Table 4

TABLE 4 | Development pipeline
Source: Savills Research

Table 5

TABLE 5 | Rents 
Source: Savills Research
Completions due in the next six months are included in the supply figures
*Average prime rents for preceding three months
** Average rent free on leases of 10 years for preceding three months

Table 6

TABLE 6 | Demand & Under Offers
Source: Savills Research
Demand figures include central London requirements

Table 7

TABLE 7 | Significant January transactions
Source: Savills Research

Table 8

TABLE 8 | Significant supply
Source: Savills Research