Supply and demand snapshot

Take-up at the end of 2018 reached 5.1m sq ft after an additional 446,817 sq ft completed across 34 transactions in December. Take-up was therefore 25% higher than the long-term average, with leasing activity reaching its second highest point on record. The overall volume of transactions to complete over the year also remained robust and was the fourth highest on record. Pre-lets over the year reached record levels with almost 1.5m sq ft being acquired prior to completion.

Appetite for space from Serviced Office Providers continued over the final month, taking the total number of transactions this year to the record level of 38. Indeed, the largest transaction to complete over the month was to WeWork, who acquired the sublease of the Ground to 7th floors at 5 Merchant Square, W2 (145,000 sq ft), on terms which remain confidential at present.

In total, the Serviced Office Provider sector accounted for 21% of take-up in 2018, with just shy of 1m sq ft completing to the sector. Over the year we saw this have an impact on the volume of sub-5,000 sq ft transactions, which were down.

The Tech & Media sector continued to be the main driver of demand in 2018 and accounted for 34% of take-up across 76 transactions. The Insurance & Financial sector followed behind the Serviced Office Provider sector with a 15% share of take-up. Despite this, the Insurance and Financial sector continued to lead demand in terms of volume, with 104 transactions, which amounts to almost a quarter (23%) of transactions to complete during the year.

Take-up from the Insurance & Financial sector was particularly strong in Mayfair where it reached a record high both in terms of space-take and number of transactions.

The vacancy rate at the end of December returned back to 3.9%, with supply standing at 4.73m sq ft. This is the third consecutive year the vacancy rate has returned to 3.9% at the end of the year. Tenant controlled supply continued to remain stable over the year and at the end of December accounted for 30% of supply.

Despite the low vacancy rate and high demand, we saw average rents fall last year. The average Grade A rent was £76.71 per sq ft, down 6%, meanwhile the average prime rent for 2018 was £105.52 per sq ft, down 15% on 2017’s £118.45 per sq ft, a year where we saw double the amount of transactions over £100 per sq ft, compared with 2018. Rents across all core submarkets softened, apart from in Soho where average prime and Grade A rents were up 3% and 7% respectively.

At the start of 2018 we anticipated that 2.8m sq ft of new developments and extensive refurbishments would complete over the year. By the end of the year only 1.4m sq ft actually completed with the majority, of the larger schemes set to deliver over 150,000 sq ft (five out of six) being pushed back into 2019 and beyond.

Currently 2.5m sq ft of developments and extensive refurbishments are set to complete during 2019, over 67% of which have already been pre-let and only three of these currently have enough speculative space to accommodate a requirement for over 100,000 sq ft.

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