Supply continues to rise, but predominantly due to Q1 2021 completions, rather than tenant space
Please note that this piece is not intended as an analysis of Covid-19 on the office market, rather a factual analysis of the market metrics.
Take-up picked up last month as people returned from the summer break, but it still remained muted in a historic context. September saw just 161,924 sq ft of take-up in the City, bringing the total for the year to date to 2.3m sq ft, which is 50% down on both this point last year and the 10-year average for the first three quarters. The 12-month rolling take-up is now at 4.5m sq ft, which is 31% down on the 10-year average, and the lowest it has fallen to since September 2012.
Aside from Storey acquiring the part second floor (45,058 sq ft) at 100 Liverpool Street, EC2, the largest deal to complete last month saw Hardwicke Chambers acquire levels 1-6 at One Gray’s Inn, 19-21 High Holborn, WC1 (19,978 sq ft). They took the space on a 15-year lease with no breaks at a confidential rent.
The Professional Services sector continues to be the primary source of demand across the market having accounted for 33% of take-up so far this year. There has been good levels of demand from the Tech & Media sector and the Insurance & Financial Services sector accounting for 19% and 15% respectively.
At the end of September, there is currently 8.8m sq ft of available supply, equating to a vacancy rate of 6.5%, which is up on this point last year by 90bps but still down on the long-term (15 years) average of 6.7%. Currently, 83% of supply is of a Grade A standard, which is down on the five-year average of 84%.
We have continued to see tenant sub-let space arrive to the market over the past month. At the end of September, tenant space accounts for 2.81m sq ft, equating to 32% of total supply. This is up on the five-year average of a 24% share and we are expecting this trend to continue throughout the remainder of this year.
We add in new supply that is completing within the next six months into current supply, therefore at the end of Q3 we added in Q1 2021 completions. This included schemes such as One Portsoken Street, E1 (233,000 sq ft), 2 Gresham Street, EC2 (180,459 sq ft) and 88 Leadenhall Street, EC3 (100,000 sq ft). In total there was 772,066 sq ft of Q1 completions that we added to supply, which contributed to the significant rise in supply.
The Insurance & Financial Services sector have accounted for the greatest proportion of the tenant supply since lockdown began with a 27% share. They are then followed by Business & Consumer Services and Tech & Media who have accounted for 20% and 16% respectively. The Professional Services sector, who have accounted for the greatest proportion of take-up this year, have only accounted for 15% of the post-lockdown tenant supply.
We are aware of 100 units of tenant space that have come to the market since we entered lockdown, and units for less than 10,000 sq ft account for 59%. Therefore, the majority of the tenant space is for small units.
Last month we saw 206,878 sq ft of space be placed under offer, the most notable being 190,000 sq ft at Stonecutter Court, EC4.
The average prime rent for Q3 in the City settled at £77.00/sq ft, which is down on Q2 by 4.6% and Q3 last year by 11.9%. The average Grade A rent for Q3 settled at £64.27/sq ft, which is down on Q2 by 5.6% and Q3 last year by 3.7%.