Savills Bahrain | City Office Market Watch

During H1 the core accounted for the majority of take-up, and saw rents rise as a result

Market comment and notable deals

Take-up for the month reached 677,558 sq ft across 52 transactions, with an average deal size of 13,030 sq ft.

This brings total take-up for 2018 to 3.5m sq ft, which is 10% up on this point last year, and 31% up on the 10-year average for the first half of the year.

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

The core has been the source of the majority of demand so far this year, accounting for 68% of take-up. This is in part due to eight out of the 10 largest deals so far this year being let within the core.

Last month saw British Land's new serviced office subsidiary, Storey, acquire levels one and two (67,176 sq ft) at their own building, 2 Finsbury Avenue, EC2. The new flexible workspace company has also opened up at 18-20 Appold Studios (11,333 sq ft), and there is believed to be an additional 80,000 sq ft of lettings to come in the rest of the year.

Also in June, WeWork continued their expansion into London with a 48,337 sq ft letting taking levels 1 - 4 at 70 Wilson Street, EC2. The global serviced office provider took the space at £65.00/sq ft. This is WeWork's second transaction of the year in the City, with them also taking the mezzanine and ground levels (19,258 sq ft) at International House, E1 last month.

We continue to see the occupier base of the City become increasingly more varied. Due to the Chinese Embassy deal at Royal Mint Court, EC3, Public Services/Government, Education & Health have accounted for the greatest proportion of take-up at 19%. However, there has been consistent demand from Insurance & Financial services (17%), Tech & Media (15%), and Professional services (13%). The Serviced Office Provider sector has only accounted for 9% so far this year, compared with their 18% share last year.

GRAPH 1 | City take-up by submarket
_{Source: Savills Research}

Total City supply stands at 7m sq ft at the end of Q2, equating to a vacancy rate of 5.6%, which is parallel with this point last year, and down on the long term average of 6.6%. The strong levels of take-up seen in the first half have prevented the vacancy rate from rising as much as we expected it would at the start of the year.

It is likely we will start to see the expected increase of the vacancy rate at the end of the next quarter as we add in the 1m sq ft of expected speculative completions for Q1 2019.

The average prime rent for Q2 was £75.19/sq ft, down on this point last year by just 1%, but up on the five-year average by 8%.

While rents overall have remained stable in the City, largely due to the surprisingly strong performance of the leasing market, we have begun to see some tailing off in the fringe locations. The average Grade A rent in the Core for 2018 at the end of Q2 was £63.55/ sq ft, compared with £58.23/sq ft in the fringe. This difference of £5.32/sq ft is the largest we have seen between the two sub-markets since 2014.

GRAPH 2 | City rents by submarket
_{Source: Savills Research}

Analysis close up

TABLE 2 | Monthly take-up
_{Source: Savills Research}

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

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)}