May sees an uptick in the level of requirements, although more are being placed on hold
Leasing transactions were muted last month with just 90,305 sq ft of take-up in the City, bringing the total for the year to date to 1.6m sq ft, which is 23% down on this point last year and 31% down on the 10-year average for this part of the year. The 12-month rolling take-up is now at 6.2m sq ft, which is 4% down on the 10-year average. Please note that this piece is not intended as an analysis of Covid-19 on the office market, rather a factual analysis of the market metrics.
The largest deal to complete last month saw Trainline acquire level six (18,063 sq ft) at 120 Holborn, EC1 on a lease until June 2026 at £66.00/sq ft. They also extended their leases on the second and third floors until June 2026.
Also last month, we saw two deals complete at Brookfield’s 100 Bishopsgate, EC2. Law Debenture Corporation acquired part level eight south (12,500 sq ft) on a straight 10-year lease at £73.00/sq ft. IS Prime (ISAM) acquired part level 10 north (12,416 sq ft) on a 10-year lease at £79.00/sq ft as well. There is now just 83,881 sq ft remaining in the building.
The Professional Services sector continues to account for the majority of take-up with a 33% share at the end of May. They are followed by the Tech & Media sector and the Insurance & Financial Services sector at 23% and 16% respectively.
There are currently 8.9m sq ft of requirements targeting the City/Central London, which is in-line with the long-term average but down on the 12-month average by 5%. Professional services account for the greatest proportion of this at 28%, followed by Tech & Media at 20% and Insurance & Financial Services at 16%. It is important to note however, that since our last edition while total requirements have increased by 4%, the percentage share that is deemed to be active has decreased from 82% to 63% showing how a number of occupiers are now re-evaluating their options.
At the end of May this year, there is currently 7.8m sq ft of available supply, equating to a vacancy rate of 5.7%, which is up on this point last year by 90bps and the five-year average by 50bps but down on the long-term average of 6.6%. Currently, 80% of supply is of a Grade A standard, which is down on the five-year average of 84%.
We have started to see more tenant space arrive to the market over the last few weeks. Tenant controlled space has now risen to 2.2m sq ft in the City equating to a 29% share. This is the highest percentage share since August 2018, and the greatest quantum of space since 2009. However, available landlord supply is still constrained resulting in the overall vacancy rate still being significantly below the long-term average.
There was only 63,478 sq ft placed under offer in May, which although small is actually an increase on April by 15%. Currently, there is 1.6m sq ft under offer in the City, which encouragingly is still up on the long-term average by 27%. Therefore, once some form of normality resumes hopefully in the coming months we should start to see some of these deals complete.
So far this year we have not seen any negative effects on headline rents despite the lack of take-up and rise in supply. In fact, the average Grade A rent for 2020 for the year-to-date is £67.13/sq ft, up on last year by 3% and the five-year annual average by 15%.
However, we have begun to see incentives move out instead, for example, last year on average occupiers were seeing 20–22 months rent free on a straight 10-year lease, and this has now moved out to 22–24 months.