City Office:
Market Watch

City Office Market Watch
City Office Market Watch

21 December 2016, words by Ben Raywood

An active November has pushed 2016 total take-up over the 5m sq ft mark

Supply and demand snapshot

■ Take-up for November was 795,695 sq ft, bringing the year-to-date City total to 5m sq ft, which is 25% down on this point last year but 8% up on the long-term average to the end of November. 77% of all transactions to date have been of a Grade A standard.

■ November's activity has brought the 12-month rolling take-up figure to 5.8m sq ft, which is in-line with the 10-year average.

 

TABLE 1

Key November stats

 
Table 1

Source: Savills Research

■ A notable transaction to complete in the City in November was Fidelity International's acquisition of 4 Cannon Street, EC4. The 105,842 sq ft building was let on confidential terms from Pembroke Real Estate, who actually manages the lessee's investment capital.

■ The remaining space at Cannon Place has now let. CMS, who already occupy three floors, are merging with law firms Nabarro and Olswang, and have acquired the remaining 84,199 sq ft. The global legal firm will now become the world's sixth largest law firm by headcount.

■ Insurance & Financial services have accounted for the greatest amount of take-up at 20% in 2016. They are followed by Tech & Media (13%), Professional Services (10%), and Serviced Office Providers (10%) who continue to provide the City market with high demand.

GRAPH 1

City take-up by business sector

 
Graph 1

Source: Savills Research

■ Total City supply stood at 7.2m sq ft, equating to a vacancy rate of 5.8%, up on this point last year by 120 bps, however, still down on the 10-year average by 80bps.

■ Total space under-offer is currently at 1.4m sq ft, which is up on the long-term average by 1%. Encouragingly, we saw 493,910 sq ft go under-offer in November alone, which is actually the greatest monthly amount seen this year.

■ WeWork continued to increase their London footprint with two relatively large acquisitions in November. They took 73,000 sq ft at The Vivo Building at South Bank Central, SE1 at £57.50/ sq ft, and 59,000 sq ft at The Tower Building of The Bower Estate, EC1 at £65.00/sq ft.

■ For 2016, the average amount of month's rent free on a straight 10-year lease is 18.5. Looking forward, we expect this to slightly increase over the next 12 months.

■ Total City & Central London demand is at 8.7m sq ft of requirements, which is in-line with the 12-month and long-term averages.

GRAPH 2

City average Grade A rent & vacancy rate

 
Graph 2

Source: Savills Research

■ With the end of 2016 approaching, total take-up will be circa 5.5m sq ft, the vacancy rate will be circa 6%, and the City average Grade A rent will be circa £63.00/ sq ft. With a very subdued Q2, which saw less than 1m sq ft of take-up, it is positive to see both Q3 and Q4 rebounding well, showing signs that businesses are committed to London as a destination for work. Certainly, questions regarding the Banking sector still loom, but overall the City office market has remained robust through a turbulent time.


Analysis close up

 

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 November 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 Q3 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