Market comment and notable deals

With the current Brexit negotiations still on-going we always expected to see a lack of large deals completing in the first quarter, as occupiers try to hold out for clarity before committing to new leases. Therefore, January saw just 263,571 sq ft of take-up, down on the same month last year by 42%, and down on the 10-year average for the month of January by 27%. The 12-month rolling take-up has therefore fallen to 7.4m sq ft, the lowest since April last year.

However, this was certainly not due to a lack of deals as there was 26 across the whole of the month, down on January last year and the 10-year average by just five deals. The average deal size for the month was 10,137 sq ft, compared with 14,591 sq ft for January last year.

We are not expecting take-up levels to remain at this low level for the remainder of the year, as 678,165 sq ft went under-offer in January. This brings the total amount of space under-offer in the City to 1.9m sq ft, up on the long-term average by 46%.

The largest deal to complete in January saw energy firm Bulb acquire levels 9, part 10, 11 and 12 totalling 65,444 sq ft at 155 Bishopsgate, EC2 on an assignment from Barings for undisclosed terms. There is currently no more space remaining in the building.

Also in January, The Open Society Foundations acquired levels 3 and 4 (28,621 sq ft) of Herbal House, 10 Back Hill, EC1. The international grant-making network founded by George Soros will move from their current office space in Millbank Tower, SW1. The confirmed lease terms are unknown, although levels 1 and 2 were let at the end of last year at £67.00/sq ft.

Total City supply at the end of January stood at 6.4m sq ft, falling by 5.9% on the end of the year and equating to a vacancy rate of 5.0%, which is down on January 2017 by 60 bps, and down on the long term average by 160 bps. This is the 15th consecutive month of the vacancy rate being sub 6% and the lowest the vacancy rate has been since May 2016.

At the start of the year we add in all speculative space scheduled to complete in Q2 of this year. Notable additions to supply included; 152,988 sq ft of refurbished space in Hays Galleria, SE1, 91,000 sq ft of refurbished space at Devon House, E1 and 36,779 sq ft of refurbished space at 20 Red Lion Street, WC1.

While the level of vacancy is currently very low in the City, we do anticipate it to gently rise over the course of this year. As it stands, there is still 1.7m sq ft (22 Bishopsgate accounts for 62% of this) of speculative new supply scheduled to complete in the second half of the year, and therefore still be added in. To put this into context, even if 50% of this space is pre-let before it is due to be added in, the vacancy rate will still rise by 60 bps.

Rents appear to have remained unchanged despite the lack of take-up with the top rent achieved in the month being £83.50/sq ft for the 17th floor of The Tower at The Bower, EC1. Similarly, the average grade A rent for the month was £64.07/sq ft, the sixth highest monthly figure from the last 12 months.

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