City Office:
Market Watch

City Office Market Watch
City Office Market Watch

26 July 2017, words by Ben Raywood

City performing strongly at midway point with high take-up, low vacancy rate and stable rents

Supply and demand snapshot

■ Take-up for June was 678,674 sq ft, bringing total take-up for 2017 to 3,150,453 sq ft, which is 19% up on this point last year. 80% of transactions to-date have been of a Grade A standard.

■ The 12-month rolling take-up at the end of June was 6.3m sq ft, which is 28% up on the long-term average.

 

TABLE 1

Key June stats

 
Table 1

Source: Savills Research

GRAPH 1

City take-up by quarter

 
Graph 1

Source: Savills Research – data accurate to end of Q2 2017

■ The City fringe has accounted for 54% of take-up at the end of H1, showing demand for fringe locations has remained resilient.

■ A notable transaction to complete in June saw Framestore acquire 93,882 sq ft at 28 Chancery Lane, WC2. The visual effects company took the space on a 15-year lease. They are currently situated in two separate locations in Soho in the West End.

■ Also in June, Mindspace acquired 31,744 sq ft at The Relay Building, E1 across levels four and five. They have taken the space on a 20 year lease, with a 15-year break at £53.00/sq ft and 29 months rent free.

■ In the year to the end of June, the Tech & Media sector accounted for the greatest proportion of take-up at 24%. This is followed by the Professional services sector at 16%, and the Insurance & Financial services sector at 13%. There has been continued strong activity from Serviced Office Providers who have accounted for 8% of take-up to-date.

■ Total City supply stood at 6.9m sq ft at the end of June, equating to a vacancy rate of 5.6%, up on this point last year by 40 bps, however still down on the 10-year average by 100bps.

■ 36% of the development pipeline for 2017/20 is already pre-let, with the highest concentration of speculative space scheduled to arrive in 2019 at 3.5m sq ft (including 1.3m sq ft in 22 Bishopsgate alone).

■ The top rent achieved at the end of Q2 is £81.50/sq ft at One Angel Court, EC2 where Shanhai Pudong Bank took the 19th floor (8,728 sq ft).

■ The average prime rent for Q2 is £76.21/ sq ft, down on 2016 by 1.7%, a less dramatic fall than expected.

■ The average Grade A rent for Q2 is £59.97/sq ft, down on 2016 by 1.9%.

■ The gap between the average Grade A rent for the City core versus the City fringe has reduced to just £0.35/sq ft at the end of Q2.

GRAPH 2

City rents

 
Graph 2

Source: Savills Research – data accurate to end of Q2 2017

■ On a straight 10-year lease, the average months rent free currently stands at 22, up on this point last year by five months.

■ Total City & Central London demand is 9.1m sq ft, which is 4% up on the long-term average, but 2% down on the 12-month average. Circa 35% of the total demand has been known about for over 12 months.


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 June transactions

 
Table 8

TABLE 9

Significant supply

 
Table 9

MAP 1

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

City 2017 Q2 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