Market in Minutes: West End Office Market Watch

Summer sees an uptick in activity as take-up, under-offers, and active requirements are all on the rise

Leasing activity picked up over July to reach 276,007 sq ft across 24 transactions. This brought year-to-date take-up to 1.55m sq ft, 46% above where it was this time last year. It is also the third-highest monthly since the start of the pandemic, only 30% behind March, and 2% behind May 2021.

Although month-on-month take-up since the start of this year has not been consistent given the lockdown at the start of the year, on average, leasing activity has risen by 56% per month from January. Almost three-quarters of these completed transactions have been for 10,000 sq ft or less.

This increased activity coupled with a high amount of space under offer bodes well for the levels of leasing activity we have seen in recent months and for the rest of the year. Last month 127,750 sq ft of space went under offer, bringing the total to 1m sq ft across the West End, up 6% on the long-term average.

In total, the Tech & Media sector accounted for 18% of the space that was let over the month. Partly due to the largest transaction to complete in July being Smart’s acquisition of the entire building at 136 George Street, W1 (44,500 sq ft) on a 15-year lease at a rent of £81.25 per sq ft.

This brought year-to-date take-up for the Tech & Media sector to 363,129 sq ft, which equates to 26% of the overall level of take-up we have seen complete this year. Alongside the Insurance & Financial sector, which also accounts for 26%, both make up the largest sectors for leasing activity so far this year.

Last month supply reached 8.1m sq ft, which takes the vacancy rate to 7.0%, 20 bps up from the previous month, and up on the long-term average of 4.5%. From this total, 33% is made up of tenant supply, which is 6% up on the five-year average.

Part of the reason for this increase is due to the 83,094 sq ft of tenant space that came on to the market last month, 61% of which came from Li & Fung sub-letting the fifth floor at WestWorks, W12 on an assignment until 2029. However, it is important to note that the rate of tenant supply is still slowing from April 2021, where it reached its peak as the current 2.8m sq ft of available tenant space is down 12% from April.

From the total amount of available space, 1.8m sq ft (21%) has a BREEAM rating of ‘Very Good’ or above. However, only 17% of these buildings that have come onto the market since January 2021 have been awarded a BREEAM rating of ‘Excellent’ or ‘Outstanding’.

Whereas within this same timeline, buildings with the ‘Excellent’ or ‘Outstanding’ ratings have accounted for 32% of take-up, which suggests that offices with green initiatives are proving to be more popular amongst office occupiers across the West End.

Currently, there are 12.7m sq ft of new developments and extensive refurbishments scheduled to complete over the next four years. As it stands, 3.6m sq ft (29%) of these have already been pre-let, and 2021–2023 are set to be record years for development completions for the West End as many developers push on with their current timelines, but 34% of these have already been pre-let.

Analysis close up

In Focus – Active and Potential Requirements

In recent months the levels of active and potential requirements across central London and the West End have been diverging from one another. Since the end of April 2021, active requirements have increased by an average of 8% every month, to reach 5.8m sq ft last month. Whereas potential requirements have gone down by an average of 3% within the same period, which illustrates an improvement in occupier sentiment.

The Professional, Tech & Media, and Insurance & Financial Services sectors made up the largest proportion of demand at the end of July, accounting for 28%, 24%, and 19%, respectively. Only 8% of occupiers have requirements sized 100,000 sq ft or above, with the highest proportion unsurprisingly remaining at 10,000 sq ft and below across the West End and central London.