According to the latest research from Savills, 68% of all office developments and extensive refurbishments set to complete in London’s West End in 2019* have already pre-let and only three schemes have enough speculative space to accommodate a requirement over 100,000 sq ft. The news follows another strong year of annual take-up in 2018 – with 5.1 million sq ft of office lettings across 34 transactions – marking the second highest level of activity on record, says the international real estate advisor.
Savills says the level of occupier activity in the West End in 2018 was boosted by record levels of pre-lets with close to 1.5 million sq ft being acquired prior to completion. Key transactions include: Facebook pre-letting 615,000 sq ft at Kings Cross; WeWork’s pre-let of Aviation House 131,818 sq ft; and Sony Pictures at the Brunel Building 77,200 sq ft.
The research shows the Tech & Media sector to be the main driver of demand, accounting for 34% of all take-up (by sq ft) across 76 transactions. Appetite from Serviced Office Providers continued in 2018, with 38 deals collectively accounting for 21% of all activity, says Savills, and the market also saw strong take-up amongst the Insurance & Financial sector which represented 15% of total sq ft of take-up and a second highest volume on record (104 transactions). Activity leaves the West End vacancy rate at 3.9%. With limited new build options completing in 2019 still available, Savills says 35% of the 2019-2022 development pipeline is currently pre-let.
Hunter Booth, co-head of the West End office agency team at Savills, comments: “In a market increasingly reliant on pre-lets to satisfy demand, the West End continues to prevail despite the background political headwinds and uncertainty. The occupiers operating in our market are making office commitments based on corporate decisions and a supply/ demand imbalance that appears to override any wider uncertainty on Britain’s decision to leave the EU. In many ways it remains business as usual and this sentiment is already apparent in the first month of 2019, with a good level of requirements and deals continuing to happen. While we are not seeing much rental growth in the West End, which could appear counter-intuitive to market fundamentals, this can partially be explained by the now-expected footloose nature of tenants across Central London meaning landlords are competing with a wider range of competing buildings than ever before.
“As the year plays out we will be monitoring the level of tenant controlled space that is returned to the market and what effect this has. However, with supply levels low it is likely that any ‘grey space’ will be absorbed and the West End would welcome more announcements to commit from the developers we know to be looking for opportunities. Any new space in the pipeline is good news and developments that offer occupiers a point of difference through considered design will do well.”
*Savills research says 2.5 million sq ft of office developments and extensive refurbishments are completing in the West End in 2019.