Take-up for Q2 2021 reached 790,622 sq ft, bringing the H1 total take-up to 1.57m sq ft across 118 deals and a marginal increase on Q1 take-up (779,068 sq ft). Comparatively, in terms of space, H1 2021 is down 14% on the same point last year, and down on the five-year average by 38%.

We have continued to see Grade A space being the strong preference for occupiers within the City, as 89% of H1 take-up has been of such quality, with the ‘flight to quality’ showing no signs of slowing.

The largest transaction to complete in June saw Depop acquire the second floor at 20 Farringdon Street, EC4 (33,500 sq ft). The clothing company app signed on a five-year lease from Derwent, with terms remaining confidential.

Other notable transactions include: public relations firm SEC Newgate acquired the entirety of 14 Greville Street, EC1 (14,049 sq ft) on a 10-year term at £55.00/sq ft. Law firm Goodwin Procter acquired the seventh floor at Bow Bells House, 11 Bread Street, EC4 (13,834 sq ft) on a short, three-year deal at £57.50/sq ft. The top rent achieved in June saw Loomis Sayles sign the sixth floor of 77 Coleman Street, EC2 (8,115 sq ft) on a 10-year term with a break option in the fifth year, at £82.50/sq ft and 24 months rent-free.

At the halfway point of the year, the Professional Services sector remains the largest in terms of take-up, accounting for 23%. The Insurance & Financial Services sector and the Public Services/Governmental, Education & Health sector followed behind with 16% and 15%, respectively. A delve into the Professional Services take-up reveals 54% of deals were under 10,000 sq ft.

June saw City supply reach 12.5m sq ft; this equates to a vacancy rate of 9.0%. Compared to June levels last year, this is up 330 bps and also unsurprisingly up on the long-term average of 6.6%. The increase in supply can be partially attributed to the addition of 200,000 sq ft of developments due to complete in Q4 2021. Furthermore, Q4 will see JLT’s space at the St Botolph Building, 138 Houndsditch, EC3 (290,000 sq ft) released onto the market. We anticipate the vacancy rate to peak at 9.3% in 2022 due to 6.2m sq ft of space due to complete between now and the end of next year, of which only 18% is pre-let.

Further analysis of supply reveals, 84% of supply was of Grade A standard, which is in line with the five-year average. The majority of supply (61%) is within the City core and, therefore, has a higher vacancy rate of 11.7%, compared with just 6.6% in the fringe.

With the continued relaxation of regulations and ‘Freedom Day’, demand for office space across Central London and the City has continued to increase. Currently, total requirements stand at 10.2m sq ft across central London and the City. This is made up of 8m sq ft of active demand and 2.2m sq ft potential demand.

As to be expected following an increase in requirements, we have seen the total space under offer increase by a third since January 2021 reaching 1.38m – this is up 6% on the long-term average of 1.3m sq ft. Additionally, June saw 226,031 sq ft being placed under offer – this is the highest so far since March 2020.

The current average prime rent for H1 settled at £80.39/sq ft, which is down on last year by 1%. Meanwhile, the average Grade A rent has settled at £62.72/sq ft, which is also down on last year by 7.9%. Furthermore, during the pandemic, we have experienced the increase in incentives being offered. At the end of H1, the average months' rent-free on a straight 10-year lease, with no break, came to 27 months.

Analysis close up

In focus: The BREEAM rating

This month’s In Focus looks at the BREEAM sustainability rating, as the attention to ESG grows exponentially. Looking at the chart below, we can see that 49% of transactions since the start of 2018 have been of BREEAM rating Good or above, with 31% being rated Excellent. In terms of quantum of space, two-thirds of total take-up has been of BREEAM rating Very Good or higher (66%), showing a clear occupier preference for premium and sustainable office space.

As per the chart below, 30% of total take-up (sq ft) has been located in EC2, including 18% being Excellent rated. This is followed by EC3 and EC4 who account for 15% and 11%, respectively.

With demand for sustainable office space increasing, developers are targeting the higher BREEAM ratings. 62% of development set to complete between 2021 and 2024 are BREEAM rated Very Good and above, with the majority aiming for Excellent and above.

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