Take-up and requirements increase month on month, although under-offers continue to fall
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.
Encouragingly July saw a further increase in leasing activity with 355,089 sq ft of take-up in the City, bringing the total for the year to date to 2.2m sq ft, which is 40% down on this point last year and 39% down on the 10-year average. The 12-month rolling take-up is now at 5.4m sq ft, which is 17% down on the 10-year average, and the lowest it has fallen to since May 2013.
The largest deal to complete last month saw Baker & McKenzie LLP acquire levels G and 6–13 (152,690 sq ft) at 280 Bishopsgate, EC2. The leading global law firm agreed a 15-year term ahead of their 2023 lease expiry at their current offices at 100 New Bridge Street, EC4. The scheme, which is being developed by CBRE Global Investors and King Street Real Estate in partnership with Arax Properties, is undergoing a comprehensive refurbishment and is set to be completed in Q3 2021.
Also last month, we saw JA Kemp acquire the whole of The Stills, 76 Turnmill Street, EC1 (37,867 sq ft). The patent attorney agreed to a straight 15-year lease at £75.00/sq ft with 31 months rent-free. They will be moving from their current address at 14 South Square, WC1 at the start of next year.
The Professional Services sector continues to be the primary source of demand across the market, having accounted for 35% of take-up so far this year. There have been good levels of demand from the Tech & Media sector and the Insurance & Financial Services sector accounting for 20% and 14% respectively.
At the end of July, there is currently 7.9m sq ft of available supply, equating to a vacancy rate of 5.8%, which is up on this point last year by 100bps but still down on the long-term average of 6.6%. Currently, 81% of supply is of a Grade A standard, which is down on the five-year average of 84%.
We have continued to see tenant sub-let space arrive to the market over the past month. At the end of July, tenant space had increased by 12% on the previous month, settling at 2.64m sq ft, equating to 33% of total supply. This is up on the five-year average of a 24% share, and we are expecting this trend to continue throughout the remainder of this year.
While the development pipeline is fairly constrained over the next five years, we are expecting 3.9m sq ft of completions next year, of which 29% is already pre-let leaving 2.7m sq ft of space still to arrive. There is 772,000 sq ft of speculative space scheduled to complete in Q1 2021, and therefore will be added to current supply figures at the end of Q3, which will result in pushing the vacancy rate to 6.4% based off the current supply figure.
While we are still seeing the level of potential requirements increase (rising from 3.25m sq ft at the end of Q2 to 3.53m sq ft at the end of July) the level of active requirements has also increased by 2% over the same period, settling at 5.59m sq ft. This brings the total level of requirements to 9.12m sq ft, which is 3% up on the long-term average and in-line with the 12-month average.
We only saw an additional 58,439 sq ft of space be placed under-offer last month, bringing the total level of under offers to 991,982 sq ft. This is down on the long-term average by 24%, and the lowest it has fallen to since March 2017.