City Office Market Watch – March 2018

As occupiers opt for Grade A space, vacant Grade B supply is on the rise

Supply and demand snapshot

■ As expected at the start of the year, take-up for February was fairly muted, registering just 117,726 sq ft over 17 transactions.

■ This brings total take-up for 2018 to 583,019 sq ft, which is 16% down on this point last year, and 15% down on the 15-year average for the first two months of the year.

Table 1

TABLE 1Key February stats

Source: Savills Research

■ The 12-month rolling take-up fell to 7.3m sq ft, which is still 27% up on this point last year.

■ A notable transaction to complete in February saw Deliveroo take an assignment of the part second floor (18,612 sq ft) at the Atrium Building, 25 Dowgate Hill, EC4. The food delivery company has taken the floor until March 2025. They also took the first floor (51,500 sq ft) at The River Building, 25 Dowgate Hill, EC4 back in November 2016.

■ Also in February, KWM Europe took a sub-let of the eleventh floor (17,062 sq ft) at 20 Fenchurch Street, EC3. The multinational law firm has taken the sublet from Liberty Specialty Markets until September 2031.

■ At the end of February, the Insurance & Financial services sector has accounted for the greatest amount of take-up so far this year at 36%, followed by the Tech & Media sector at 22%. The Professional services sector is next accounting for 11%. However, there has been little activity from the serviced office provider sector, accounting for just 2%.

Graph 1

GRAPH 1City take-up by business sector

Source: Savills Research 

■ Total City supply stands at 7.1m sq ft at the end of February, equating to a vacancy rate of 5.6%, which is the same as this point last year and down on the 10-year average by 110 bps.

■ While the amount of supply available today is the same as this point last year, there is currently 11% less Grade A availability today and 75% more Grade B space. The rise in grade B space over the last year could be the cause of net stock absorption being negative for the last two quarters.

Graph 2

GRAPH 2Proportion of supply by grade

Source: Savills Research

■ Tenant sub-let space rose last month from 1.9m sq ft in January to 2.1m sq ft, now accounting for 29% of total supply. The most notable additions were 65,444 sq ft at 155 Bishopsgate, EC2 from Barings, and 64,912 sq ft at 10 Bishops Sq, E1 from Allen & Overy.

■ Of the 8.2m sq ft of current requirements for the City or central London, it is encouraging to see the Insurance & Financial services along with the Banking sector account for the greatest proportion at 31%.

Analysis close up

Table 2

TABLE 2Monthly take-up

Table 3

TABLE 3Year-to-date take-up

Table 4

TABLE 4Rents

Table 5

TABLE 5Supply

Table 6

TABLE 6Development pipeline

Table 7

TABLE 7Demand & under offers

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

TABLE 8Significant February transactions

Table 9

TABLE 9Significant supply

Map 1

MAP 1Savills City Office Market Area (updated at the end of each quarter)

Source: Savills Research