Number of pre-lets hits record high in 2022 as demand for highest quality space continues
As is often the case, December proved to be the strongest month of Q4 take-up, after 452,128 sq ft completed across 25 transactions. This took total take-up in 2022 to 4.5m sq ft across 412 transactions. This was up 6% on the same point last year, and above the ten-year average by 8%.
The largest transaction to complete last month was GSK’s pre-let of the entirety of Royal London’s The Earnshaw, 77–91 New Oxford Street, WC1 (145,000 sq ft), on a 17-year lease, for an average rent believed to be in the mid £90s. This marks the pharmaceutical giant’s move to Central London from Brentford, attracted by excellent transport links and proximity to the capital’s Knowledge Quarter.
The Insurance and Financial Services sector accounted for 39% of take-up at 172,271 sq ft. This took overall sector take-up to a record 1.7m sq ft, which is 70% higher than the previous record set in 2019. Three out of the five largest leases this month came from occupiers in this sector. Of these, two were pre-lets, both at N2, 1 Bressenden Place, SW1, totalling 49,143 sq ft. The third transaction that took place was for the 4th and 5th floors (34,691 sq ft) at 1 Knightsbridge, SW1, where a comprehensive refurbishment recently completed.
In fact, the number of pre-lets hit a new recorded high of 33 transactions compared to the previous record of 30 set in 2018. Furthermore, in terms of total area, it was just 5,474 sq ft lower than 2018’s record figure. This reflects ongoing occupier demand for the newest and highest-quality space.
Total West End supply rose slightly to 7.6m sq ft, leaving the vacancy rate unchanged from the previous month at 6.4%. It remains 210 bps higher than the pre-Covid December 2019 figure of 4.3%. The proportion of supply classed as Grade A increased to 72%, and 46% is now new as several large developments due in Q2 2023 were added to the figures. Notable additions to supply include 202,243 sq ft at 151 Buckingham Palace Road, and 107,776 sq ft from the three new top floors added at Sky Hub Victoria, 123 Buckingham Palace Road, SW1.
Total under offers increased 10% on last month to 1.5m sq ft, up 10% on this time last year. In further evidence of the flight to quality, four of the five largest floors that went under offer this month were of Grade A quality. Two popular core locations accounted for the majority of new under offers this month – St James’s (31%) and Covent Garden (27%).
2022 saw 2m sq ft of new space complete, down 27% compared to last year, although it remains 20% above the long-term average. The encouraging levels of pre-letting that we have seen this year look set to continue, with 33% of the 4.2m sq ft of space scheduled for completion in 2023 already pre-let. This is in addition to the 13% of the 2.3m sq ft scheduled for completion in 2024. However, it should be noted that 46% of the 2023–26 pipeline has yet to start construction. It will therefore be interesting to track how much space is delayed in light of rising costs.
King’s Cross & Euston is set to see the greatest level of completion activity in 2023. The two largest developments in this sub-market are 6 King’s Boulevard (655,635 sq ft) and One Keskidee Square (203,478 sq ft), formerly known as S3. Both have been fully pre-let by Google and Meta, respectively.
Analysis close up
In Focus – West End Rents
Demand for high-quality space has translated into sustained growth for average Prime rents, which increased 7.3% in 2022 to £128.76 per sq ft. Similarly, average Grade A rents grew 3.4% to £85.15 per sq ft. This stands in contrast to average Grade B rents, which have declined 4.7% to £52.40 per sq ft. More significant falls have been prevented due to an undersupply of prime space in core sub-markets such as Mayfair and St James’s.
St James’s average Grade A rent showed the greatest gains, rising to £107.30 per sq ft, and overtaking Mayfair for the first time since 2015. This was partially due to a smaller number of transactions in St James’s.
This trend is expected to continue with prime rents forecast to increase 2.0% this year, compared to a 5.0% contraction for average Grade B rents. The greatest forecast gains for Prime rents are in West End North and West End Core, averaging 3.4% and 3.2% year on year, respectively.