Market in Minutes: City Office Market Watch

Q1 take-up in line with 10-year average, whilst active requirements soar to new heights

March take-up reached 402,554 sq ft across 32 deals, bringing the total first-quarter take-up figure to 1.3m sq ft – this is up 71% on the same point last year and is in line with the ten-year average. With a strong start to 2022, the twelve-month rolling take-up currently sits at 5.4m sq ft – this is 125% to the same figure twelve months ago (2.4m sq ft).

The attraction to prime office space continues to be a key driver for occupiers, with 93% of take-up this year being of Grade A quality, of which 69% was recently comprehensively refurbished/developed. Moreover, 60% of take-up so far this year has been in buildings rated BREEAM ‘Excellent’ or ‘Outstanding’ – this is compared to the five-year average of 40%. This is perhaps unsurprising as occupiers are increasingly using their office space as a way to attract/retain talent and to encourage their staff to return to the office.

Positively, we are seeing the return of the middle-size bracket deals, with the average deal size for Q1 2022 averaging 15,530 sq ft, in comparison to the ten-year average of 13,710 sq ft. Moreover, just under 30% were in the 10,000–25,000 sq ft-size bracket, a good indicator that the mainstream market is making positive steps in the right direction, although it should be noted that a third of this figure included serviced office providers and occupants expanding within the same building.

The largest deal to complete last month saw Greenberg Traurig acquire the eighth floor at The Shard, London Bridge Street, SE1 (31,584 sq ft) on an assignment from, on a ten-year term, at £80.00/sq ft. Another notable deal saw Knotel acquire the entirety of Old Sessions House, 22 Clerkenwell Green, EC1 (21,460 sq ft), on a ten-year term at £83.23/sq ft.

The first few months of 2022 tell a familiar story, with the Professional Services sector accounting for just over a quarter of year-to-date take-up (29%), again followed by the Insurance & Financial Services sector and Business & Consumer Services sector with 18% and 15%, respectively. This was significantly aided by both the Hogan Lovells and Aviva deals, which accounted for 25% of total take-up for this quarter. The Serviced Office Provider sector has doubled its take-up contribution, accounting for 7% this year compared to 3.5%, both in 2021 and 2020. It is also believed Knotel are reportedly under offer on four upper floors at the newly completed scheme HYLO, EC1 and Gilray House, EC1.

Total City supply rose last month by 4% and currently stands at 12.9m sq ft, equating to a vacancy rate of 9.2%, and is up considerably on the five-year average of 8.3m sq ft. A contributing factor to this rise is the addition of 550,000 sq ft of speculative schemes scheduled to complete in Q3 2022 being added to availability.

In March, 333,559 sq ft went under offer, bringing the total across the City to 1.9m sq ft – this is 35% above the long-term average. Moreover, we expect to see sustained take-up for best-in-class office space. Currently, 69% of space under offer is either recently redeveloped or refurbished or still in the development pipeline.

The average Grade A City rent for the first quarter of 2022 settled at £67.11/sq ft, up on Q4 last year by 4%. In fact, in the last six months alone, we have seen 49 rents achieved over £70.00/sq ft, or 30% of all known rents in that time period – this leaves an average prime for the last six months of £83.64/sq ft, a record level for any six-month period.

Q1 saw 683,657 sq ft of office space complete and brought to market. Of the remaining 3.0m sq ft scheduled to complete this year, 40% is pre-let. In total, between 2022 and 2025, the City is anticipating 15.5m sq ft to be completed, of which 18% is pre-let. There is currently 10.8m sq ft under construction in the City; 3.1m sq ft of this is already committed (28%).

Analysis close up

In focus: Active demand

This month’s ‘In Focus’ shines a light on the active requirements that specify Central London and the City, this is due to the record levels (8.9m sq ft). At the end of Q1 2022, active requirements are up 19% on the end of 2021 and up 27% on the long-term average.

When looking at where the demand is originating, this bears some resemblance to the trends in take-up, with the Tech & Media sector accounting for 26%, followed by the Professional Services sector and the Insurance & Financial Services sector, accounting for 24% and 23%, respectively. These three sectors have proven to be extremely resilient throughout the uncertainty of the pandemic, continuing to lead the recovery and beyond.

Looking at all occupiers with an active requirement across Central London, there are more increasing their space (29%) than decreasing the amount of space they occupy (13%). Interestingly, more Professional Services sector requirements are looking for less space as opposed to more space, than previously occupied.