Despite the Covid-19 lockdown beginning last month, take-up for March reached 495,806 sq ft across 43 deals, bringing the total for Q1 to 1.4m sq ft, which is up on this point last year by 20% and in-line with the 10-year average for the first quarter of the year. The 12-month rolling take-up is now at 6.9m sq ft, which is 7% up on the 10-year average. This piece is not intended as an analysis of Covid-19 on the office market, rather a factual analysis of Q1.

The largest deal to complete last month saw Queen Mary University of London acquire the whole of the new Schroders scheme, Dept W, 81 Mile End Road, E1 equating to 75,742 sq ft across ground and three upper floors. The space was taken on confidential terms.

Also last month, we saw two deals happen at 25 Copthall Avenue, EC2. ISDA acquired part level 3 (14,159 sq ft) on confidential terms, and World Wide Technologies acquired level 1 (21,000 sq ft) on a 10-year term with a break in the 5th year at £54.00/sq ft with 12 plus nine months rent-free.

So far this year, the majority of demand has come from the Professional Services sector at 30%, however, this has been skewed due to the Linklater’s deal and the relatively small amount of data to analyse included in just one quarter. There has also been continued strong demand from Tech & Media and the Insurance & Financial services sector, who have accounted for 21% and 13% respectively. Interestingly, the Serviced Office Provider sector only accounted for 4% of take-up throughout the first quarter, equating to just 60,558 sq ft, significantly down on the 221,950 sq ft they had transacted by this point last year.

At the end of Q1 2020, there is currently 7.2m sq ft of available supply, equating to a vacancy rate of 5.3%, which is up on Q1 last year by 30bps but down on the long-term average of 6.6%. This is also the 66th consecutive month of the vacancy rate being sub 6%. Currently, 80% of supply is of a Grade A standard, which is down on the five-year average of 84%. The majority of supply (58%) is within the City core, and therefore has a higher vacancy rate of 6.5%, compared with just 4.4% in the fringe. If we assume that no more supply is added at the current rate of demand (avg 12-month rolling take-up) then there is currently only 12.4 months’ worth of supply remaining.

It seems likely that supply in the City will begin to rise over the next 12 months due to the lack of take-up expected over Q2. Currently, tenant-controlled space accounts for 25% of available supply, which is slightly up on the 5-year average of 24%, however, it is likely that this will start to increase due to the impact of the pandemic on employment, although to what extent remains unclear.

At the end of Q1 this year, the current average prime rent is £80.43/sq ft, which is up on Q1 last year by 3.2% and is the third highest quarterly prime rent on record. Meanwhile, the average Grade A rent has settled at £65.42/sq ft for the quarter, up on Q1 last year by 2%, and is the second highest quarterly average on record.

At the end of Q1 this year, the percentage of deals over £60.00/sq ft has risen to 66% (compared with 47% for the five-year average) or 44 deals out of 67 known rents. In fact, we have already seen 20 deals achieved over £70.00/sq ft, roughly half of the amount achieved over the whole of 2018.

At the end of Q4 2019, the average Grade A rent in the City Fringe of £65.09/sq ft was actually £00.94 higher than that of the City Core at £64.15/sq ft. This trend has remained throughout the first quarter of this year as the City Fringe Q1 2020 average Grade A rent of £66.81/sq ft is £2.14 higher than that of the City Core at £64.67/sq ft, although this is still a fairly small dataset which can be skewed easily by a few large rents.

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