December delivers with highest take-up in 26 months, bringing annual figure to 4.8m sq ft
Take-up for December reached 778,341 sq ft across 34 deals, giving a total for the year of 4.8m sq ft, which was up on 2020 by 65% but down on the ten-year annual average by just under a quarter (23%). The additional 56 deals done in Q4, brings the total for the year to 289, which was up on 2020 by 55 deals but still down on the 10-year average of 407 deals.
Grade A space remained the clear preference as it accounted for 93% of take-up, which is up on the ten-year average of 83%. Moreover, the average deal size in 2021 settled at 16,662 sq ft, up both on last year and the ten-year average, which were 12,476 sq ft and 15,485 sq ft, respectively. This can partially be attributed to pre-lets in excess of 100,000 sq ft accounting for 24% of annual take-up.
The largest deal to complete last month saw BPP University acquire levels 1–3 at the Alfred Equities scheme at One Portsoken, 1 Portsoken Street, E1 (87,284 sq ft), which completed in Q2 2021. The terms remain confidential. Also last month, we saw Braze acquire part of the ninth & tenth (48,697 sq ft) at Exchange House, Exchange Square, EC2, on a 15-year term at £80.00 psf.
December witnessed more activity at TwentyTwo Bishopsgate, EC2. William Blair acquired the 47th to 49th floor (78,318 sq ft) at a blended rent of £87.50 psf. Additionally, Royal Sun Alliance took floors 5 & 6, following a move out of 20 Fenchurch Street, EC3. Following these two deals, total space taken in the tower amounts to 322,671 sq ft for 2021.
Throughout 2021, the Professional Services sector has consistently dominated take-up figures, accounting for just over a quarter of total take-up (26%). The Insurance & Financial Services sector contributed to 21% of annual take-up, this was followed by the Business & Consumer Services sector, 14%.
Total City supply settled for a second consecutive month on 12.5m sq ft, even following the addition of development schemes due for completion in Q2 2022. This equates to a vacancy rate of 9.0%, which is down 40 bps on the peak in September but still up on the long-term average by 300 bps.
Additionally, 41% of current supply consists of space that has been newly developed or comprehensively refurbished in the past ten years. For the fourth consecutive month, 28% of supply is tenant release space, this is up on the long-term average of 25%. The majority of supply (60%) is within the City Core and which consequently has a higher vacancy rate of 11.4% compared to 6.9% in the City Fringe.
During Q4 2021, 936,593 sq ft went under offer, taking the total current figure to 2.1m sq ft, which is up significantly on the long-term average by 58%, therefore we expect to see above-average levels of take-up for the first quarter of 2022, as the hangover of transactions from 2021 come to fruition.
A key trend of 2021 has been the increasing bias for prime office space and the divergence between best in class and lesser quality office space. The average prime rent for 2021 settled at £82.30 psf, up on 2020 by 3.1% and the highest annual figure on record. Also, in 2021 we saw 58 deals over £70.00 psf, this accounts for 20% of total deals – this is up by nine deals on last year and up 12 on the five-year average. Moreover, the average Grade A rent for 2021 settled at £64.37 psf, down marginally on 2020 by 1.1%, highlighting the growing disparity within Grade A quality.
Looking forward, 4.4m sq ft of space is due for completion this year, 33% of which is already pre-let, leaving 3.0m sq ft of space left to be delivered speculatively in 2022. The pipeline between 2022 and 2025 is expected to deliver 16.8m sq ft, of which 18% is currently pre-let.
Analysis close up
In focus: Professional Services sector
This month’s In Focus’ turns its attention to the Professional Services sector due to its prominent role in the City of London annual take-up in 2021. As seen in the chart below, the sector’s annual take-up reached 1.2m sq ft across 41 deals. This is the second highest figure in the last ten years and up 30% on the ten-year average. It is clear the sector favours Grade A quality, as 99% of take-up was of such quality, as the ever-increasing polarisation continues.
The Professional Services sector continues to favour the City Core submarket, in terms of quantum of space, 92% of take-up occurred in EC2, EC3, & EC4. With nearly half of all take-up occurring in EC2 (45%).
2021 has undoubtedly been the year of pre-lets, accounting for a third of total annual take-up. The Professional Services sector accounted for 45% of all pre-lets this year totalling 714,957 sq ft. Most recently Holman Fenwick Willan acquired floors 6, 7 & 8 at 6–8 Bishopsgate, EC2 (62,235 sq ft).