Market in Minutes: City Office Market Watch

April 2021 experienced the second-highest monthly take-up since the pandemic struck

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.

Take-up in the City for April 2021 reached 337,631 sq ft. Positively this is the second-highest monthly take-up since the first lockdown, where March 2020 saw take-up reach 449,136 sq ft. Year-to-date take-up has reached 1.11m sq ft, however, this is still down 27% on the same point last year. Moreover, the City has seen a 9% rise in the 12-month rolling take-up settling at 2.51m sq ft, although this is still 62% down on April 2020 (6.74m sq ft). Grade A space continues to be the preference within the City, as 92% of year-to-date take-up has been of Grade A quality, a slight decrease from last month.

Despite the increased monthly take-up, April saw the lowest number of deals so far this year (12), nevertheless, three notable pre-lets aided the month’s take-up figures. JLL acquired a pre-let of the 6–8th floors at British Land’s 1 Broadgate development, EC2 (134,000 sq ft) on a 15-year term. 1 Broadgate will become JLL’s UK head office and the firm will take occupation in 2026.

Another sizeable pre-let saw laboratory diagnostic provider Synlab acquire the entire building at 41 Blackfriars Road, SE1 (c.93,000 sq ft). Synlab intends to create one of the largest, purpose-built pathology laboratories in the UK.

Year-to-date, the Professional Services Sector continues to dominate, accounting for just under a quarter of total take-up (23%). This is followed closely by the Insurance & Financial Services sector and the Property Sector, both account for 17%. The Public Services/Governmental, Education and Health sector is also not far behind accounting for 15% of take-up. There has been a drop off in demand from the Serviced Office Provider sector, which has accounted for 1% of year-to-date take-up after high levels acquisitions in the past, from the sector. Comparing such take-up to 2019, where the Serviced Office Provider sector recorded 23% of total take-up, the largest of any sector.

April 2021 saw a decrease in supply, settling at 12.0m sq ft, this equates to a vacancy rate of 8.7%. However, compared to April last year, this is up 340 bps and also unsurprisingly up on the long-term average of 6.6%. At the end of April, 84% of supply was of Grade A standard, which is in line with the five-year average of 84%. The majority of supply (61%) is within the City core and, therefore, has a higher vacancy rate of 11.3%, compared with just 6.3% in the fringe.

Tenant-controlled space accounts for 27% of available supply, which is only slightly up on the five-year average of 26%. We have continued to see a slowing of tenant release space entering the market since February, with only 34,698 sq ft of new space coming on to the market in April.

As the success of the Covid-19 vaccine rollout continues and the relaxation of regulations increases, we have witnessed a rise in total demand for office space across Central London and the City. Total demand requirements have increased 6% over the last month reaching, 10.1m sq ft, consisting of 7.1m sq ft of active requirements and 3.0m sq ft of potential requirements. Active demand has witnessed a modest 1% increase on the same point last year but more impressively is up 8% on the five-year average.

When addressing the development pipeline, 31% of the 3.4m sq ft of new space set to complete this year has been pre-let. A notable project to recently reach practical completion is 1 Portsoken Yard, E1 that sees 233,000 sq ft of office space enter the market later this quarter, of which none has been pre-let. Looking further ahead, over the course of 2022 there is 2.9m sq ft of schemes set to complete, T. Rowe Price has agreed to pre-let c.130,000 sq ft at MEC’s Warwick Court, EC4 development. 2023 and 2024 sees a combined 7.9m sq ft of office space set to enter the market of which 15% is already pre-let.

Analysis close up

In focus: Tenant-controlled supply

London EC2

London, EC2

This month’s In Focus takes a closer look at EC2 due to the postcode seeing the highest 2021 year-to-date take-up in the City (393,847 sq ft). Additionally, 97% of take-up in the EC2 postcode was of Grade A standard – this is above the City average of 93%. Take-up figures have been bolstered through two sizeable pre-lettings, as well as transactional activity involving 60 London Wall, EC2, with Mondrian acquiring the ninth and tenth floor (37,889 sq ft) earlier this month and Alliance Bernstein acquiring the seventh and eighth floors (52,158 sq ft) in March.

Grade A supply accounts for 86% of space – this is higher than the average for the City, which is currently 84%. We can see that in terms of number of units, 75% of these are sub 10,000 sq ft and 44% are sub 5,000 sq ft. Supply of prime and top Grade A space is set to increase as EC2 accounts for just over a quarter of the number of schemes scheduled to complete between now and 2024 in the City.