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City Office Market Watch

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The City sees a quiet August as it prepares for a huge last quarter with a record 2.9m sq ft under-offer

Market comment and notable deals

  • August was fairly quiet in terms of take-up, with just 236,418 sq ft being transacted, which is down on the 10-year average for August by 56% (536,445 sq ft). However, there were 23 deals in August, which is only down on the 10-year average by four transactions.
  • This brings total take-up for 2018 to 4.3m sq ft, which is 6% down on this point last year, but 12% up on the 10- year average for take-up to the end of August. There have been a total of 260 transactions so far this year, which is down on this point last year (283), but up on the 10-year average of 253.
Table 1

TABLE 1 | Key August stats
Source: Savills Research

  • Last month saw the first letting at TwentyTwo Bishopsgate, EC2 when Hiscox committed to 74,584 sq ft across levels 8 - 10. There is an additional circa 150,000 sq ft under-offer that we are aware of. The Axa scheme is scheduled to achieve practical completion in July 2019, and they have also confirmed they will be occupying 60,000 sq ft upon completion.
  • Also in August, Softcat plc acquired level 5 (15,994 sq ft) at One Creechurch Place, EC3. They are joining Hyperion, Coverys, Enstar, Dell and Travelers Management Limited who have already taken space in the Helical scheme. With the ninth floor currently under-offer and Dell having agreed to acquire the remaining space on the second floor, only the fourth floor remains available.
  • Insurance & Financial services continue to be the source of the majority of demand in the City, accounting for 19% of take-up at the end of August. However, the Tech & Media sector is close behind as expected, accounting for 16%. Appetite from Serviced Office Providers remains strong, as they account for 12%, with a number of large deals currently under-offer.
Graph 1

GRAPH 1 | City take-up by business sector
Source: Savills Research

  • The average grade A rent in the City currently stands at £61.91/sq ft, up on last year by 1.5% and up on the 10- year average by 23%. g Total City supply stands at 6.85m sq ft at the end of August, equating to a vacancy rate of 5.4%, which is down on this point last year by 40 bps, and down on the long term average by 120 bps.
  • We are expecting to see a very active last quarter as total space under-offer rose to 2.9m sq ft, which is up on the long-term average by 123%, and the highest amount under-offer at the end of a month since our records began.
  • Total demand rose at the end of August reaching 10m sq ft of known requirements for the City and Central London, which is up on the long-term average by 14%, and the highest amount since August 2016.
Graph 2

GRAPH 2 | Total City and CL requirements
Source: Savills Research

Analysis close up

Table 2

TABLE 2 | Monthly take-up
Source: Savills Research

Table 3

TABLE 3 | Year-to-date take-up
Source: Savills Research

Table 4

TABLE 4 | Rents
Source: Savills Research
*Average prime rents for preceding three months
** Average rent free on leases of 10 years with no breaks for preceding three months
N.B. We have amended our historic stock figures, resulting in a slight change of our historic vacancy rates (Aug 2015)

Table 5

TABLE 5 | Supply
Source: Savills Research
Completions due in the next six months are included in the supply figures

Table 6

TABLE 6 | Development pipeline
Source: Savills Research

Table 7

TABLE 7 | Demand & Under Offers
Source: Savills Research
Demand figures include central London requirements

Table 8

TABLE 8 | Significant August transactions
Source: Savills Research

Table 9

TABLE 9 | Significant supply
Source: Savills Research