City Office:
Market Watch

City Office Market Watch
City Office Market Watch

30 January 2018, words by Ben Raywood

Significantly above average take-up and a low vacancy rate, and yet rents fell slightly

Supply and demand snapshot

■ Take-up for December was 898,730 sq ft, bringing total take-up for 2017 to 7.4m sq ft, which is 26% up on last year and 27% up on the 10-year average. 84% of transactions to-date have been of a Grade A standard.

■ There were a total of 465 transactions, which is up on last year by 14% and up on the 10-year average by 22%.

 

TABLE 1

Key December stats

 
Table 1

Source: Savills Research

■ The City Fringe accounted for 47% of take-up in 2017, which is the second highest percentage share and quantum of space since our records began in 1992.

■ A notable transaction to complete in December saw WeWork purchase the Devonshire Square Estate, EC2 for their own occupation. This includes 121,650 sq ft at The Spice Building, and 57,479 sq ft at The Silk Building. As the space was available for lease we are including this within occupational take-up.

■ Also in December, we saw Turner Broadcasting System Europe Limited acquire 97,127 sq ft across the lower ground to third floors of Spectrum,160 Old Street, EC1. The American media conglomerate is a division of Time Warner, and acquired the space at a blended rent of £50/sq ft on a straight 15-year lease.

GRAPH 1

City take-up by deal zone

 
Graph 1

Source: Savills Research 

■ In 2017, the Tech & Media sector accounted for the greatest proportion of take-up at 20%. With 1.5m sq ft of take-up in total, this is the third highest quantum of space on record, and at 20%, the second highest percentage share ever.

■ The Serviced Office Provider sector followed at 18%, who accounted for their greatest quantum of space and percentage share on record. There was also strong demand from both the Banking and the Insurance & Financial services sectors, who each accounted for 12%.

GRAPH 2

City take-up by business sector

 
Graph 2

Source: Savills Research

■ Total City supply stands at 6.9m sq ft at the end of December, equating to a vacancy rate of 5.6%, which is 10 bps down on this point last year and down on the 10-year average by 110 bps.

■ At the end of the year, tenant controlled space rose to a 31% share of the market, which is the greatest share of supply since 2010. The increase of tenant supply is one concern for the City market over the next two years. However, as the vacancy rate is still low in the historic context, it is unlikely we will see significant oversupply in the short-medium term.

■ Despite the low vacancy rate and high demand, we saw rents fall slightly last year. The average prime rent for 2017 was £74.86 per sq ft, 3.5% below 2016 and the average Grade A rent at the end of Q4 was £61.00 per sq ft, just 0.2% below 2016.

■ 3.8m sq ft of developments and refurbishments are set to complete in the City in 2018. However, 57% of this new supply is already pre-let. In fact 27% of the 14.8m sq ft of new space expected to arrive between 2018 and 2021 is already pre-let, further reducing the likelihood of an oversupply.


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 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 2017 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