.jpg)
Two major pre-lets provide boost to February take-up
After a muted start to the year, leasing activity rebounded in February to reach 335,275 sq ft across 27 transactions, marking the highest monthly take-up for February since 2019, and more than double the previous month’s figure. However, as a result of the low levels of space acquired in January, year-to-date take-up still remained 25% below the ten-year average at 479,961 sq ft.
Once again, pre-lets played a prominent role in take-up figures this month, accounting for the two largest transactions to take place. The larger of the two was PIMCO’s acquisition of the fifth to ninth floors (106,000 sq ft) at Derwent’s 25 Baker Street, W1 development for a blended rent of £103.00 per sq ft on a 15-year lease. The second was Virgin Media’s pre-let of the fourth to ninth floors (83,000 sq ft) at British Land’s 3 Sheldon Square, W2 development, relocating staff from two of their current offices in Hammersmith and Slough. The rent is believed to be in the high £70s. Combined these two transactions made up roughly half of this month’s take-up, reflecting the continued demand for prime, high-quality space in spite of lower take-up levels overall.
These two transactions are also illustrative of trends we are witnessing in the ‘flight to quality’. Both occupiers cited the importance of strong sustainability credentials playing a part in their decision as they seek to meet ESG targets, with both buildings achieving BREEAM ‘Excellent’ ratings. Furthermore, tenants have increasingly focused on more central locations as workers value proximity to nearby retail and leisure facilities post-pandemic.
The Insurance & Financial Services sector accounted for the largest share of take-up once again this month, at 44%, with take-up in this sector largely made of a number of smaller deals in core locations.
In terms of sub-market, activity continues to be concentrated in the core, with Mayfair representing the largest number of YTD transactions at 23% of the total, followed by St James’s at 14%.
On the rental side, we witnessed a new record rent achieved for fully fitted space in NOX East. Business 3.0’s lease of the part-third floor at Wells & More, 45 Mortimer Street, W1 achieved a rent of £140.00 per sq ft. There has been a growth in occupiers acquiring fitted space as a result of the lower upfront fit-out costs, with costs and timelines continuing to rise. These factors are particularly relevant given the uncertain economic conditions and growth of hybrid working.
After several months of remaining static, the vacancy rate dropped 30 bps from the previous month to 6.1%. This was primarily due to space being withdrawn, the vast majority of which was Grade B tenant-controlled space, predominantly concentrated in fringe markets such as Hammersmith and VNEB (Vauxhall, Nine Elms & Battersea). It is worth noting that typically Grade B tenant space makes up just 4% of annual take-up. We expect this to be a temporary drop however, with Savills’ latest forecast anticipating the West End vacancy rate to rise to 7.2% by the end of the year, with a record level of development completions set for delivery in 2023.
While take-up remains below the historical average for this point in the year, two indicators provide an encouraging outlook. Firstly, 206,181 sq ft of additional space was placed under offer this month, 11% above the ten-year average. Furthermore, active demand has increased for the second successive month to 3.88m sq ft, the highest since September. The Insurance & Financial Services sector continues to make up the largest share of these requirements at 24%.