Q2 take-up down 67% on the long-term average whilst tenant requirements remain on hold
Leasing activity in June reached 184,706 sq ft with 12 transactions completing during the month. This brought Q2 take-up to just 332,809 sq ft, down 67% on the longterm Q2 average, the inevitable impact of the majority of the quarter being carried out in lockdown.
So far this year we have seen half the number of transactions complete, (102 transactions), than we saw over the same period during 2019 (190), or have seen over the past 10 years (200). Over the past two months we have seen more occupiers putting their requirements on hold, seeking short term extensions and reviewing their options.
Only three transactions over 50,000 sq ft have completed this year, with two of these having completed in June. The largest transaction that completed during the month was Roxor Games’ previously part of Gamesys, pre-let of the entire building at 25 Golden Square, SW1 (66,000 sq ft), on confidential terms. The other transaction was Ted Baker’s pre-let of the basement to fourth floors (60,008 sq ft) at REEF/BA Pension Fund’s Tribeca scheme, 2–6 Pancras Way, NW1. This was part of its sale-leaseback of the buildings that form Tribeca.
Space under offer remained virtually unchanged from the previous month with just over 1.3m sq ft remaining under offer, up 80% on the long-term average. This is a reflection of the slow pace at which under offer deals are generally progressing at present.
The Tech & Media sector continues to account for over a third (35%) of demand this year followed by the Insurance & Financial sector (21%). Retail & Leisure and Business and Consumer sectors followed, each accounting for a 12% share of take-up.
As a result of the subdued levels of activity in Q2, the vacancy rate increased by 30 bps to 4.7%, with 5.4m sq ft available at the end of the month. Currently tenant controlled supply accounts for 30% of available supply, this is up 2% on the previous month. At 1.5m sq ft, tenant controlled supply is 46% above the average amount we have seen over the past five years (1m sq ft), and up 20% on the start of this year (1.3m sq ft).
There has been little rental evidence, so far, of any substantial downward pressure on headline rents. At the end of H1, the average prime rent stood at £113.66 per sq ft, this was down 4% on the average achieved during H1 in 2019. The average Grade A rent achieved so far this year currently stands at £80.39 per sq ft, up from £77.49 per sq ft achieved over H1 2019, albeit the sample size for this year is smaller.
Whilst we have yet to see a negative impact on headline rents, we have seen incentives move further out. At the end of the first half of 2019 the average rent-free period on a 10-year straight lease stood at 20 months compared to 24 months this year.
There are currently 6.5m sq ft of West End and Central London tenant requirements, up from 6.4m sq ft at the end of May, with more requirements switching from active to potential. Active tenant requirements account for 3.95m sq ft of the overall total and are up 30% on the five-year average of 3m sq ft.