Leasing activity picks up and space under-offer increases, despite second lockdown
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 in November, despite the UK going into a second national lockdown, with 16 transactions completing in the month, up from six transactions in October. November take-up equates to 122,932 sq ft, the highest monthly take-up since July but down 77% on the 10-year monthly average.
This brought take-up for the year so far to 2.54m sq ft, down 55% on the 10-year long-term average and 58% on the same period during 2019. Leasing activity has continued to be driven by occupiers acquiring space in Grade A buildings and this has accounted for 88% of take-up.
The largest transaction to complete last month was at 60–72 Upper Ground, SE1, where Proposition Studios took the 10th to 13th floors (23,570 sq ft) at £25.00 per sq ft. The next largest transaction to complete was Four Communication’s acquisition of the 5th to7th floors at the Hickman, Whitechapel Road, London, E1, on a 10-year lease, at £62.15 per sq ft.
The Professional Services sector continues to be the main driver of demand across the City, having so far accounted for 33% of year-to-date take-up, followed by the Tech & Media sector with 19%, and then by the Insurance & Financial sector with 16%.
Encouragingly we continued to see space under offer increasing, with a further 147,580 sq ft going under offer in November. This brings the total amount of under offers to 1.1m sq ft, the highest level it has been at since June. The Professional Services sector currently accounts for 54% of space under offer where the tenant is known, followed by the Property sector with 20%. Whilst this remains down on the long-term average by 12%, it gives some indication we could see a pick-up in activity at the start of 2021.
There were also positive signs of building levels of underlying demand, with both active and potential City & central London requirements up 6% on the previous month, standing at 10.1m sq ft, compared with 9.6m sq ft in October.
The Professional Services sector accounts for over a third, (35%) of the current quantum of tenants actively searching for office space across the central London & the City. This is followed by the Insurance & Financial and Tech & Media sectors with 25% and 18% respectively.
Supply continued to rise during November and at the end of the month supply stood at 9.7m sq ft, up 9% on the previous month’s 9.0m sq ft. This brought the vacancy rate to 7.2%, up 60 bps on the previous month and 30 bps on the long term average of 6.9%. This is the largest outward movement since September and mainly as a result of newly marketed Landlord space in the City Core sub-market area, including 10 Fleet Place, EC4, 10 & 20 Old Bailey, EC4.
As expected, tenant-controlled supply continued to increase in November. At the end of the month, tenant-controlled supply stood at 2.9m sq ft, up 3% on a month earlier. This equates to 30% of total supply. 57% of all tenant-controlled space is located in the City Core. The EC2 postcode continues to account for the greatest proportion of tenant-controlled supply since lockdown in March, with 22%. This is followed by EC4 with 21% and then by SE1 with 18%.
The average prime rent achieved so far this year currently stands at £81.61/sq ft, which is down 2% on 2019 but up 21% on the 10-year average. The average Grade A rent currently stands at £65.73/sq ft, up 2% on 2019 and 23% on the 10-year average.