Take-up reaches 2.1m sq ft as supply remains constrained and prime rents stabilise
At the end of the first half of 2019 take-up reached 2.1m sq ft. This was up 10% on the long-term average despite leasing activity slowing over the second quarter. So far this year we have seen 183 transactions complete, slightly below the long-term average by 5%.
Leasing activity this year has remained strong across the W1 and SW1 postcodes, which in total have accounted for over two thirds of transactions to complete. The large number of upcoming lease events in the core has been a key driver of this activity.
Whilst the volume of transactions and overall space let in the second quarter were at their lowest level in over six years, underlying demand remains strong, with both space under offer (at 1.4m sq ft) and active Central London & West End requirements, (4.9m sq ft), well above their respective long-term averages.
In June, 223,455 sq ft completed across 22 transactions. Over two-thirds of the transactions completed over the month were in the W1 postcode. The largest transaction to complete during the month was at the Met Building, 22 Percy Street, W1, with WPP taking an assignment of the lower ground to third floors (51,357 sq ft), at a passing rent of £70.10 per sq ft.
While the Tech & Media sector only accounted for 9% of City take-up, this sector continues to be the main driver in the West End, accounting for 27% of year-to-date take-up. The next largest demand came from the Insurance & Financial sector and Serviced Office Provider sector, each with an 18% share. There have been the same quantum of transactions to Serviced Office Providers this year as there were over the same period in 2018.
While the total number of transactions is down on the previous year by 20%, more lettings over £100+ per sq ft have been achieved than in H1 2018. Over the first half of this year, prime rents across the West End stabilised and were back in line with average prime rents prior to 2018 at £119.33 per sq ft, up 9% on the previous year. Average Grade A and B rents stood at £77.49 per sq ft and £59.17 per sq ft respectively, 3% up on the previous year.
Total supply stood at 5m sq ft, which equates to a vacancy rate of 4.1%. This was the first upward movement to the vacancy rate this year. Around two thirds of current supply is floorplates of less than 5,000 sq ft and 6% is in floorplates 15,000 sq ft or more. Grade A space accounts for 60% of supply, down from 74% five years ago.
There are currently only 28 buildings which are set to be delivered over the next five years, which will have floorplates 15,000 sq ft and over. However, the prevalence on pre-lets in the West End increases likelihood that many of these buildings, particularly in the core sub-markets, will be pre-let well in advance of delivery.
Around a third of the 6.6m sq ft of speculative space that is expected to be delivered over the next four years is scheduled for 2022, although developments might slip into 2023 and beyond. We are anticipating a further 2.3m sq ft will be delivered during 2023.