By the end of August 2017 London’s West End had seen 3.1 million sq ft of office take-up, 29 per cent ahead of the long-term average, boosted by over half a million square feet of take-up in both June and July – the first time we had seen over 500,000 sq ft of take-up for two consecutive months in 17 years.
Looking at September and the rest of the year, we already have 902,735 sq ft of offices under offer and a further 6.4 million sq ft of active requirements including those from Bluecrest Capital, LinkedIn and Cleveland Clinic. As such, the West End looks on course to exceed 2016’s annual total of 3.9 million sq ft.
Waking up post referendum on 24 June 2016 the above would have seemed unfathomable. However, office take-up in the West End since the UK‘s decision to leave the EU has defied expectations and activity belies any fears that may have been circulating of a mass exodus of occupiers from London. So why is this happening, and is there anything within the stats that explains this?
While the West End is certainly not immune to economic changes – far from it – the diversity of its tenant base means that it is in as strong a position as possible to continue to be robust in the face of the looming Brexit: TMT occupiers represent 27 per cent of take-up to year date, serviced office providers 22 per cent and insurance and financial services 12 per cent.
West End office take-up – breakdown by sector
Source Savills – 2017 data accurate to end of August
Furthermore, the West End is strengthened by the range of company sizes taking space. This means the market is not solely reliant on the large, headline-grabbing lettings, such as WebMD and Wates Construction, with the take-up figures instead dominated by sub-10,000 sq ft transactions, which largely reflect the type and size of office stock that typically exists in the West End. These companies also tend to want more lease flexibility meaning they move more often.
One of the other explanations for the market‘s robust performance is the serviced office sector. More providers have entered the market and those already established are taking increasing amounts of space, not least of all WeWork. The serviced office sector has accounted for 22 per cent of take-up in the year to date meaning it is now a very significant part of the market. Some landlords remain sceptical of the business model behind them, but they are standing the test of time with most service office centres full or close to.
The West End continues to see strong headline rental levels, with the average prime rent at the end of Q2 2017 at £118.25 per (a 7 per cent uptick on 2016 levels) and the average Grade A rent rising by 8 per cent on last year, standing at £83.22 per sq ft. Overall, in line with our expectations for future take-up levels, the West End’s broad tenant base, low vacancy rate and limited speculative development pipeline places it in good stead to weather any future storms.