Savills has released its latest monthly report looking at the City occupational markets:
Take-up for June reached 426,168 sq ft across 26 deals, resulting in the total for the year reaching 2.5m sq ft, which is down on this point last year by 30%, and down on the 10-year average for the first half by 11%. This brings the 12-month rolling total to 6.6m sq ft, of which 84% has been of a Grade A standard.
Out of the 181 deals in the first half of the year, only one has been over 100,000 sq ft, compared with an average of seven per annum for the last five years. The less than 5,000 sq ft bracket has performed well this year, accounting for 34% of the number of deals, up from a 24% share last year. The City core is still accounting for the majority of take-up with a 69% share so far this year.
The largest deal to complete in June was actually an owner occupier deal. WeWork purchased 99 Queen Victoria Street, EC4 from OIF for £68m, 6.39% or £746/sq ft. The 88,518 sq ft building is currently occupied by Sumitomo Mitsui Banking Corporation, although they are expected to exercise their break option in 2021, which will allow WeWork full control of the entire building, hence why it is being included as an occupational deal as well.
Also in June, we saw Squire Patton Boggs acquire levels 6–8 at Premier Place, 2 1/2 Devonshire Sq, EC2 equating to 52,391 sq ft. The international law firm will be moving from their current office at 7 Devonshire Square, EC2 and into the refurbished Greycoat & Morgan Stanley scheme once it completes in September. They have signed a 15-year lease subject to a mutual seven-year break at a blended rent of £70.10/ sq ft.
At the end of the H1, the majority of demand has come from the Insurance & Financial services sector, who have accounted for 24% of all leasing take-up and 86% of this has been within the City core. They have accounted for 36 deals so far this year, which is actually up on this point last year by six. The Serviced Office Provider sector has continued to expand throughout the first half of this year accounting for 23% of take-up over 20 transactions. These amount to 555,676 sq ft, up on this point last year by five deals and 59% in terms of quantum of space. WeWork are showing no signs of slowing down having accounted for seven deals and 276,469 sq ft alone.
There has been continued stable demand from the Professional services sector who have accounted for 14% of take-up so far this year. However, surprisingly the Tech & Media sector has only accounted for 9% or 209,368 sq ft at the end of Q2 compared with 539,485 sq ft over the same period last year. This could be due to a number of the larger Tech & Media requirements having been satisfied over the last few years, but also could be a sign that some of these occupiers are choosing to take space in serviced offices as opposed to traditional leases.
Total City supply at the end of Q2 stood at 6.6m sq ft, falling by 0.8% on the end of last month and equating to a vacancy rate of 5.2%, which is down on Q2 2018 by 30 bps, and down on the long-term average by 140 bps. This is the 20th consecutive month of the vacancy rate being sub 6%.
In the first half of 2019, the average prime rent (average of the top 10% of the known achieved rents) slightly rose on 2018 by 0.1% to £77.85/sq ft with a range from £85.00/sq ft (top rent for H1) to £72.50/sq ft. The average Grade A rent for the first half has also continued to rise, up on last year by 3.9% and settling at £64.18/sq ft, and the average Grade B rent has risen on last year by 5.8% and is now at £46.64/ sq ft. Average incentives have remained stable, currently at 22–24 months for a 10-year lease.
