Despite political and economic uncertainty looming, london’s office market has been attracting occupiers and investors. Results from July 2019 show that take up in the city reached 1.02 million square feet across 29 deals, over double Junes 420,000 square feet of completed deals. July has seen the strongest month take up in London for almost two years.
Why is office take up increasing?
Unexpectedly and surprisingly, we have seen an increase in London office take up despite Brexit’s uncertainty. Central London office take up from 2016 has seen continuous growth. But why is there investment and high occupancy in such a time or turmoil?
Head of Central London at Knight Frank, William Beardmore-Gray says, ‘We are continuing to see business as usual in the central London office market. Despite the fears that companies would put decision making on hold until after the conclusion surrounding Brexit.’
It may seem that businesses are making a risky move, however, London office development is diminishing due to Brexit. The development pipeline is likely creating supply shortages, and therefore businesses and investors are securing their office space in the wake of leaving the EU. Businesses are planning ahead of lease breaks and expiries that will be occurring over the next couple of years. This, subsequently is causing a short-term squeeze, forcing companies that need to move, to do so quickly.
July’s office take up in London
July saw the largest pre-let deal of the entire year so far, BT Group pre-let the whole of One Braham Street, E1. The lease is 15 years and equates to 328,001 square feet. In addition to this, July’s take up was predominantly pre-let deals (over half – 591,000 square feet / 58%) across five city transactions.
So far this year, 21% of take up has been taken by the insurance and financial services sectors. However, another 21% of take up in London this year has been accumulated by the serviced office sector.
July also saw three deals to WeWork; the American company that provides shared workspaces for technology startup subculture communities, and services for entrepreneurs, freelancers, startups, small businesses and large enterprises. The deals equated to 84,026 square feet.
Meanwhile, IWG, formerly Regus, the multinational corporation that provides serviced offices, virtual offices, meeting rooms, and videoconferencing to clients on a contract basis, per-let the whole of 68 King Willian Street, EC4 equating to 78,000 square feet; the third largest deal of the year to a serviced office provider.
The future of office take up in London
Presently, 5.8 million square feet of new office space is expected to complete sometime next year. Of this space, 24% is pre-let, against current requirements of 10.5 million square feet.
Global real estate services provider, Savills, says that office supply will remain constrained beyond the current year. Predictions are of only 1.5 million square feet of speculative space scheduled to be completed in 2021 and only 2.3 million square feet in 2022.
In total, London city supply stood at 6.4 million square feet, equating to a vacancy rate of 5%, down by 30 basis points (bps) compared to the previous year, resulting in average grade A rents rising 5.2% year on year to £64.99 per square foot.
Philip Pearce, head of central London office agency team at Savills, says: “It has been an exceptional month for take-up in the City, with strong demand and low vacancy rates continuing to put upwards pressure on rents. With a limited development pipeline the market is expected to remain under-supplied for the foreseeable future and we predict this will result in average rental growth of 2.2% per annum for the next five years.”