A strong March sees Q1 take-up reach the highest level since lockdown began
Q1 take-up reached 564,532 sq ft after March became the strongest month for take-up since the first lockdown in March 2020. Leasing activity reached 369,260 sq ft in March, across 25 transactions. Although this was 81% below the long-term average for Q1 take-up, March 2021 is up 89% from January and February’s total combined, and also up 129% from March 2020.
The largest transaction to complete in March was Publicis’s assignment to Brevan Howard of the entire building (71,778 sq ft) at 82 Baker Street, on a 10-year lease, with the remainder of the terms currently confidential. Second to this was PVH’s pre-let of the 5th to 9th floors (50,052 sq ft) at the 1 Wood Crescent development, on a 15-year lease, with rent expected to be in the £50s.
As lockdown restrictions began to slowly ease throughout March, active requirements in central London and the West End began to pick up. Occupiers have shown an increased level of confidence as the number of active requirements reached 5.3m sq ft, a 20% rise from February’s levels, and up 12% on the long-term average.
The Professional sector accounts for the largest proportion of active requirements, at 23%, closely followed by the Tech & Media sector which accounts for 21%, and the Insurance & Financial sector with 20%. There is an additional 2.3m sq ft of potential requirements, bringing the total to 7.6m sq ft.
March saw a notable increase in supply as it stood at 7.8m sq ft and the end of Q1. This is a 5% rise from the previous month, and a 10% rise from Q4 2020. This takes the overall vacancy rate for the West End to 6.9%, and 30bps higher than last months figure.
This rise in supply is partly due to the addition of speculative Q3 2021 completions, which were added to supply at the end of this quarter. An extra 380,806 sq ft of new space was added, most notably the refurbishment of 78 St James’s Street, SW1, which increased Grade A supply by 112,000 sq ft.
The amount of tenant space that has been made available has remained largely stable from the previous month, still accounting for 40% of overall supply. However, since Q4 2020 a further 200,000 sq ft of tenant space has been added, and 79,048 sq ft of this was in March, with 42 Judd Street, WC1, accounting for 34,471 sq ft of this space.
Despite forecasts predicting rents to fall this year there has yet to be any indication of this. Average Prime rent for Q1 stood at £118.50 psf, up 7% on Q1 2020 and the average Grade A rent stood at £82.85 psf, up 12% from Q1 last year. Although the sample size is smaller, there has been evidence to show that landlords are offering greater incentives to occupiers, by way of rent-free periods. The average rent-free period achieved in Q1 stood at 27 months, moving out by three months from 24 months in Q4 2020. Similarly, the City has moved out by four months to reach an average of 28 months.
The end of this quarter saw 481,511 sq ft of developments complete, across three sites. A further 3.2m sq ft of space is scheduled to complete in 2021, with 62% of this already pre-let. We are also expecting 2022 to be a strong year for developments, with 3.4m sq ft scheduled to complete, however, development completions could be pushed further out due to inevitable delays.
Analysis close up
In Focus - Business Sectors
The West End has traditionally seen the Tech & Media sector dominate take-up levels with large tech companies choosing to locate their offices here. However, 2021 has seen the Insurance & Financial sector accounting for the largest amount of take-up so far this year, totalling a quarter of the whole of take-up in Q1, across 14 separate transactions. This sector also accounts for nearly a quarter (21%) of active requirements.
The Retail & Leisure sector has accounted for 15% of take-up so far, despite this business sector particularly struggling over the past year with forced governmental closures. In fact, Q1 take-up for Retail & Leisure was up 117% from Q1 2020, with occupiers such as PVH, FitFlop and Superbet all taking 15, 8, and 10 year leases, showing a renewed confidence amongst this sector’s occupiers as lockdown restrictions ease.