City showed significant rental growth during 2019 as a result of strong take-up and low supply
Take-up for December reached 579,329 sq ft across 43 deals, giving a total for the year of 6.7m sq ft, which was down on 2018 by 13% but up on the 10-year annual average by 5%. This shows the strength of the City leasing market in a year which had two Brexit block dates and a general election, with total take-up still remaining above the 10-year average. The additional 113 deals done in Q4, brings the total for the year to 390, which was down on 2018 by 51 deals and the 10-year average by 20 deals. Grade A space remained the clear preference as it accounted for 81% of take-up, which is up on the 10-year average of 73%.
The largest deal to complete last month saw Convene acquire levels LG-3 (67,245 sq ft) at the new Partners/YardNine scheme Eighty Fen, 80 Fenchurch Street, EC3 which is due for completion in Q2 2020. It is rumoured that levels 7-14 (113,543 sq ft) have recently been placed under-offer to Salesforce. This was Convene’s second deal in the City following their pre-letting of levels 3-6 (99,297 sq ft) at TwentyTwo Bishopsgate, EC2 in August last year.
Also last month, we saw Chaucer acquire levels 6-8 (44,377 sq ft) at The Scalpel, 52 Lime Street, EC3. The insurance firm will be relocating from their current premises in Plantation Place, EC3 when their lease expires next year. This has resulted in just 64,124 sq ft remaining in the 367,000 sq ft building that completed in mid-2018.
For the first time on record in the City the Serviced Office Provider sector accounted for the greatest proportion of take-up at 23% equating to 1.5m sq ft. This was 74% up on their quantum of take-up last year when they accounted for 12% of total take-up. There was a total of 44 deals to providers in 2019, with WeWork accounting for 15 of these and 440,000 sq ft. They were followed by Knotel who acquired nine new centres equating to 223,112 sq ft. There were good levels of demand from both the Tech & Media sector and the Insurance & Financial Services sector who both accounted for 20% of take-up. However, even though the Professional Services sector only accounted for 12% last year, they account for the greatest proportion of current requirements at 28% so we are expecting them to be a key driver of demand going forward.
Total City supply rose last month by 6% following the addition of new supply and currently stands at 7.3m sq ft, equating to a vacancy rate of 5.5%, which is up on this point last year by 30 bps, but still down on the long term average by 110 bps. We are not forecasting the vacancy rate to rise above the long-term average in the next 12 months as there is only 2.4m sq ft of speculative space to be added to supply throughout the course of this year and 225,000 sq ft of this supply is already under-offer.
There is currently 1.5m sq ft of supply under-offer, which is up on the long-term average by 19%, and therefore we expect to see above average levels of take-up for the first quarter.
The average prime rent for 2019 settled at £80.74/sq ft, up on 2018 by 3.8% and the highest annual figure on record. Similarly, the average Grade A rent for 2019 settled at £64.76/sq ft, up on 2018 by 4.8% and also the highest annual figure on record.
Interestingly, the average Grade A rent of the City Fringe in 2019 was £64.73/sq ft, which was in-line with the average Grade A rent of the City Core at £64.79/sq ft. This compares to a difference of £3.86/sq ft that separated the two submarkets in 2018.
Also, in 2019 we saw 61 deals over £70.00/sq ft, which is another annual record, up on the previous record of 43 in 2016, clearly displaying the strong rental growth last year.