October shows promising signs as active demand continues to grow
October saw a 406,579 sq ft complete across 34 transactions. This brought the year-to-date total to 4.38m sq ft, level with the five-year average and down 13% on the long-term average for this period.
So far this year the Insurance and Financial services sector has continued to drive leasing activity and has accounted for 21% of take-up. However, the Tech and Media sector was the largest sector this month responsible for 40% (161,997 sq ft) of take-up, an encouraging sign after the mass layoffs earlier this year.
This was influenced by the largest deal this month, which was the pre-let of the G–6th floors (86,146 sq ft) at Selso, 95 Queen Victoria Street, EC4, to CapGemini, with terms that are confidential at present. The next largest completion was at 88 Kingsway, WC2, where the entire building (35,633 sq ft) was let to Canvas at £65 per sq ft, on a ten-year lease.
Overall supply fell slightly to 13.5m sq ft this month, down 3% on September – this drop in supply is consistent with no significant new supply being added this month. At the end of the month, the vacancy rate stood at 9.6% down 30 bps on last month but 200 bps above the five-year average.
October has seen another increase in the active demand level, with there now being 10.5m sq ft worth of requirements in the City and Central London (excluding West End exclusive requirements). This is 54% up on the long-term average. One explanation for this increase is that firms are searching for space much further in advance than they would have a few years ago, 29% of active requirements are searching with a lease expiry in 2027 or later. This may be because of a limited pipeline, with 36% of the 2023–2026 development pipeline already pre-let.
Furthermore, a combination of the high cost of finance, the rising development costs and yield pricing declines are delaying development projects – 31% of the 2023–2026 pipeline faced delays of up to three quarters compared to their anticipated completion dates at this time last year. Additionally, 57% of the scheduled 2024–2027 pipeline is yet to start construction. These aforementioned factors have reduced the availability of best-in-class space and hence more firms are having to search for space further in advance.
The Insurance and Financial services sector is responsible for the largest contribution of active demand with 39%, we would therefore anticipate that this sector will continue to drive leasing activity in the city over the coming years.