Market in Minutes: West End Office Market Watch

Year-to-date take-up above the ten-year average

A flurry of transactions in September took monthly take-up to 549,143 sq ft, across 33 transactions. This is 55% above the ten-year average monthly take-up figure.

This continued momentum off the back of a strong summer period is perhaps best illustrated by analysis of Q3 activity. We saw 1.2m sq ft of leasing transactions complete overall, across 119 deals, bringing year-to-date take-up to 3.48m sq ft, 19% above where it stood this time last year, and 12% above the ten-year average.

86% of year-to-date take-up has been of Grade A standard; meanwhile, the largest proportion of Grade B space let so far this year has been in Covent Garden (18%) followed by Victoria with 17%.

The largest transaction to complete last month, and also the largest of the year so far, was Blackstone’s acquisition of the entirety of Lansdowne House, 57 Berkeley Square, W1, (225,000 sq ft) at reportedly an average of c.£150 psf overall. The development is being led by London commercial property developer, CORE, and is due to complete in 2027.

This year so far, we have seen record levels of demand from Financial sector occupiers and the sector has accounted for 35% of year-to-date take-up. The volume of transactions that have completed by the sector has already surpassed the annual volume we have seen over the past ten years by 5%.

Continued strong demand for best-in-class space has translated into rental resilience across the market, amid the current macroeconomic headwinds. We are yet to see any significant falls in average Prime and Grade A rents. The average Q3 prime rent reached £119.58 psi, taking the year-to-date average to £121.96 psf, up 2% on the end of 2021. Similarly, the average Grade A rent achieved so far this year stands at £83.67 psf, again, a rise of 2% from 2021. Comparatively, over the same time period, we have seen average Grade B rents fall by 2% to reach £53.86 psf.

Central London and the West End active requirements at the end of September reached 5.2m sq ft. The Insurance & Financial Services sector accounts for 30% of active requirements, followed by the Professional Services sector and Tech & Media Sector, accounting for 21% each.

Since July, supply has started slowly creeping up, settling at 7.2m sq ft, which equates to a vacancy rate of 6.1% – this is 100 bps lower than its peak in April 2021; however, it is still considerably higher than the long-term average of 4.6%. However, despite overall supply rising, we have continued to see overall vacancy across the core decreasing. The vacancy rate across the Mayfair, St James’s, Soho, Covent Garden and North of Oxford Street submarkets stood at 5.1%, down 90 bps on where it stood at the start of the year as a result of the strong levels of demand we have continued to see from occupiers in the core market area.

The buoyancy of the occupational and development markets, as a result of continued strong occupier demand for new space, has meant a quarter of next year’s development pipeline has already been pre-let. Between 2023 and 2026, we are currently anticipating 12m sq ft to complete, of which 14% is pre-let. Although it was worth noting only 24% (by sq ft) of 2024–2026’s pipeline is known to currently be under construction, and over two-thirds of the pipeline for this period consists of new developments. 41% of 2024–2026 pipeline currently has planning permission but has not started. With uncertainty over build costs and increased demands and expense of sustainability requirements, some of the forecast development starts could get delayed.

Analysis close up

In Focus – Under-offers

As well as strong levels of take-up, there is also a large amount of space under offer in the West End. Last month saw 141,442 sq ft of space go under offer, taking the total to 1.3m sq ft.

This is 22% above the long-term average and also 14% above where it stood at the end of Q2. Currently, Grade A space and new stock in the development pipeline make up 77% of the total amount of space under offer.

The higher levels of demand for high-quality space in the core is reflected by the fact that space under offer across the Mayfair, St James’s Soho, Covent Garden, and North of Oxford Street submarkets accounts for 43% of all under-offers. Outside of this area, the Victoria and King’s Cross and Euston submarket each account for 10% of space under offer at present.