Supply continues to rise, but predominantly due to Q1 2021 completions, rather than tenant space
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.
December 2020 saw 301,307 sq ft of take-up across 26 transactions, this was up on November take-up figures (109,313 sq ft). Comparing to December 2019 take-up figures last month were down 51%. Total 2020 take-up was suppressed at 2.8m sq ft, which is a 58% drop on 2019 total take-up and still 56% down on the 10-year average.
The largest deal that completed last month saw City University acquire levels LG-7 (73,746 sq ft) at 33 Finsbury Square, EC2. This was a new lease from the landlord at £55.12 per sq ft on a 25-year term.
Another notable transaction that completed last month Britannia Financial’s acquisition of floor 30, 31, 35 (22,719 sq ft) of The Scalpel, 52 Lime Street, EC3 on a 10-year lease at £85.00 per sq ft, with a premium paid for the top floor. Additionally, DWS signed on the first and second floor (28,718 sq ft) at 45 Cannon Street from OpenText at £65.50 per sq ft.
The Professional Services sector continues to be the primary source of demand acquiring 31% of the total 2020 take-up. The Insurance and Financial services sector and Tech & Media then followed with 16% and 15% respectively. A particular mention to the Serviced Office Provider sector that saw take-up of 107,651 sq ft in 2020, which is a 92% down on the 2019 figure of 1,504,871 sq ft.
At the end of 2020, average prime rent increased to £81.21 from £81.17 in 2019. This was accompanied with a 1.7% increase in average Grade A rent from £64.53 in 2019 to £65.66 in 2020. The Q4 2020 average Grade A rent in the City Fringe was £65.90/sq ft, this was actually £00.46 higher than that of the City Core at £65.44/sq ft.
Supply at the end of the year stood at 10.4m sq ft, equating to a vacancy rate of 7.7%. Unsurprisingly, this is up on the end of Q4 2019 by 230 bps and above the long-term (15-year) average of 6.7%. At present, 84% of supply is of grade A standard, which is also the average Grade A supply we have seen over the past five years. The majority of supply (58%) is within the City Core and consequently has a higher vacancy rate of 9.3% compared to 6.1% in the City Fringe.
From an international perspective, Manhattan saw stalled leasing amount to record vacancies. Records were broken as the pandemic produced soaring levels of sub-leasing. The end of 2020 witnessed a 15.1% vacancy rate, up 4% from 2019 and the highest since 1999. New leases in Q4 2020 dropped 64% from Q4 2019 levels, illustrating the international impact of Covid-19 on the office leasing market.
Encouragingly, we have observed an increase in both potential and active requirements during the month. The level of potential City and central London requirements increased to 3.4m sq ft, this a 9.2% increase on the previous month and 45% higher than at the end of 2019. Moreover, the level of active demand increased 4.1% from November to 7.2m sq ft. However, this is marginally down by 1.2% on the active requirements for December 2019.
During Q4 2020, 425,427 sq ft went under offer, this is up 34% on the end of Q3 2020. Moreover, this figure is down 49% on Q4 2019 where 841,410 sq ft went under offer.
Looking forward, 3.7m sq ft in space due for completion in 2021, 35.5% of which is already pre-let, leaving 2.3m sq ft of space left to be delivered speculatively. 2022 has 2.9m sq ft in the pipeline and 5.1m sq ft is currently scheduled for 2023.