Leasing activity remains subdued while active requirements continue to climb
Total take-up during June reached 213,048 sq ft across just nine transactions, weighed down by ongoing cautiousness among occupiers, and compounded by the annual summer lull. This took the overall YTD figure to 1.7m sq ft, down 29% on the ten-year average.
Over half of this month’s leasing activity resulted from the largest transaction to complete so far this year: John Lewis’ acquisition of the entirety of 1 Drummond Gate, SW1 (108,527 sq ft) on a ten-year term. The rent remains confidential at present but is believed to be in the £30s per sq ft.
The second largest deal this month also originated from the Retail & Leisure sector, and at a low headline rent, with fashion brand Phoebe Philo acquiring the entirety of 125 Freston Road, W10, (29,675 sq ft) for £22.50 per sq ft on a five-year term.
Following on from previous large transactions from this sector from the likes of Chanel and Puig, total space acquired from this sector is up 65% on the ten-year average, and marks its highest YTD take-up since 2012.
Despite two of the three largest transactions this month being of Grade B quality, this is more likely to be an outlier rather than a break in the flight to quality trend, with 85% of the total space currently under offer being of Grade A quality.
Symmetry Investment’s pre-let at Audley Property’s 31 St James’s Square, SW1, development is illustrative of this. The investment management firm took the lower ground, third and fourth floors (34,270 sq ft) for a blended rent of £136.00 per sq ft on a ten-year term. Only the fifth floor remains available at this building, which we believe to be under offer to a local occupier, reflecting the ongoing demand for best-in-class space, particularly from the Insurance & Financial Services sector.
Overall supply and the vacancy rate remained unchanged at 8.6m sq ft and 7.2%, respectively. Although we have witnessed notable increases in available space, largely due to this year’s elevated development pipeline, the market remains in balance. Present supply equates to around 24 months of supply based on the current rate of take-up we have seen over the last year (we would typically class anything over 24 months as oversupplied).
In spite of below-average levels of leasing activity, active demand continues to rise, standing at 5.06m sq ft at the end of July, up 38% on the ten-year average. The Insurance & Financial Services sector continues to drive this growth, accounting for half of the number of active requirements that were added in July. These requirements typically focus on the core areas of Mayfair and St James's, where supply is at its lowest level.