⊲ Take up in the ‘core’ West End markets is expected to return to trend levels of activity
(10 year average take up stands at 2.9m sq ft per annum) in 2017, with a strong performance in St James’s, Noho and Soho sub markets being the primary driver behind this years activity.
⊲ Take up in the first three quarters of the year reached 2.2m sq ft, two thirds of activity focused towards Grade A stock. Lettings above 10,000 sq ft account for just over 50% of the year’s activity, whilst lettings of 5,000 sq ft and below have accounted for 36%
of this total.
⊲ Supply has edged up slightly since Q1 2017, rising to 3.4m sq ft, with 48% of space in ready to occupy Grade A stock. Whilst the availability rate on the ‘core’ West End markets stands at 6.9%, both Marylebone (4.8%) and Soho (6.0%) have tighter supply conditions.
⊲ Average prime rents across the West End have stabilised over Q2 and Q3, as certain markets (Mayfair and Marylebone) have seen values recover. Rents on quality refurbished stock and secondary space have fared well, improving in most instances.
⊲ Take up in the nine months to the end of Q3 2017 in the Mayfair market moved ahead of the previous year’s activity levels, with 494,410 sq ft of transactions compared to 467,100 sq ft in 2016.
⊲ The two largest transactions in the period to the end of September have been the 60,500 sq ft letting to Perenco Gas at 8 Hanover Square, whilst HSBC took 37,243 sq ft at the Pollen Estate’s new scheme at 7 Cork Street, which was let by BDG Sparkes Porter.
⊲ Supply has risen by 160,000 sq ft since the start of the year, rising to 881,200 sq ft at the end of Q3 2017, with 59% of availability in Grade A space. Several larger offices have come back to the market, with 63,160 sq ft across a number of floors available at Berkeley Square House and 43,800 sq ft on two floors at 1 Curzon Street.
⊲ Prime rents recovered some of the ground lost in the early part of the year, moving back up to £120.00 per sq ft, with rents on both refurbished stock (£85.00 per sq ft) and secondary space (£62.50 per sq ft) following the upward trend.
⊲ Activity in the St James’s market has continued to operate at above trend levels, with 260,900 sq ft of take up recorded in the first three quarters of 2017, compared to a 10 year annual average level of activity of 270,000 sq ft per annum.
⊲ The Crown Estate’s St James’s Market continued to dominate activity, with 30,000 sq ft of lettings in Q2 and Q3, the largest transaction being the 16,500 sq ft to Towerbrook Capital Partners at No1 Around 77% of the scheme is now let.
⊲ Supply has continued to tighten in the St James’s market, with availability falling below 400,000 sq ft for the first time since 2014. Total supply stands at 388,610 sq ft, with two thirds of space in Grade A stock (255,490 sq ft). The largest Grade A space available is at 130 Jermyn Street, where the entire building provides 38,480 sq ft.
⊲ Prime rents have not mirrored the upward movement seen in Mayfair, remaining at £115.00 per sq ft, although rents on refurbished and secondary space edged higher, moving up to £82.50 per sq ft and £60.00 per sq ft respectively.
⊲ Marylebone continues to be the most supply constrained market in the West End, with the availability rate standing at 4.8%, up from 2.4% in 2015.
⊲ Total supply stands at 456,350 sq ft, with 35% of space in Grade A stock. The largest Grade A building is at One Welbeck Street, where all but the top floor remains available, totalling 49,210 sq ft.
⊲ Activity in the Marylebone market has remained limited in the first three quarters of 2017, with only 121,050 sq ft of take up recorded. The largest transaction in the year to date has been the 10,225 sq ft letting to Invesco at Portman Square House.
⊲ Rents across all quality of stock rebounded from their Q1 levels as supply remains tight. Prime rents moved up to £90.00 per sq ft, with refurbished rents also moving up to £75.00 per sq ft. Secondary rents saw the largest increase, rising by 10.0% to £55.00 per sq ft.
⊲ The Noho market has seen by far the most activity amongst the core West End markets over the first three quarters of 2017. Total activity in the nine months to the end of Q3 2017 606,550 sq ft, with lettings at Derwent London’s 80 Charlotte Street accounting for 46% of total activity.
⊲ Boston Consulting Group took 123,500 sq ft at the new scheme, with an option to take a further 43,000 sq ft. The scheme is now 83% let, with the additional BCG option increasing the committed space to 96%. The scheme is expected to be ready for occupation in 2019.
⊲ Supply has continued to edge upwards over the past six months, rising to 667,100 sq ft. The most significant increase in supply has been the release of second hand stock onto the market, which now stands 367,900 sq ft, up from 171,000 sq ft at the start of the year.
⊲ Prime rents have adjusted down to £85.00 per sq ft since Q1 2017, a reduction of 5.6%, with rents achievable on refurbished space down by 7.1% to £65.00 per sq ft.
⊲ A strong second quarter’s activity has pushed take up in Soho to above trend levels in the first three quarters of 2017. Total activity in the year to date stands at 379,190 sq ft, with 62% of activity signed in Q2.
⊲ The two largest lettings in the first three quarters of the year were the 70,600 sq ft letting to Hearst UK at Linseed Assets LSQ London, 30 Panton Street, whilst Palantir Technologies took 57,750 sq ft at 20 Soho Square.
⊲ Supply in Soho has reduced over the past six months, falling to 397,800 sq ft on the back of the lettings at LSQ and 20 Soho Square. Grade A supply is now down to 175,700 sq ft, a reduction of 36.6% since the start of the year.
⊲ Prime rents have nudged down to £97.50 per sq ft at the end of Q3 2017 but rents on both good quality refurbished space (£75.00 per sq ft) and secondary space (£52.50 per sq ft) have continued to rise. Rents on refurbished space are now 7.1% above their start year value, with secondary rents 16.7% higher.
⊲ Take up in the first three quarters of 2017 has rivalled the full year figure for 2016, with 347,620 sq ft of transactions recorded. Activity has been dominated by two transactions, the 140,000 sq ft letting to WeWork at 125 Shaftesbury Avenue in Q2 and the 60,100 sq ft letting to clothing retailer Cos at 1 New Oxford Street.
⊲ Aside from these two transactions, there was only one other lettings above 8,000 sq ft, with the market focused towards smaller deals.
⊲ Supply has remained relatively stable at the end 2016 level, with total stock on the market standing at 647,900 sq ft at the end of September 2017. The most significant movement in supply has been the shift in balance between Grade A and second hand space, with Grade A supply down to 37% of overall stock on the market.
⊲ Ready to occupy Grade A supply will be boosted by the completion of Brockton Capital’s The Post Building at 21-31 New Oxford Street, which will provide 345,000 sq ft of space, although 97,500 sq ft of the scheme has been pre let to McKinsey & Co, who have an option to take a further 30,000 sq ft.