Supply increases as the delivery of tenant space gains momentum
September take-up reached 174,851 sq ft across 13 transactions. This brought take-up for the year to 1.39m sq ft. This was down 55% on the long-term average and 56% on the same period during 2019.
So far this year, 138 transactions have completed, half the number that have completed on average, over the same period, in the last 10 years. Transaction volumes for this year remain heavily weighted towards Q1, with 72 completions occurring in Q1, and fewer transactions completing in Q2 and Q3 combined (66).
The largest transaction to complete in September was Netflix’s acquisition of a sub-lease, from Capita, of the entire building (87,150 sq ft), at the Copyright Building, Berners Street, W1, for a rent believed to be in the early £80s (per sq ft). This is the largest transaction to complete since lockdown in March and the second-largest transaction for the year.
The Tech & Media sector continues to be a key driver of leasing activity across the West End and has accounted for 37% of the overall sq ft leased. This is followed by the Insurance & Financial sector with 18% and the Business & Consumer sector with 11%.
Underlying demand continues to remain stable and at a high level with central London and West End active requirements remaining at 4.6m sq ft, up 16% on the 12-month average. Tech & Media occupiers account for 30% of tenants actively searching for space across the West End and wider central London area, followed by the Professional Services sector with 27%. Law firms account for the majority, (80%), of active demand from the Professional Services sector. The Insurance & Financial sector followed with 14%.
Space under offer at the end of September was up 57% on the previous month, standing at around 950,000 sq ft, with demand for new quality space remaining high. Two thirds of space that is currently under offer is of Grade A standard.
Whilst general market dynamics remained unchanged, during the month, we began to see the anticipated significant delivery of tenant space coming on to the market, with tenant space experiencing its greatest month on month increase in over three years. At the end of September tenant-controlled supply rose to 2.06m sq ft, up 17% on the previous month. This brought the proportion of supply that is tenant controlled up to 35%, up on the long-term average of 25%.
The Tech & Media sector, (in particular media and creative sector occupiers), account for 52% of the tenant release space since lockdown in March, followed by the Retail & Leisure sector with 15%. The remainder was fairly evenly spread between the various other sectors. Units under 5,000 sq ft make-up 57% of the space released by tenants over this period and just shy of two-thirds of new tenant supply is for a term of five years or less.
NOX East accounts for 19% (190,000 sq ft) of the overall amount of tenant space that has been released since lockdown in March, followed by Victoria and Soho, both with a 17% share of the total.
As a result of the increased tenant space, supply at the end of Q3 stood at 5.8m sq ft, which equates to a vacancy rate of 5.2%. This is an increase of 40 bps on the previous month and is the largest outward movement we have seen since the end of 2019. It is also up on the long-term average of 4.0%.