Savills has released its latest monthly report looking at the City occupational markets:
December surpassed expectation with 658,728 sq ft being transacted across 45 deals. This resulted in Q4 2018 take-up reaching 2.4m sq ft, which was the largest single quarter of take-up since Q3 2014. This shows a willingness by London businesses to commit their futures to the capital despite the current political and economic uncertainty.
This brought total take-up for 2018 to 7.6m sq ft, which was 2% up on 2017 and 28% up on the 10-year annual average. There was a total of 434 transactions last year, which was down on last year (470), but up on the 10-year average of 393.
Last month saw Regus acquire the whole of the Alpheus Building, 20 Finsbury Circus, EC2 (73,604 sq ft) for their ‘No.18’ brand. This was their sixth City acquisition of 2018, bringing their total for the year to 210,720 sq ft of new space to let. However, the majority of these acquisitions will see the implementation of their new brands ‘Spaces’ or ‘No.18’.
Also in December, Gartner acquired levels 1, 3 and 4 (63,228 sq ft) of Salisbury Square House, EC4. The US consultancy firm will be moving from their current space in Victoria House, Bloomsbury Square, WC1. They have taken the space on a 10-year lease at an average overall rent of £63.55/sq ft. Only one floor now remains available within the building.
At the end of December, the Tech & Media sector became the largest source of demand in the City for 2018, with 21% of take-up. This was due to large deals from WPP Group, McCann World Group, LinkedIn & Mimecast amongst others. Insurance & Financial services were not far behind however, showing good levels of demand accounting for 19% of take-up. The third most active sector however was the Serviced Office Provider sector accounting for 12%, higher than Professional services who were next with 10% of the share.
Total City supply at the end of December stood at 6.8m sq ft, equating to a vacancy rate of 5.4%, which was down on the end of 2017 by 20bps, and down on the long-term average by 120bps. This is the fourteenth consecutive month of the vacancy rate being sub 6%.
However, these supply figures do not include available space offered through Serviced Offices Providers, who now account for a significant amount of stock across the City. We estimate that if we included all of this extra supply, the vacancy rate would be 100bps higher.
The majority of supply (60%) is within the City core, which ultimately has a higher vacancy rate of 7.0%, compared with 4.0% in the City fringe.
Looking forward, we are anticipating the vacancy rate to slowly start to rise as there is still 1.8m sq ft of speculative space scheduled to complete in H2 of this year, and will therefore be added to supply over the course of the next six months.
If we look at year-on-year, then the 2018 average prime rent of £77.75/sq ft was 3.8% higher than 2017. Likewise, the 2018 average Grade A rent of £61.79/sq ft was 1.3% higher than the previous year. Both are annual record highs. However, Q4 2018 average prime rent of £76.85/sq ft was 0.3% lower than Q4 2017 prime rent, suggesting rents may have begun to plateau. Although, Q4 2018 average Grade A rent of £63.27/sq ft was 2.5% above Q4 2017 indicating it may only be at the top-end that we have started to see cooling.
