Space under offer reaches its highest point in almost a year, while supply is at an 18-month low
Leasing activity slowed over the summer month with just 186,069 sq ft completing across 22 transactions. Despite this, year-to-date take-up, at 2.72m sq ft, still remains above the long-term average for this period by 9%.
So far this year, 235 transactions have completed, down 7% on the long-term average volume of 252. Almost three-quarters of transactions that have completed have been 10,000 sq ft or less.
The outlook for leasing activity over the remainder of this year remains positive, particularly with space under offer reaching its highest level in almost a year at the end of August. Over the month, an additional 377,586 sq ft went under offer, and at present, there are 1.75m sq ft under offer, up 150% on the long-term average. Almost a third of this (32%) is made up from the development pipeline, giving a strong indication that leasing activity will continue to be driven by pre-lets.
Pipeline new developments and extensive refurbishments in Soho and North of Oxford Street West account for over 60% of space under offer in the development pipeline, with vacancy rates in both submarkets below 3.5%.
In total, Serviced Office Providers accounted for 40% of the space that was let over the month. The largest transaction to complete in August was WeWork’s acquisition of floors 1–5 at Avon House, Avonmore Road, W6 (28,479 sq ft) on a 10-year lease on confidential terms.
In addition to this, WeWork also took the entire building at 91–93 Baker Street, W1 (9,782 sq ft), on a 10-year lease at £75.00 per sq ft.
This brought Serviced Office Provider take-up for the year to 522,450 sq ft, which equates to 21% of take-up. The Tech & Media sector, however, continues to account for the largest share of take-up and has accounted for almost a quarter (24%) of space let this year so far.
The vacancy rate at 3.8% was down 20 bps on the previous month and was at its lowest level in over 18 months. Supply currently stands at 4.7m sq ft and there is only one scheme, Battlebridge Place, WC1 (13,649 sq ft) scheduled for delivery over the first quarter of 2020.
The average Grade A rent so far this year stands at £78.55 per sq ft, up 4% on the same period a year earlier, whilst the average prime rent is up 6% on the same period and currently stands at £116.49 per sq ft.
We expect rental growth to continue at the prime level over the coming year, particularly with limited supply increasing competition from occupiers to secure prime core offerings. Average Grade A rents are expected to remain broadly stable over the coming year.
Currently, there are 9.8m new developments and extensive refurbishment scheduled to complete over the next four years. 2m sq ft (20%) of this has already been pre-let.