Tenant requirements increase, while supply rises as leasing activity continues to remain subdued
July take-up reached 60,182 sq ft, with six transactions completing during the month. This brought year to date take-up to 1.1m sq ft, down 56% on the long-term average and 64% on the end of the same period in 2019. 12 month rolling take-up currently stands at 2.9m sq ft.
The largest transaction to complete in July was at 7 Swallow Place, W1, where G Network acquired 24,000 sq ft on the pt 3rd, pt 6th, 4th and 5th floors on terms which remain confidential at present. Another notable transaction to complete was at 20 St James’s Street, W1, where Harrison Street acquired the 3rd floor (6,519 sq ft), on a 10-year lease at £112.50 per sq ft. This is the highest rent that has been achieved in the West End since the start of lockdown in March.
We saw this year’s largest monthly decrease to space under offer, with space under offer standing at 1m sq ft, down 22% on the previous month’s 1.3m sq ft. A significant quantity, (28%) of this reduction was a result of Lazard’s failure to complete on Invesco’s 20 Manchester Square, W1 development (100,000 sq ft).
However, the overall amount of space under offer still remains up on the long-term average by 40%. While space under offer has decreased, we saw an increase to both active and potential tenant requirements across central London, reflecting the increasing amount of occupiers who are putting their searches on hold and reviewing their options.
At the end of July, central London and West End tenant requirements stood at 7.5m sq ft, up 15% on the previous month. Active requirements at 4.7m sq ft were at their highest level in three months, whilst potential tenant requirements were at a high level at 2.8m sq ft, the likes of which we have not seen since the end of 2017.
Supply continued to rise over the month, largely as a result of the slight uptick to tenant-controlled space. At the end of July tenant controlled space accounted for 31% of supply. Whilst this was only up 1% on the previous month, tenant controlled supply was up from 1.6m sq ft to 1.8m sq ft in July.
The vacancy rate at the end of the month stood at 4.9%, up 20 bps on the previous month, with supply standing at 5.6m sq ft. This is up from 4.0% at the end of the same period in 2019.
We expect supply will continue to rise over the second half of this year as there is around 630,000 sq ft of speculative space scheduled for delivery over the first half of 2021, (we include completions due in the next six months to our supply figures). And we are expecting tenant-controlled space to continue to rise.
Currently there are only two developments (61,273 sq ft in total), scheduled for completion during the second half of this year and development completions for 2020 is expected to reach just 806,500 sq ft. This is the lowest level of annual completions for the West End for over nine years. 58% of 2020’s pipeline so far has let prior to completion.
We are anticipating 10.8m sq ft will complete between 2021 and 2024, 30% of these developments will be refurbishments an 29% of this has already been pre-let. Development activity is set to reach a record level in 2022 with 3.6m sq ft scheduled for completion at present Development activity in Kings Cross accounts for 25% of this total and over a quarter (27%) of this has already been pre-let.