Savills has released its latest monthly report looking at the City occupational markets:
Take-up in October reached 514,283 sq ft across 35 deals, resulting in the total for the year reaching 5.1m sq ft, which is down on this point last year by 17%. This brings the 12-month rolling total to 6.6m sq ft, of which 84% has been of a Grade A standard, compared with the long-term average of 67%.
The largest deal to complete last month saw Deloitte Digital pre-let the remaining 79,197 sq ft of Athene Place, 66 Shoe Lane, EC4, which they had already committed to taking 73,980 sq ft of back in November last year. The lease will run co-terminus with their first lease, which is due to expire in 2035. The building is due to complete in Q2 next year, at which point Deloitte Digital will move in.
Also last month we saw two more deals at TwentyTwo Bishopsgate, EC2. Global insurance firm Canopius has pre-let levels 29 and 30 equating to 52,336 sq ft on a 10-year lease. They will be moving from the Lloyds Building, EC3 at the start of next year once the building completes. We also saw American data analytics provider Verisk pre-let levels 26 and 27 equating to 50,418 sq ft. That brings the total amount of space pre-let at the building to 517,000 sq ft with a further 257,000 sq ft known to be under-offer.
At the end of October, the Serviced Office Provider sector remains the source of the most demand having accounted for 24% of total take-up so far this year. They are followed by the Insurance & Financial services sector and the Tech & Media sector who have accounted for 20% and 19% respectively. It should be noted that, while the Professional services sector have accounted for 13% of take-up this year, they currently account for the greatest proportion of the 10.1m sq ft of requirements, at 27%.
Total City supply slightly fell last month by 0.7% and currently stands at 7.4m sq ft, equating to a vacancy rate of 5.6%, which is up on this point last year by 70 bps, but still down on the long-term average by 100 bps.
While we do not envisage the market will enter a period of ‘oversupply’ next year, we will most likely see the vacancy rate gently rise. Currently, there is a total of 5.4m sq ft of new supply expected to complete in 2020, of which 40% is already pre-let resulting in 3.2m sq ft of speculative space still to arrive. However, 1.1m sq ft of this space is already being accounted for in current supply, leaving just 2.1m sq ft to be added.
Furthermore, we are not expecting to see supply outstrip demand in the near future as beyond next year, 2021 is even more constrained. There is only 2.8m sq ft of new supply anticipated, of which 31% is already pre-let leaving just 2m sq ft of speculative supply for 2021. However, the pipeline then picks up slightly with 3.6m sq ft (16% pre-let) scheduled for 2022 and 6m sq ft (0% pre-let) scheduled for 2023. Although, it is likely some of the schemes in 2023 will be pre-let prior to completion and some will be pushed out into the following year.
The consolidation of prime Grade A rents at over £60.00/sq ft is witnessed in the chart below. At the end of October, 56% of the known rents achieved this year have been £60.00+/ sq ft, this is the highest proportion on record and up on the whole of last year by 6%. We have already seen 46 known rents for £70.00+/sq ft (over 20% of deals), which is up on the whole of last year by seven and already setting an annual record with two more months to go. At the other end of the spectrum, there have only been 39 known rents for less than £50.00/sq ft, down on this point last year by 18, showing cheap Grade B space is very scarce in the City currently.