Central London lettings ahead of 10-year average as flexible workspace delivers record year

Nearly 12 million sq ft of leasing deals were recorded across Central London in 2017 with flexible workspace operators accounting for more than a fifth (22%) of all activity, according to Cushman & Wakefield.

Data shows that in total 11.5 million sq ft of lettings were recorded across Central London in 2017, which was a robust performance against a background of uncertainty following last year’s vote to leave the European Union. This was 12% ahead of the 10-year average of 10.3 million sq ft per year.

Most submarkets outperformed the 10-year average and saw take-up recover year-on-year with strong levels of leasing. This was led by the West End which had a record year of take-up (4.2 million sq ft), surpassing the 4.1 million sq ft volumes recorded back in 2006/7. The City also saw good levels of activity, with 6.5 million sq ft let but East London was more subdued.

Table 1: Top 5 Central London submarkets outperforming 10-year average leasing volumes in 2017 (Source: Cushman & Wakefield)

Flexible workplace operators accounted for 22% of activity in 2017 which was a record for the sector. They were particularly active in the City submarkets, accounting for just under 30% of leasing volumes.

Table 2: Top 5 Central London leasing transactions 2017 (Source: Cushman & Wakefield)

Elaine Rossall, Head of UK Offices Research & Insight at Cushman & Wakefield, said: “The Central London office market remains one of a low supply environment, with vacancy rates in both the City and West End back to pre-referendum levels. Grade A vacancy rates are particularly acute and contracted over the second half of 2017. This is particularly encouraging following initial uncertainty in the aftermath of the Brexit vote in June 2016.”

Estimates show that the Central London Grade A vacancy rate is now just 2.4%. The West End in particular has an acute shortage of Grade A space, with vacancies of just 1.7%. Overall, total Central London supply equates to just 1.25 years’ worth of take-up (based on 3 year average).

Table 3: Central London submarkets with most acute supply (Source: Cushman & Wakefield)

Overall development completion levels are expected to be high during 2018 as over 62% of space is pre-let. There are only 12 buildings that can offer over 100,000 sq ft, due to complete speculatively in 2018. Two of these are in the West End: the Post Building and 2 Television Centre.

Elaine Rossall added: “West End vacancy rates have now peaked and we expect that they will continue to fall during 2018. The likely result is that migration trends eastwards will pick up as occupiers consider wider search areas.

“Occupiers with future requirements in excess of 100,000 sq ft are now starting to search for space, despite not needing occupation for two to three years, which is why pre-letting will continue to be a key feature of leasing activity in 2018. While economic and employment growth forecasts are predicted to slow down into 2018, this low Grade A supply environment should support rents across most submarkets.”