A resurgent September sees nearly 750,000 million sq ft in take-up
The City experienced a strong month following a subdued July and August – take-up in September soared to 737,475 sq ft, this is up 42% on the ten-year monthly average. The figure was achieved across 47 transactions – the highest number of monthly deals since December 2019.
Despite a fruitful September, Q3 take-up reached 1.2m sq ft – this is down 42% on the Q3 ten-year average. Moreover, year-to-date take-up reached 4.3m sq ft across 300 transactions. Comparatively, this is up 54% on the same point last year, but down marginally on the long-term average by 4%.
Core, prime office space appears to be occupiers' preference, with 2.5m sq ft (58%) of year-to-date take-up located in the City Core – this is 4% up on the ten-year average.
As occupiers are facing increasing scrutiny with regard to achieving sustainability goals, whilst also striving to get people back to the office, there continues to be a preference for premium office space. This is reflected by 89% of take-up year-to-date being of Grade A quality.
Addleshaw Goddard’s much-anticipated pre-let of 41 Lothbury, EC2, transacted last month. The law firm is thought to have acquired 114,000 sq ft across part of the ground floor and six upper floors, on a 15-year term paying a blended rent of £75.00 psf.
Another notable transaction in September saw Apple continue its acquisition of available floors in 22 Bishopsgate, EC3, transacting on the 20th, 21st, and 28th floors (75,280 sq ft). The tech giant already occupies 132,000 sq ft across the 31st to 35th floors and are under offer on a further two floors – this would bring its total occupation to over 250,000 sq ft.
We have continued to see an increase in average rents so far this year. The average Grade A City rent for the year to date is £67.18 psf – up on last year’s annual figure by 4%
Will Wilson, City of London Office Analyst, Commercial Research
Supply last month rose to 13.4m sq ft, equating to a vacancy rate of 9.6%, the highest since Q4 2005. The growing discrepancy between the best and the rest is resulting in prime office space being snapped up at an increasing rate, whilst lesser quality supply is left untouched. The ‘stickiness’ of Grade B space is evident – on average, a unit remains on the market for 24.4 months, which is up from 11.6 months in Q4 2016.
The availability of prime office space remains slightly undersupplied, with 43% of current supply consisting of space that has been newly developed or comprehensively refurbished and will inevitably contribute to year-on-year prime rental growth in the coming years.
We have continued to see an increase in average rents so far this year. The average Grade A City rent for the year to date is £67.18 psf – up on last year’s annual figure by 4%. Occupiers are prepared to pay higher rents if, in return, they secure amenity-rich buildings with good connectivity. As such, we have seen rental growth at the prime end of London’s office market during the first three quarters of 2022, which now stands at £84.56 psf, a record and representing a 3% increase (up from £82.30 psf in 2021).
81 lettings in the City year-to-date have achieved rent of over £70 psf, equating to 33% of known rents achieved, an uplift from the five-year average of 20%. More impressively, 26 transactions have achieved rents over £80.00 psf – 2020 and 2021 combined only saw 28 achieve this.
In part, rental growth is due to a limited supply of prime and increasing social pressures. Now this dynamic is being compounded by increases in construction costs that, without rental growth, will make new office developments challenging, or even unviable.
Analysis close up
In focus: Under-offers
This month’s In Focus looks at current under-offers. The City market has experienced a relatively strong first three quarters of 2022 in terms of take-up and under-offers have consistently been high, providing a conveyor belt of deals transacting. For five consecutive months, under-offers totalled 1.9m sq. ft. However, September experienced a flurry of under offers totalling 450,622 sq ft, bringing the total for the City to 2.0m sq ft, this is 43% up on the long-term average of 1.4m sq ft. Due to the increasingly protracted legal due diligence process, as well as a number of complicated soon-to-be pre-lettings in the pipeline, office space is staying under offer for longer than usual.
The preference for best-in-class space continues to direct occupier decision-making, where 68% of under offers are on recently completed space or are still in the development pipeline. With the continuation of an undersupply of the prime office availability, developments that have started construction and/or are nearing completion will be the target for demand, as there is less risk of significant delays, this will fuel the strong pre-letting trend.