Abstract

Strong take-up at the end of Q1 following initial slow start to 2018

Supply and demand snapshot

■ March take-up reached 455,734 sq ft across 38 transactions, with an average size of 11,537 sq ft. This brought Q1 take-up to 1.03m sq ft, 9% up on the long-term quarterly average. Q1 was also strong in terms of transaction volumes, with 121 completions compared to 111 over the same period in the previous year.

TABLE 1 | Key March stats
_{Source: Savills Research}

■ The largest transaction to complete in March was at Nova North, SW1 with Atkins & Co taking the third to fifth floors (65,909 sq ft) on confidential terms. Other notable transactions include publisher DK's pre-let of 44,000 sq ft at One Embassy Gardens, SW8 and Facebook's acquisition of additional space at Regent's Place, 10 Brock Street, NW1, taking the fifth floor (29,443 sq ft) at £70.00 per sq ft on a 10-year lease.

■ The Tech & Media sector continued to lead sector take-up, accounting for 33% of take-up at the end of March. This brought the Tech & Media sector's proportion of take-up for Q1 to 42%. The Insurance & Financial sector accounted for the second largest proportion of take-up with 26%, followed by the Retail & Leisure sector at 18%.

GRAPH 1 | West End take-up
_{Source: Savills Research}

■ Although leasing activity picked up over the quarter, space under offer continued to remain at high levels and was up on the long-term average by 42%. In total 1.4m sq ft was under offer at the end of March, including around 550,000 sq ft in the development pipeline.

GRAPH 2 | West End development pipeline
_{Source: Savills Research}

■ Supply decreased by 125,236 sq ft to 4.67m sq ft, equating to a vacancy rate of 3.9% at the end of March. This was down 10 bps on the previous month where the vacancy rate equated to 4.0%. Tenant controlled space has remained broadly at the same level over Q1, with tenant controlled space also at 30% at the end of March.

■ Over the quarter there were only five transactions over £100 per sq ft and a significantly lower transaction volume in the St James's market. This caused the average prime rent over Q1 to drop to £98.62 per sq ft. The average Grade A rent over the quarter was down 16% to £70.64 per sq ft from £84.07 for the same period in 2017.

■ Upward pressure continues to be exerted on incentive levels, with the average rent free period on a straight 10-year lease at over 20 months at the end of Q1 2018, compared to 18 months at the end of Q1 2017.

■ Of the 2.1m sq ft of the developments and extensive refurbishments set to complete in the West End in 2019, 0.9m sq ft (46%) has already been pre-let.

■ We are currently tracking 5.8m sq ft of West End & central London requirements, -8% below the 12-month average.