Second highest monthly take-up since March but activity continues to remain subdued
Take-up in August reached 136,999 sq ft across nine transactions and was the second-largest monthly take-up we have seen since lockdown began in March. This boost was as a result of the completion of The Office Group’s pre-let of 210 Euston Road, NW1, (68,182 sq ft), on a 20-year lease, (on terms that remain confidential at present).
This brings year-to-date take-up to 1.2m sq ft, down 57% on the end of the same period in 2019, and similarly 55% on the long-term average. So far this year 121 transactions have completed, down 60% on the average of 303 transactions we have seen complete over the same period in the past five years, with leasing activity continuing to remain limited. We expect the recently announced guidelines on continued working from home will likely contribute to sustaining the low levels of completing transactions over the second half of this year.
Another notable transaction to complete, and the highest rent achieved so far this year since lockdown, at £125 per sq ft, was Lazari pre-letting the second and third floors (11,990 sq ft) at 25 Berkeley Square to Mubadala Investment, on a 10-year lease.
The Tech & Media sector has continued to be the key driver of leasing activity, accounting for a third of year-to-date take-up. This is followed by the Insurance & Financial sector with 21%, and then by the Serviced Office Provider and Retail & Leisure sectors, both with an 11% share.
At the end of the month, space under offer stood at 891,000 sq ft, down 9% on the previous month, but continues to remain above the long-term average, by 27%.
New under offers since lockdown in March, at 192,000 sq ft, have almost equated to the same quantity of transactions that have failed to complete (198,000 sq ft).
Meanwhile underlying occupier demand continues to remain at a high level, with West End and Central London active requirements at 4.6m sq ft, up 9% on the short-term average of 4.2m sq ft. The Tech & Media sector accounts for 1.37m sq ft (30%) of these active tenant requirements, followed by the Professional Services sector with 1.25m sq ft (27%).
At the end of August supply stood at 5.5m sq ft, which equates to a vacancy rate of 4.8%, down 10 bps on the previous month, but up 60 bps on the long-term average. Grade B space accounts for 47% (2.6m sq ft) of current supply, up from 38% at the end of August in 2019. Tenant-controlled supply rose slightly over the month and currently accounts for 32% of supply, up on the long-term average of 25%.
With 85% of the 1.1m sq ft scheduled for delivery in Q1 2021 already pre-let, there is just 163,000 sq ft of speculative space to be added to current supply figures at the end of Q3. We expect the vacancy rate will reach 5.0% at the end of this quarter with the additional anticipated tenant release space.
At the end of August the average prime rent achieved over the year stood at £118.00 per sq ft, albeit the sample size for 2020 is small. The average rent-free on a straight 10-year lease has now moved out to 24 months compared to 20 months during 2019.