City Office:
Market Watch – May 2016

City Office Market Watch
City Office Market Watch

26 May 2016, words by Ben Raywood

More deals over £70.00/sq ft so far this year than across the whole of 2014

Supply and demand snapshot

■ Take-up for April was 316,885 sq ft, bringing the year-to-date City total to 2m sq ft, which is 22% down on this point last year. However, it is still 20% up on this point in 2014, which saw record annual take-up of 8.2m sq ft.

■ 87% of all April transactions were of a Grade A standard.

 

TABLE 1

Key April stats

 
Table 1

Source: Savills Research

■ April's activity has brought the 12-month rolling take-up figure to 6.9m sq ft, which is still 40% up on the longterm average (Graph 1).

■ There have been 162 transactions so far this year, compared with 188 at this point last year.

■ The largest deal of the month was the acquisition of 46,489 sq ft at 55 Bishopsgate, EC2 by Charles Stanley. They took the space at a rent of £53.00/sq ft, on a sub-lease until September 2023 from AON.

■ Another notable deal was the acquisition of floors 9 and 10 (29,407 sq ft) at The White Collar Factory, EC1 by Capital One. The Derwent scheme, which is scheduled for delivery in Q4 2016, is now 51% pre-let.

GRAPH 1

City 12-month rolling take-up

 
Graph 1

Source: Savills Research

■ So far this year, Insurance & Financial services have accounted for the greatest amount of take-up at 31%. They are followed by Tech & Media (11%), Retail & Leisure (11%), and Professional (11%). In contrast to last year, serviced offices have accounted for just 1% of take-up.

■ Total City supply stood at 5.6m sq ft, equating to a vacancy rate of 4.5%, down on this point last year by 0.7%.

■ There is currently 1.4m sq ft of space under-offer in the City, which is 8% up on the long-term average. Of this, 487,859 sq ft went under-offer in April alone.

■ The top rent achieved in April was £72.50/sq ft when Currency Cloud took level 1 (9,730 sq ft) at The Steward Building, E1.

■ Historically in the City, the £40 - £49.99/ sq ft rent bracket has accounted for the greatest number of deals done annually. However, this has been changing over the course of the last two years. Last year, the £50 - £59.99/sq ft bracket accounted for the greatest number of deals. Moreover, so far this year the £60 - £69.99/sq ft rent band has accounted for the most deals, and we have already seen more deals done above £70/sq ft this year than across the whole of 2014 (Graph 2).

■ We are currently tracking 17.5m sq ft of refurbishments and developments due to arrive to the market between now and the end of 2019, of which 26% is already pre-let.

■ At no point in the next five years will development completions in the City exceed 80% of forecasted take-up (a good metric of impending supply). As a result, this should keep the City vacancy rate below 8%, which historically has been a key marker to indicate oversupply.

GRAPH 2

City rent-brackets

 
Graph 2

Source: Savills Research

 

TABLE 2

Monthly take-up

 
Table 2

TABLE 3

Year-to-date take-up

 
Table 3

TABLE 4

Rents

 
Table 4

TABLE 5

Supply

 
Table 5

TABLE 6

Development pipeline

 
Table 6

TABLE 7

Demand & under offers

 
Table 7

Completions due in the next six months are included in the supply figures

*Average prime rents for preceding three months

** Average rent free on leases of 10 years with no breaks for preceding three months

N.B We have amended our historic stock figure, resulting in a slight change of our historic vacancy rates (Aug 2015)

TABLE 8

Significant April transactions

 
Table 8

TABLE 9

Significant supply

 
Table 9

MAP 1

Savills City Office Market Area (updated at the end of each quarter)

City 2016 Q1 stats

 
Map 1

Source: Savills Research

 
 

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Key contacts

Ben Raywood

Ben Raywood

Associate
Commercial Research

Savills Margaret Street

+44 (0) 20 7409 8791

 

Peter Thursfield

Peter Thursfield

Director
Central London

Savills Finsbury Circus House

+44 (0) 20 7409 8928

 

Josh Lamb

Josh Lamb

Associate Director
Central London

Savills Finsbury Circus House

+ 44 (0) 20 7409 8891