As we near the halfway point of the year, transaction volumes are still relatively subdued as leasing deals are taking far longer to complete; however, there are signs of improvement. Last month 293,570 sq ft transacted, which took the year-to-date total to 1.2m sq ft, across 141 transactions. This is 10% above where it stood at the same point last year; however, it is below the ten-year average by 25% and 11% below the ten-year average by number of transactions.

So far in the year, there have been no transactions to complete that have been above 50,000 sq ft – the only other year that this was also the case was 2020. Instead, we are seeing transactions sized 10,000 sq ft or below, accounting for the largest amount of take-up. At the end of last month, transactions below 10,000 sq ft, by number, accounted for 73% of year-to-date take-up. The largest transaction to complete last month, and in fact for the year so far, was Qube Research & Technologies' pre-let of the N2 development of the 15th to 12th floors (39,471 sq ft) at a blended rent of £93.50 psf, on a 15-year lease.

In terms of which business sector accounts for the largest proportion of take-up, the Insurance & Financial sector still dominates, making up 23% by number and 29% by volume of transactions so far this year. As noted earlier in the year, this is primarily made up of financial firms choosing to take up space in the West End.

This is still feeding into the number of active requirements we are tracking across central London and the West End, as the Insurance & Financial sector accounted for the second-largest volume of active requirements at the end of May, totalling 24%. The Tech & Media sector is the largest sector, accounting for 38% of active requirements.

In total, the number of requirements across central London and the West End stood at 6.3m sq ft, 4.2m sq ft of which is made up of active requirements. Although the total is 7% below the long-term average, we are still not seeing occupiers choosing to significantly downsize their office footprint, despite the fact that agile working is still prevalent across all business sectors. In fact, of the total number of West End active requirements, 18% are increasing their footprint by 10,000 sq ft or more.

In terms of supply, we have witnessed the biggest monthly decrease since August 2021, with the total at the end of May standing at 7.2m sq ft, which is 3.7% lower than April’s total. This equates to a vacancy rate of 6.2%, which is 20 bps lower than the previous month, and the lowest the vacancy rate has been since December 2020. Although, it is worth noting that this is still above the long-term average of 4.1%.

We anticipate the volume of supply will continue to fall with such a large amount of space under offer, coupled with the reduction of tenant supply that is being put on the market. Furthermore, with wider headwinds hitting the market, such as rising inflation and construction costs, coupled with the ongoing geopolitical situation, it will be interesting to see how the market reacts going into H2.

Undoubtedly, the increasing construction costs and supply chain issues will impact scheduled developments across central London; however, as it stands, there is 11.3m sq ft of extensive refurbishments and developments that are scheduled between 2022–2025 in the West End, 17% of which have already been pre-let. Seven schemes have completed so far this year – there is a further 2.6m sq ft scheduled to complete by the end of 2022; however, we anticipate a few of these schemes to be pushed further out into 2023.

Analysis close up

In Focus – Under offers

Although leasing activity seems to be stalling this year, under offers are at record levels, with the total standing at 1.87m sq ft, which is 80% above the long-term average and is also at a similar level to the City. This takes the total for central London to 3.87m sq ft, which is the second-highest amount we have recorded. In fact, both April and May for the West End have been the two highest months for total amount of space under offer since our records began.

In May, 166,229 sq ft went under offer, and over 12 months, between May 2021 to May 2022, there has been a 5% MoM increase – comparatively, the year previous to this, there was only a 1% MoM increase. With such high levels of space under offer, it portrays an encouraging picture for businesses committing to returning to the office and for leasing activity over the second half of the year.

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