City Office:
Market Watch

City Office Market Watch
City Office Market Watch

28 February 2017, words by Ben Raywood

2017 starts with plenty of deals, although 71% were for less than 10,000 sq ft

Supply and demand snapshot

■ Take-up for January was 302,539 sq ft, which is 29% down on this point last year. 70% of the transactions were of a Grade A standard.

■ A notable transaction to complete in the City in January was at 21 Lime Street, EC3 where Antares Underwriting acquired the entire building (31,269 sq ft) at £71.00/sq ft.

 

TABLE 1

Key January stats

 
Table 1

Source: Savills Research

■ Another large deal in January was at 99 Gresham Street, EC2. The NHS Property Services acquired the 1st and 2nd floors (27,416 sq ft) at an average rent of £63.73/sq ft on a five-year lease with 16 months rent free.

■ In the first month of 2017 there were 35 deals, which is two above the 12-month average.

■ At the end of January, the Professional services sector accounted for the greatest proportion of take-up at 21%. This is followed by the Tech & Media sector at 18%, and the Insurance & Financial services sector at 10%.

■ Total City supply stood at 6.9m sq ft, equating to a vacancy rate of 5.6%, up on this point last year by 90bps, however, still down on the 10-year average by 100bps.

■ Total space under-offer is currently at 0.8m sq ft, which is down on the long-term average by 35%. A total of 102,240 sq ft went under-offer in January.

■ Currently the 12-month rolling take-up is 21% less than current supply, compared with the long-term average of being 94% less. To put this into context, the last time the City experienced significant oversupply (2009), take-up was 300% less than total supply, and also reached 555% less at the end of 2003 (see Graph 1).

GRAPH 1

% difference between take-up and supply

 
Graph 1

Source: Savills Research

■ Total City & central London demand is 8.8m sq ft, which is in line with the long-term average.

■ At the time of writing, Expedia has confirmed it will be expanding by 154,000 sq ft at Derwent's Angel Building, EC1. Therefore, Cancer Research UK who are currently also located in the building, are searching for a new HQ of approximately 100,000 sq ft.

■ There is an anticipated three consecutive years of above average completions in the City. However, 31% of this space has already been pre-let, resulting in a far more constrained pipeline than at first glance. Furthermore, by highlighting 22 Bishopsgate, equating to 32% of 2019's speculative total alone, we can see the impact this single scheme (1.3m sq ft) currently has on future supply. We continue to believe that some 2019 schemes will be delayed until 2020. (see Graph 2).

GRAPH 2

City development pipeline

 
Graph 2

Source: Savills Research

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

Demand figures include central London requirements

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 January 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