City Office:
Market Watch

City Office Market Watch
City Office Market Watch

25 January 2017, words by Ben Raywood

2016 was a year of highs and lows but ended with 5.8m sq ft being transacted

Supply and demand snapshot

■ Take-up for December was 823,510 sq ft, bringing the year-to-date City total to 5.8m sq ft, which is 21% down on 2015 but 6% up on the long-term annual average. 80% of all transactions to date have been of a Grade A standard.

■ A notable transaction to complete in the City in December was The FT's acquisition of Bracken House, 1 Friday Street, EC4. The 187,000 sq ft building was let on confidential terms from Obayashi.

 

TABLE 1

Key December stats

 
Table 1

Source: Savills Research

■ Another large pre-let deal in December was at 20 Old Bailey, EC4. Barings Bank acquired the LG and floors 5 - 9 (109,050 sq ft) on confidential terms from Blackstone.

■ The Insurance & Financial services sector accounted for the majority of take-up in 2016 at 20%, followed by the Tech & Media sector at 16%, then the Serviced Office Provider sector at 11%, along with Professional services at 10%. Moreover, it is encouraging to see take-up from the Banking sector at 10% last year, up from 8% in 2015.

■ WeWork alone accounted for 342,450 sq ft across 6 deals in the City in 2016 and 546,549 sq ft across 7 deals in 2015, making them the tenant who acquired the most space in the City in both 2016 and 2015.

GRAPH 1

City take-up by quarter

 
Graph 1

Source: Savills Research

■ Total City supply stood at 7.1m sq ft, equating to a vacancy rate of 5.7%, up on this point last year by 120 bps, however still down on the 10-year average by 90bps.

■ Total space under-offer is currently at 0.8m sq ft, which is down on the longterm average by 40%. The fall in space currently under-offer is largely due to the high take-up in December, which saw a number of big deals pushed through before the year-end.

■ The average prime rent for Q4 was £77.50/sq ft, up on Q4 2015 by 11.5%. g The average grade A rent for Q4 was £63.10/sq ft, up on Q4 2015 by 9.2%.

■ The average months given rent free on a 10-year lease was 20 for Q4 2016.

■ Total City & Central London demand is at 9m sq ft of requirements, which is 4% up on both the 12-month and long-term averages.

■ We are expecting a total of 4.8m sq ft of new developments and refurbishments to be brought to the market in 2017. However, 50% of this space is already pre-let, leaving just 2.4m sq ft of speculative space.

■ In fact, 31% of the 2017–2020 pipeline is already pre-let, with an annual average of speculative completions at 2.5m sq ft.

GRAPH 2

City rents

 
Graph 2

Source: Savills Research

■ We expect Q1 2017 will see take-up at subdued levels while clarity regarding the UK's exit from the EU emerges. However, the lack of supply should ensure that there is only a gentle rise in vacancy rates and therefore headline rents should remain stable.


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 December 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 Q4 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