Take-up declines in Q2, but positive outliers remain
Total take-up during June reached 279,934 sq ft across 37 transactions, taking the overall Q2 figure to 683,975 sq ft, down 30% on the ten-year average. This resulted in H1 leasing activity totalling 1.47m sq ft, down 25% on the ten-year average.
The largest transaction to complete this month was Eisler Capital’s pre-let of the entirety of the fourth to fifth floors at Landsec’s Lucent, 1 Sherwood Street, W1 development (49,287 sq ft), on terms which remain confidential at present. However, the rent is believed to be just over £100 per sq ft.
Although H1’s leasing activity paints a negative picture, there were some notable outliers. We saw two other transactions in the Insurance & Financial Services sector, in addition to Eisler. First was 3i’s acquisition of the first and second floors at 1 Knightsbridge, SW1 (48,202 sq ft) for a rent of around £100 per sq ft. The other involved Point 72, which expanded its current footprint at 8 St James’s Square, SW1, through leasing the fourth floor (10,141 sq ft) by way of an assignment. In fact, take-up for the Insurance & Financial Services sector is up 74% on the ten-year average, and is the second strongest H1 we have recorded.
The strength of this sector also helps to explain the high level of activity taking place in the core relative to the rest of the market. For example, H1 take-up in Mayfair was up 54% on the ten-year average. In contrast, the proportion of take-up made up from fringe sub-markets has fallen to 22%, the lowest since 2018.
The increased divergence in the market is also evident in average rents. At the end of H1, the average prime rent stood at £132.94 per sq ft, up 11% from H1 2022. Average Grade B rents, meanwhile, continued to decline, falling by 8% to £47.01 per sq ft.
Unsurprisingly, this year’s elevated development pipeline, combined with subdued levels of leasing activity, has led to a notable increase in supply this month. Overall supply increased 9% to 8.6m sq ft, largely as a result of c. 800,000 sq ft of speculative developments being added at the end of the quarter. Consequently, this led to a 50 bps rise in the vacancy rate to 7.2%. However, tenant-controlled supply remains stable, increasing by less than 1%, and now accounts for just 18% of total supply, the lowest since October 2022.
Encouragingly, active demand continues to remain buoyant, with 42% of new active requirements added last month looking for space of 25,000 sq ft or larger. Similarly, although lower this month, under offers stand at 1.15m sq ft, up 15% on the ten-year average. However, the lengthening transaction times we have witnessed in recent months has meant that this has yet to translate to an uptick in take-up.