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With delays for future schemes expected, the constraint on supply is anticipated to get tighter
It is difficult to currently forecast the impact on the City office market COVID-19 will have. The difficulty in leasing space in the current climate will certainly have an impact on take-up going forward. However, the inevitable delays to the development pipeline will result in further constraints on supply, especially for larger occupiers, who already have limited options available to them. Therefore, we are likely to see the continuation of large pre-lets throughout 2020, which will help compensate for the short-term decrease of small- to medium-sized lettings. Moreover, with the lack of new supply being launched to the market at the moment, it is unlikely the short-term drop in demand will result in a drastic increase of the vacancy rate in the short term.
Take-up for February reached 655,897 sq ft across 33 deals, bringing the total for the year to date to 885,536 sq ft, which is up on this point last year by 71% and up on the 10-year average for the year to date by 18%. The 12-month rolling take-up is now at 7.1m sq ft, which is 16% up on the 10-year average.
The largest deal to complete last month saw law firm Linklaters acquire levels 1 to 14 (307,195 sq ft) at the future Old Park Lane & CO-RE City tower 20 Ropemaker Street, EC2 on confidential terms. The scheme is due for completion in Q1 2023 and is now 72% pre-let leaving just 117,080 sq ft of available office space. Linklaters will be moving from their current office in Silk Street, which they have occupied for 30 years.
Also last month, we saw two deals happen resulting in the entire pre-letting of Endurance Land’s The Bailey, 16 Old Bailey, EC4. IPG Mediabrands acquired 85,573 sq ft across levels lower ground, and 2 to 8, while Knotel acquired 21,108 sq ft across levels ground and 1. They both committed to paying a rent in the mid-£60s/sq ft.
Due to the large pre-let from Linklaters, the Professional Services sector has accounted for the greatest proportion of take-up so far this year at 46%. The Tech & Media sector continued to show a strong preference for the City accounting for 26%, while the Insurance & Financial Services sector accounted for 16%. Activity from the Serviced Office Provider sector remained muted as they have only accounted for 5% of take-up so far this year.
Total City supply remained flat last month and currently stands at 7.2m sq ft, equating to a vacancy rate of 5.4%, which is up on this point last year by 40 bps, but still down on the long term average by 120 bps.
While we are expecting there to be a fall in space going under-offer for the foreseeable future, it was encouraging to see just under 190,000 sq ft of space go under-offer in March. This brings the total amount of space under-offer to 2.1m sq ft, which is up on the long-term average by 62%.
We have continued to see an increase in average rents so far this year. The average Grade A City rent for the year to date is £68.43/sq ft, up on Q4 last year by 7.2%. In fact, in the last six months alone we have seen 46 rents achieved over £70.00/sq ft, or 30% of all known rents in that time period. To put that into context, that is more than in any full calendar year apart from 2019.
The amount of active requirements for the City and central London have decreased slightly on last month and currently stands at 7m sq ft. However, the level of potential requirements remained stable at 1.4m sq ft, bringing the total to 8.4m sq ft, which is down on the 12-month average by just 14%.