Across the Central London market

As is often the case during the summer months, leasing activity moderated in July following an active end to Q2, although still remained at robust levels. 48 transactions totalling 719,623 sq ft took place across Central London, with the West End accounting for 53% of space acquired. This takes the year-to-date total to 5.42 million sq ft, up 6% on the five-year average and in line with the ten-year average.

The Tech & Media sector continued to record a steady flow of activity from a diverse range of subsectors, and accounted for three of the five largest transactions and 52% of take-up in July. The most notable acquisition of space this month saw Chinese e-commerce giant JD.com purchase the freehold of Systems, 43 Brook Green, W6 (113,184 sq ft), which recently underwent a comprehensive refurbishment. Not only does this mark another significant owner-occupier transaction, but it is also the largest deal we have recorded in the Hammersmith sub-market since 2013. The momentum from the AI subsector also appears to show little sign of slowing down, with this month seeing Microsoft AI lease the entirety (94,239 sq ft) of Film House, 142 Wardour Street, W1.

The most significant transaction in the City came from the Insurance & Financial Services sector, which accounted for a further 27% as a result of Morningstar’s lease of 75,000 sq ft at One Millennium Bridge, EC3. Take-up from this sector has moderated this year from the above-average levels witnessed in recent years, with total sq ft acquired down 4% on the ten-year average. However, four of the five largest under-offers for new leases are to Financial Services firms (all of which are in the City), and overall they now account for the largest share of active requirements at 28%, suggesting this sector will drive leasing activity during the remainder of the year. Active requirements overall currently stand at 15.3 million sq ft, up 65% on the ten-year average.

The combination of stubbornly high fit-out costs and a constrained availability picture for both existing and future supply, particularly in core markets, will likely lead to several of the larger requirements opting to stay put at their existing premises. The City and West End have both seen contractions of 50 and 90 bps in their respective vacancy rates over the last year. Currently, of the ten largest requirements under offer, half are for renewals, therefore not translating into future take-up figures.

The rise in costs has also had an impact on the smaller end of the market as well, in the form of the rise of CAT A+ space, as smaller occupiers are increasingly looking to landlords to fund the initial capex of fit-outs. So far this year, 70% of sub-10,000 sq ft transactions in the City, and 74% in the West End, have been acquired on a fitted basis. Given that labour, compliance and MEP pricing pressures remain persistent, as well as a dwindling pipeline of speculative space, there is likely to be a continuation of these trends in the short to medium term.

City Highlights

West End Highlights

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