In the first six months of 2017, deals were signed on 5.5 million sq ft of Central London office space – 23 per cent more than in the first six months of 2016.
Even if you say that H1 2016 is a low base from which to draw a comparison as activity slowed in the run up to last year’s EU referendum, 2017’s 5.5 million sq ft figure is still one million sq ft above the 10-year average of 4.5 million sq ft.
Tech and media occupiers have been the most keen to take space so far this year, accounting for 24 per cent of market share in the City and 25 per cent in the West End, followed by insurance and financial companies (13 per cent share in both markets) and serviced office operators (8 per cent share in the City, 27 per cent in the West End). In the City, professional services companies were also busy, accounting for 16 per cent of activity.
So where does this leave the market?
According to our calculations, this increase in activity means that 36 per cent of the City’s development pipeline set to be delivered between 2017 and 2020 is now pre-let, while 29 per cent of the West End pipeline is also already accounted for. As of the start of July 2017, approximately 11.8 million sq ft of space remained available across Central London, equating to a vacancy rate of 4.8 per cent, below Savills’ 10-year vacancy rate average of 5.8 per cent.
As a result, average prime rents in the West End have risen to £118.23 per sq ft, up 7 per cent on 2016 levels. This year has also seen a top rent of £190 per sq ft achieved, blowing last year’s top rent of £150 per sq ft out of the water. In the City, meanwhile, average prime rents have fallen 4 per cent on last year to £74.46 per sq ft. However, we think this is more due to a shortage this year in availability of floorspace in the iconic towers, which are the spaces that tend to achieve the highest rents, rather than a lack of demand.
These figures demonstrate that occupiers are attracted by London’s myriad strengths and view acquiring new office accommodation in Central London as integral to their long-term business strategies, and are prepared to pay premium rents for the best spaces.
The events of the past 12 months may have made some occupiers pause for thought, but the figures so far this year belie any fears that may have been circulating of a mass exodus of occupiers from London. The prospects for Central London for the rest of 2017 also look bright: the amount of space currently under offer stands at 2.9 million sq ft, which is also ahead of the long- term average.