Tenant space continues to be delivered to the market but is evenly dispersed across the City
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.
As expected with the usual lull during the summer months, take-up was muted last month. August saw just 44,144 sq ft of take-up in the City, bringing the total for the year to date to 2.2m sq ft, which is 46% down on both this point last year and the 10-year average. The 12-month rolling take-up is now at 4.9m sq ft, which is 19% down on the 10-year average, and the lowest it has fallen to since April 2013.
The largest deal to complete last month saw The Workshop Technologies acquire level 1 (14,995 sq ft) at Fetter Yard, 86 Fetter Lane, EC4. They took the space on a straight 15-year lease at £64.50/sq ft with 30 months rent-free.
Also last month, we saw The Nuffield Foundation acquire levels 2 and 3 at 100 St John Street, EC1 (37,867 sq ft). They took the space on a 20-year lease with a break in year 10 at £71.25/sq ft with 27 months rent-free with an additional 13 months after the break.
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 21% and 15% respectively. The drop in demand from Serviced Office Providers has remained with them only accounting for 62,593 sq ft or 3% of this year’s take-up.
At the end of July there is currently 8.0m sq ft of available supply, equating to a vacancy rate of 5.9%, which is up on this point last year by 100bps, but still down on the long-term (15-year) average of 6.7%. 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 August, tenant space had increased by 8% on the previous month settling at 2.86m sq ft, equating to 36% 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.
Since lockdown began in March we have seen a total of 1.2m sq ft of tenant supply arrive to the City market. The spread of the tenant supply has been varied across both location and sector. The EC2 postcode has accounted for the greatest proportion at 25%, followed by EC4 and SE1 both accounting for 19%, E1 with 17% and EC1 with a 10% share.
The Insurance & Financial Services sector have accounted for the greatest proportion of the tenant supply since lockdown began with a 27% share. They are then followed by Business & Consumer Services and Tech & Media who have accounted for 21% and 16% respectively. The Professional Services sector, who have accounted for the greatest proportion of take-up this year, have only accounted for 12% of the post-lockdown tenant supply.
While we are still seeing the level of potential requirements increase (rising from 3.25m sq ft at the end of Q2 to 3.56m sq ft at the end of August) the level of active requirements has also increased by 2% over the same time period, settling at 5.57m sq ft. This brings the total level of requirements to 9.13m sq ft, which is 3% up on the long-term average and in-line with the 12-month average.
We only saw an additional 51,364 sq ft of space be placed under-offer last month, bringing the total level of under offers to 794,497 sq ft. This is down on the long-term average by 39%, and the lowest it has fallen to since December 2016.