Market in Minutes: West End Office Market Watch

West End under offers reach a near two-year high

October take-up was slightly muted in comparison to strong performing previous months, with take-up reaching 161,219 sq ft across 21 transactions. This brought year-to-date take-up to 2.87m sq ft, up 92% on the same point last year, but down on the ten-year average by 12%.

The largest transaction to complete last month saw Swedish gaming company Sharkmob’s acquisition of the fourth floor at 80 Strand, WC2, (38,718 sq ft) on a ten-year lease term at £72.50 per sq ft.

The Victoria/Westminster sub-market area accounted for the majority of take-up, with 81% of space acquired over the month. The largest transaction to complete in this area was Chevron’s acquisition of a ten-year sub-lease, from The Very Group, of the part-2nd floor (18,541 sq ft), at 111 Buckingham Palace Road, SW1. Another notable transaction to complete in this area was the letting of the 3rd to 6th floors at 1 Old Queen Street, SW1 across three separate transactions.

Looking at sectors driving demand, the Tech & Media sector continues to dominate take-up and has accounted for 33% of space acquired this year, followed by the Insurance & Financial Services sector accounting for 20%, and then by the Retail & Leisure sector with 9%.

However, in terms of transactions numbers, the Insurance & Financial sector has been a key driver of activity this year and has accounted for the largest quantity (34%) of transactions to have completed. With 65 transactions in total, we have seen the same number of transactions complete to this sector as we did over the same period in 2019. With the Insurance & Financial sector accounting for 39% of West End specific Active requirements, the sector is set to continue to be a key driver of leasing activity across the West End.

Whilst leasing activity over the month was slightly subdued, space under offer continued to increase and was up by 13% on the previous month. With space under offer at 1.5m sq ft, this is up 34% on the long-term average and the highest level of under offers since November 2019, a positive signal of demand gaining momentum. Around 82% of space under offer is of Grade A standard, and the development pipeline accounts for 37% of space under offer, continuing to reflect the intensified occupier preference for high-quality space.

Supply has remained broadly stable over the past three months and at the end of October remained at 7.8m sq ft, equating to a vacancy rate of 6.7%. Currently, the overall amount of tenant-controlled space, at 2.5m sq ft, is at the lowest level it has been at since November 2020, and is now 19% below its peak in April this year. Unsurprisingly, tenant space put on to the market since the beginning of the pandemic makes up the majority of space withdrawn this year.

Around 10m sq ft of new developments and extensive refurbishments are scheduled to complete over the next four years. As it stands, 3.6m sq ft (16%) of these have already been pre-let. A further 5% is currently under offer.

We are currently anticipating a record level of development activity, with 3.6m sq ft scheduled to complete during 2023, though, this will likely be tempered over the passage of time, rising buildings costs and current supply chain challenges. The largest development currently scheduled to complete over this period is Stanhope/Mitsui’s Gateway East development, (200,000 sq ft), W12, followed by Argent’s S3 development, N1C (195,000 sq ft). At present, 5% of 2023’s pipeline has already been pre-let.

Analysis close up

In Focus – Rents

This year we have continued to see strong prime rental performance as the continued bias for quality office space has insulated headline rents. The West End has experienced an increased proportion of higher rents, with nearly 15% of rents achieved this year being in excess of £100.00/sq ft; this is compared to the ten-year average of 10%. The year-to-date average prime rent has settled at £118.25/sq ft, which is the same as the end of 2019.

Transactions to Insurance & Financial Services sector occupiers have accounted for the majority, 80%, of rents achieving over £100.00 per sq ft so far this year. Since 2015 the sector has accounted for 67% of rents over £100 per sq ft.

Prime rents are expected to growth 2.6% year-on-year until 2025 and Grade A is expected to grow 2.3%, whilst Grade B rents will continue to decline by 1.2% a year.