Snapshot of deals, supply and rents

• Take-up by the of Q3 2018 totalled 2.6 million sq ft, which was 4% above the 10-year average and 16% above the same period in 2017. This has been driven by high levels of demand experienced in Q3 with 1.2 million sq ft of take-up recorded. The strong demand in Q3 was focussed in the Western sector with the region accounting for 76% of take-up recorded across the whole market. White City, Reading and Slough experienced the highest levels of take-up in Q3 2018. Assuming normal levels of take-up in Q4 18 we expect annual take-up in 2018 to exceed the long term average of 3.5 million sq ft.

• Q3 saw a return of larger deals to the market with five transactions above 40,000 sq ft recorded. There were two deals above 100,000 sq ft in Q3 which was more than in the whole of 2017. These were Publicis Media leasing 212,000 sq ft at 2 Television Centre, White City and Slough Borough Council buying 25 Windsor Road, Slough which comprises 110,000 sq ft for their own occupation. Furthermore Sanofi, Pernod Ricard and KPMG have leased space over 40,000 sq ft underlining the corporate activity in the market.

• The professional sector has been the most active in 2018 so far, accounting for 23% of takeup. This has been driven by the serviced office sector who have let over 330,000 sq ft in 2018, which is the highest amount by the sector since 2001. We expect further activity from serviced office operators before the end of the year with operators seeking to capitalise on the growing demand for flexible space. Regus have been particularly active in Q3, they have committed to opening four new centres underlining the demand from this sector. New and refurbished space is the preference from serviced office operators as 97% of the space let by the sector in 2018 has been Grade A quality.

• Supply continues to fall in the market with only 13.5 million sq ft available which is the lowest level in over 15 years. The strong demand combined with limited development pipeline has resulted in supply falling. Good levels of occupier demand for Grade A space has resulted in available Grade A space falling by nearly 1 million sq ft from 2017. There are over eight markets which have less than a year of Grade A supply. Excluding the Royal Albert Docks there is only 486,000 sq ft under construction which would indicate that the supply constraints in the market are set to persist in the short term.

• The lack of supply in the market has resulted in rental growth in most submarkets depending on the availability of stock. Record rents were achieved in Q3 in Reading, Brentwood, Slough, Ealing, Harrow, Stockley Park and Bromley. This was across both new and refurbished stock. Looking forward we expect further rental growth as the development pipeline is limited which will ensure that headline rents remain strong.