November 2, 2018
Continuing demand for office space within the Central London commercial property market has helped dispel pessimism about the future of London post-Brexit, according to the latest figures from Savills. Take-up of office space in the City of London reached 5.1 million sq ft at the end of the third quarter of 2018, just 1 percent down on the same point in 2017 and 18 percent up on the 10-year average, while the amount of office space under offer in London’s West End market was 1.9 million sq ft as of the end of September, a new record, which challenges the view that the market is in danger of decline. According to the research, just under a year’s worth of office supply now remains in the City, well below the oversupply ‘trigger point’ of 20 months. The average prime rent at the end of Q3 was £79.69 per sq ft, up on the same point last year by 6.5 percent, and currently the highest annual average prime rent on record, with just three months of the year to go.
Savills says that companies in the insurance and financial services sector continue to be the source of the majority of demand in the City, accounting for 20 percent of the office space taken as of the end of Q3. However, the tech and media sector is close behind, accounting for 19 percent of take-up, with serviced office providers responsible for 12 percent.
Office take-up has been concentrated in the City Core this year, accounting for 65 percent of activity as of the end of September. The City Fringe accounted for 35 percent of take-up, significantly down on last year (47 percent), but slightly up on the 10-year average (34 percent). This is largely due to the lack of new supply in the Fringe this year that can command high rents, says Savills, which has also led to the difference between the average grade A rent in the Core and the Fringe widening significantly from just £0.91 per sq ft last year to £4.24 per sq ft currently.
In the West End, office take-up for the year to the end of Q3 stood at 3.75 million sq ft, with 1.9 million sq ft of space currently under offer – a new high says Savills, with 2018’s under offer figure 109 percent up on the long term average.
Savills says that 300,000 sq ft of the space currently under offer in the West End is to serviced office providers. If all of the space known to be under offer to these providers completes in 2018, the sector is on track to reach almost the record level of West End take-up it set in 2017. Currently, serviced office providers account for 528,363 sq ft (16 percent) of the office space taken in the market this year, down around 200,000 sq ft on the same point in 2017. The tech and media sector, however, has been the dominant force in the West End market in 2018, according to Savills, accounting for 45 percent of take-up across 72 transactions.
Philip Pearce, executive director and head of Savills central London office agency team, comments: “Both the City and West End continue to defy the sceptics, with strong demand from a good cross-section of tenants for space in Central London. While some businesses remain cautious over how events will unfold over the next 12 months, it’s clear that many are of the opinion that London will remain an integral part of their European and global networks, and that office-based employment will continue to grow.”