April 10, 2015
There is a growing trend for London occupiers prepared to pay more for upper floors, particularly with access to a terrace, as according to the latest research by Cushman & Wakefield (C&W), unprecedented rental rates are being paid for tower floors and roof gardens. Central London office leasing activity overall, was 2.4 million sq ft for the first quarter of 2015, which equals the same period in 2014, which marked the highest first quarter volumes since 2007. Momentum in the City of London office market has also continued, with a total of 1.8 million sq ft let, up 34 percent for the same time last year. The West End recorded a relatively quiet quarter, with leasing volumes down to just over 600,000 sq ft – the lowest level since mid-2013. However, this is against a backdrop of falling vacancy rates, leading to the increasing migration of commercial occupiers out of the West End.
Andy Tyler, C&W’s head of West End office agency, said: “It is clear that rising rents and scarcity of product are leading to a redistribution of occupiers across Central London, particularly West End occupiers. There were 31 relocations over 10,000 sq ft from the West End in 2014 and we expect the number to increase during 2015.”
The focus of occupiers for the early 2015 has been on completed Grade A stock, with the volume of completed Grade A space leased in Q1 2015 almost double that recorded in Q1 2014 and at the highest volume since Q4 2013.
The current Grade A vacancy rate stands at 2.3 percent, which is back to levels last seen in 2000, when the Grade A vacancy rate averaged 2.0 percent. Rental values are also being pushed higher, boosted by the highest ever rent of £186.00 per sq ft paid in the West End at 8 St James’s Square.
Prime rents across Central London have increased by 7.4 percent in the year to March, led by the City of London with growth of over 9 percent to £63.50 per sq ft. In the City, there is increasing evidence of a rental divergence between lower and upper floors in a building, with many occupiers prepared to pay a premium rent not only for tower floors but increasingly for floors with a terrace or roof garden. Recent transactions on lower terrace floors are being signed at a premium of c.20 percent to prime, with rents ranging up to £75 per sq ft.
Andrew Parker, C&W’s head of City of London office agency, said: “The buoyant occupier market combined with low levels of available space is seeing rents come under upwards pressure. Occupiers seem to be more willing to pay higher rents to secure premium space and we are seeing unprecedented rental levels being paid on upper floors.”
The office leasing market continues to be more balanced in terms of sectors, and this quarter the Professional & Business services sector has been the most active – the first time it has been the dominant sector since early 2012.
Following the completion of Deloitte’s 275,000 sq ft pre-let at 1 New Street Square and WeWork’s 168,000 sq ft transaction at Moor Place, the Professional & Business services accounted for 27 percent of leasing activity, while Media & Tech were next active at 19 percent.