April take-up performance improves, albeit still 10% down on the ten-year average
April has produced the highest monthly take-up so far this year, totalling 420,641 sq ft across 22 transactions. However, no month has reached the average monthly take-up figure of 516,000 sq ft. Consequently, 2023 is down 12.5% on the year-to-date ten-year average of 1.75m sq ft.
With economic uncertainty and the cost of fitting out resulting in more ‘stay put’ options, tenants that do commit to moving are focusing on higher-quality office stock. 94% of take-up this year has been of Grade A quality – this is the highest proportion for this point in the year on record.
Most notably in April, Christchurch Court, 10 Newgate Street, EC1, saw a duo of long-anticipated transactions cross the line, totalling c.156,000 sq ft. Goodwin Procter acquired the fifth, sixth and seventh floors on a 15-year term with a break option in the tenth year and thought to be paying a blended rent of £82.50/sq ft. Convene acquired the lower ground to first floor on a 20-year term, reinforcing the returning confidence within the Service Office Provider sector. It is believed ICE futures are under offer on the remaining space in the building.
Positively, despite a strong monthly take-up figure, under offers have stabilised at 2.2m sq ft, with 252,361 sq ft of space going under offer in April. This is 57% up on the long-term average of 1.4m sq ft.
Total City supply fell by 2.2% on last month, currently standing at 13.4m sq ft – this equates to a vacancy rate of 9.6%. The bifurcation in the market extends to availability, the intense demand for best-in-class, coupled with headwinds in the debt and construction markets are resulting in fewer completions and dwindling supply of prime office buildings. At present, 40% of current availability has a BREEAM rating of ‘Excellent’ or ‘Outstanding’.
The future Prime pipeline is expected to remain challenged through development slippages and delays. The lack of availability for such quality has augmented the strong pre-letting trend that the City has experienced over the last three years. Faced with fewer options, tenants are facing an increasingly competitive market for Prime office space – 26% of the 2023–2027 pipeline has been pre-let. This is extremely front-heavy, with 45% of developments scheduled for completion this year being pre-let and 27% in 2024.
When comparing the Q1 2022 pipeline to the Q1 2023 pipeline, research found that 64% of schemes had been delayed by at least a quarter. An inherent undersupply of Prime office stock, a faltering pipeline of new supply, and an increased demand for such quality ensure strong rental growth for the next five years. Savills forecast Prime rents to grow by 3.4% on average per annum between 2023 and 2027.