Take-up declines in November but remains above the long-term average
Take-up dropped in November compared to the previous month, with take-up reaching 179,116 sq ft across 23 transactions. This brought YTD take-up to 4.1m sq ft across 388 transactions, up 13% on the same point last year, and above the 10-year average by 14%, despite the dip this month. Furthermore, it should be noted that for nine out of the last 10 years, take-up has picked up in December, as landlords and tenants aim to complete deals before the end of the year.
The largest transaction to complete last month was Dorchester Services’ pre-let of the third floor of the Abu Dhabi Investment Authority’s 1 Knightsbridge, SW1 development (23,960 sq ft), on a 15-year lease for a confidential rent. The refurbishment is due to complete this quarter.
The demand for high-quality office space continues with 90% of take-up this month being of Grade A quality, compared to the long-term average of 72%. In fact, total Grade B take-up, so far this year, stands at just 496,735 sq ft, down 38% on the long-term average for this point in the year.
The ongoing demand for high-quality space is also reflected in the rental figures as rents for the highest-quality space continue to climb. The average Grade A rent so far for this year is £83.84 per sq ft, a new record, and up 3% on this point last year, and 14% higher than the 10-year average. This stands in contrast to the trend that average Grade B rents have followed, which have fallen 8% from their peak in 2020 as occupiers seek higher-quality space in an attempt to lure workers back to the office post-pandemic.
Perhaps the most notable takeaway from supply last month, though, was the significant 24% increase in tenant-controlled space to 1.6m sq ft – the biggest monthly increase since December 2020. Driving this uptick was the decision by tech giant Meta not to occupy its 350,000 sq ft office at 1 Triton Square, for which it signed a lease only last year. Instead, it will now seek to sublease the entire space. This comes off the back of similar announcements by other major tech firms that are seeking to reduce their property portfolios in a bid to cut costs, amid tough economic conditions.
The large increase in tenant-controlled space counteracted the fall in landlord-controlled space this month, resulting in overall supply rising to 7.9m sq ft and a vacancy rate of 6.4%, up 10 bps from the previous month. It also forced the proportion of tenant-controlled space to 22%, the highest level since February, although still below the long-term average of 30%.
On top of this, total under offers only suffered a minor decline, standing at 1.4m sq ft, remaining 53% higher than the 10-year average. This suggests the market remains in a strong position going into the new year despite the challenges in the wider economy.
The development pipeline also displays signs of market resilience, with 4m sq ft of space set to complete next year, 36% of which has already been pre-let. This is in addition to the 8m sq ft scheduled for delivery between 2024 and 2026, in spite of rising material costs.
Analysis close up
In Focus – West End and Central London Demand
In spite of the economic headwinds, occupiers with an active requirement looking at space in the West End and Central London rose 11% to 3.9m sq ft. However, this still remains 13% below the long-term average.
Breaking the figures down by sector reveals a relatively diverse demand base. The Tech & Media sector accounts for the largest proportion at 22% of active demand, followed by the Insurance & Financial Services sector (21%), and the Business & Consumer Services sector (11%). It will be interesting to track sector demand over the coming year, particularly given the significant layoffs being made by larger tech companies.
The size of recent active requirements paints an encouraging picture going forward, with six new requirements over 50,000 sq ft being added. As a result, 46% are now seeking space over 25,000 sq ft, while the proportion of those looking for less than 10,000 sq ft stands at just 24%.