Demand returning to the market with an uptick in requirements recorded
Covid-19 has unsurprisingly had a major negative impact on take-up in Q2 and Q3. At the end of Q3 2020, there had been 1.6 million sq ft transacted which was 32% below 2019 and 37% below the 10-year average for the first three quarters of the year.
However, it is positive to note that there were six deals recorded above 20,000 sq ft in Q3 2020 reflecting activity from corporate occupiers present in the market. The largest transaction for Grade A space was Phillips leasing 40,000 sq ft at Canmoor and Federated Hermes’ Ascent 1, Farnborough Aerospace Centre.
The manufacturing and industry business sector which contains life science companies has proved resilient in 2020. There have been 28 deals recorded from the sector in 2020 which is on par with the five year average for the first three quarters of the year and 12% above the 10-year average. This total is also the highest recorded number from any business sector in the market. Notable occupiers from the sector who leased office space in Q3 2020 include Bristol-Myers Squibb (advised by Savills) leasing 28,000 sq ft at Building 3 Uxbridge Business Park and Enegitix Therapeutics acquiring 8,300 sq ft at Westworks, White City Place adding to the growing cluster of life science companies relocating to West London.
Demand in the market is returning quicker than may have been anticipated at the height of the first lockdown with total Q3 2020 take-up reaching 489,000 sq ft which was over double the take-up recorded in Q2 2020. The increase in demand has been notable by the requirements Savills have tracked across the market. For Q3 2020 the total monthly requirements recorded in July, August and September were 5%, 30% and 47% higher than the total recorded for each month in 2019 respectively which bodes well for take-up in Q4 2020 and Q1 2021.
Whilst we are clearly still some way off from seeing take-up back at pre-Covid levels, we are at least seeing a major pick up in enquiries. This is a good indication that occupiers, of all types and sizes, still recognise the importance of their office space to their business. Quite what impact on size and locational preferences, however, remains to be seen
Jon Gardiner - Head of National Office Agency
Supply levels remain tight with development pipeline limited
Supply levels in the market remain low and there is currently 12.7 million sq ft available which is 8% below the five-year average. There is a shortage of large available town centre buildings; of the current Grade A stock available over 50,000 sq ft only 36% of these buildings are situated in town centre locations. The supply constraints are more evident when reviewing availability on a submarket level. Bracknell, Basingstoke and Croydon all have below two years of Grade A supply.
The development pipeline is limited with 2.0 million sq ft of available space under construction set to complete by end 2022. This only equates to seven months of take-up in an average year.
Headline rents remain stable in Q3 2020, but downward pressure expected in the short term
Headline rents have initially remained stable since the first lockdown for the best quality space. This was highlighted in Watford and Farnborough in Q3 2020 where £36.50 per sq ft and £29.00 per sq ft were achieved at 40 Clarendon Road and Ascent 1, Farnborough Aerospace Centre respectively which are record-high rents for those markets.
However, we anticipate there will be downward pressure on rents in the short term as well as increased incentives for occupiers who seek to take advantage of the current market conditions.