West End Offices Sub Markets Research Q3 2023

COMMENTARY

Take up in the core West End markets has remained below trend in the first three quarters of 2023, with total activity in the year to date of 1.69m sq ft in 498 transactions. Third quarter activity slowed slightly based on a reduced number of deals, with just under 470,000 sq ft of space taken in 119 transactions.

Pre lets continued to dominate activity, with the largest letting in Q3 being the 49,175 sq ft pre let to investment group Moelis at Derwent London’s new scheme at 25 Baker Street. The building expected to be ready for occupation in mid 2025. The other major transaction was the sub let of just under 50% of Nationwide’s former space at The Post Building, where Rothesay Life took an additional 44,180 sq ft of expansion space.

Demand remained stable at 5.2m sq ft but has slipped back from levels seen at the end of the first quarter (5.61m sq ft). Requirements in most size bands have eased, although there has been a continued strengthening of demand for larger buildings (>20,000 sq ft), where demand has almost doubled since the end of last year, standing at 2.23m sq ft. The creative and financial sectors remain the two most significant business groups in terms of floor space sought after but demand from the Real Estate sector has strengthened significantly over the past three-six months.

Prime rents in St James’s continued to set new records for the market, moving to £145.00 per sq ft, with prime values in Mayfair and Marylebone also moving to new highs at £140.00 per sq ft and £105.00 per sq ft respectively. Prime rents across the core West End markets have increased by 6.3% on average over the past 12 months.

Supply across the core West End market increased to 2.86m sq ft in the third quarter, driven primarily by the release of Grade A space in Soho at Air W1 on Glasshouse Street. Whilst 138,220 sq ft came to the market, more than 80% of the space was under offer at the end of the quarter. Grade A supply moved to 1.5m sq ft, with the development/refurbishment of a number of larger spaces completing. The availability rate remains below the long run average (6.0%) at 5.5%.

MAYFAIR OFFICE MARKET

COMMENTARY

Take up has slowed in Q3 with only 84,660 sq ft of lettings completing in 28 deals, 43% below the number of transactions in the first two quarters of the year. The largest transaction in the quarter was the 15,975 sq ft letting to US investment bank Houlihan Lokey at One Curzon Street.

The lack of larger lettings in the third quarter means that largest letting in the year to date continues to be Chanel’s pre let of BEAMs new development at 38 Berkeley Square, where the fashion group took the entire building of 88,327 sq ft for its global headquarters. Chanel are expected to take occupation in mid 2024.

Prime rents in the Mayfair moved to a new peak of £140.00 per sq ft and have now increased by 33.3% from their post pandemic low of £105.00 per sq ft. Rents on Grade B and Grade C space have also continued to grow, moving to new peak levels for the grade of property, standing at £95.00 per sq ft and £72.50 per sq ft respectively.

Availability remained broadly stable at 583,960 sq ft at the end of September 2023 and is now 15% above the level seen at the start of the year. The main increase in availability has arisen through the increase in Grade A space, with a number of new refurbishments adding to the overall quality of stock on the market. Grade A space now accounts for 57% of all stock on the market in Mayfair, with the largest building being the 54,615 sq ft 7 Old Park Lane, albeit some of this is now under offer.

ST JAMES’S OFFICE MARKET

COMMENTARY

The St James’s market has been one of the strongest in the Core West End in the year to date, with 211,400 sq ft of lettings in 56 transactions. Activity for Q3 totalled 81,310 sq ft in 12 deals, with a number of larger deals boosting take up.

Third quarter activity continued the domination of the financial services sector in the St James’s , with the largest deal being the 34,560 sq ft letting to Hong Kong investment group Symmetry Investments, which took two floors at 31 St James’s Square, whilst BP pre let 13,320 sq ft at 20 Carlton House Terrace and are expected to take occupation in mid 2024.

Prime rents in St James’s continued to shift higher, recording a new peak level for the second successive quarter at £145.00 per sq ft. Rents on the best space have now grown by 38.1% over the past 21 months. The growth in prime rents has also pushed forward values on Grade B and Grade C space, with values rising by 16.4% to £92.50 per sq ft and 15.4% to £75.00 per sq ft respectively, since the end of 2021.

Supply remained relatively stable at 205,700 sq ft once again to end the quarter at 200,575 sq ft with several larger Grade A refurbished buildings being marketed, the largest being the 42,500 sq ft at 31 St James’s Square, with a number of floors at Smithson Plaza providing a total of 21,478 sq ft. Grade A supply continues to dominate availability, representing 72% of all space on the market, although the availability rate in St James’s remains the lowest amongst the West End sub markets at 3.7%.

MARYLEBONE OFFICE MARKET

COMMENTARY

Take up in the Marylebone market remains well ahead of trend levels in the first three quarters of the year, driven on by pre letting activity at The Portman Estate and Derwent London’s new scheme at 25 Baker Street.

Following on from the PIMCO deal in Q1, boutique investment bank Moelis, have agreed to take 49,175 sq ft at the Baker Street scheme, moving from their current base in St Paul’s. This is a significant shift for the company and re enforces Marylebone as a centre for the financial services sector, following Lazard’s shift to Manchester Square and Bridgepoint’s move to Marble Arch Place.

Prime rents in Marylebone moved to a new high of £105 per sq ft driven by the increase in demand from financial services. Prime rents have increased by 13.5% over the past 12 months with rents on Grade B space also moving to a new peak level of £80.00 per sq ft. Grade C stock has seen rents remaining at £67.50 per sq ft, although activity in this sector of the market restricted, with tenants targeting better quality accommodation.

Supply edged up slightly, moving to 444,780 sq ft although Grade A supply has been boosted in recent months by a number of new schemes completing and now accounts for 43% of the space on the market. Beltane and Angelo Gordon’s Marylebone Place at 1 Wyndham Street is the largest Grade A space providing 77,200 sq ft of workspace over eight floors. Grade C space remains a significant element of supply in Marylebone, with several older buildings on the market.

FITZROVIA OFFICE MARKET

COMMENTARY

Fitzrovia has seen modest levels of take up in the first nine months of the year, with activity of 189,700 sq ft in 84 transactions. The third quarter of the year continued to register relatively low levels of activity, with 22 deals totalling 68,130 sq ft and only limited transactions above 10,000 sq ft.

The largest transaction in Q3 was the 12,900 sq ft letting to Hong Kong fashion group Ink Clothing at Arthur Stanley House, 40 Tottenham Street, whilst corporate finance group Oaklin Capital took 12,085 sq ft at 90 Whitfield Street. The other major letting saw data centre operator Zenium Technology Group take 11,085 sq ft at 101 New Cavendish Street.

Prime rents in Fitzrovia moved to a new peak in Q1 (£95.00 per sq ft) and have remained at that level over the past six months. Rents on Grade B space also remained static at £75.00 per sq ft (7.9% growth over the past year), with Grade C space attracting rents of £65.00 per sq ft.

The supply of floor space in the Fitzrovia has continued to edge higher over the first three quarters of 2023, moving to 568,900 sq ft at the end of September. The Fitrovia market remains one of the best sources larger Grade A buildings, with two new schemes of circa 50,000 sq ft having recently completed. The largest space is at the recently refurbished Berners & Wells building on Berners Street, which offers 56,250 sq ft over nine floors. The building was ready for occupation in the summer. The availability rate remains one of the highest amongst the West End sub markets at 5.4%.

SOHO OFFICE MARKET

COMMENTARY

Activity in Soho slowed again in Q3, with total lettings of 61, 500 sq ft in 25 transactions. This brings total take up for the first nine months of the year to 246,200 sq ft in 93 deals.

The third quarter’s activity was dominated by smaller lettings, with only one deal above 10,000 sq ft. The largest transaction was the 11,035 sq ft letting at The Wingate on Shaftesbury Avenue.

Prime rents in Soho remained stable at £100.00 per sq ft in Q3 following the sharp upturn in the previous two years. Values have increased by 21.2% since the start of 2021 but remain below the peak of £105.00 per sq ft set in 2017. Rents on Grade B space moved to a new record for the area at £82.50 per sq ft, an increase of 6.5% over the past 12 months, with Grade C rents also strengthening at £69.50 per sq ft, growth of 6.9%.

The Soho market has seen a significant increase in supply in Q3 2023, with the majority of space at Air W1 on Glasshouse Street coming to the market. A total of 138,220 sq ft was on the market at Air W1 the end of September, although more than 80% of the space was under offer at the end of the quarter. Overall availability was up to 616,900 sq ft at the end of the quarter but this should adjust down if the lettings at Glasshouse Street complete. The availability rate in Soho is one of the highest across the West End sub markets, standing at 7.9% at the end of Q3 2023 but is expected to move back to around 6.0% at the end of the year.

COVENT GARDEN OFFICE MARKET

COMMENTARY

Take up in Covent Garden continued to strengthen in Q3 with 90,370 sq ft of space acquired in 19 transactions. This brings the year to date figure to 230,020 in 58 deals, with the main focus of activity on Grade A space.

The largest letting in Q3 was the sub let of 44,180 sq ft at Nationwide’s space at The Post Building to insurance group Rothesay Life. There is still just over 50% of the building society’s space at The Post Building on the market.

Prime rents in Covent Garden moved back to £87.50 per sq ft at the end of Q3 2023 but remain below previous peak levels. Rents on Grade B space also moved up to £77.50 per sq ft following sharp increases in the aftermath of the pandemic, whilst Grade C space is now attracting rents of circa £62.50 per sq ft – still the best value across all West End sub markets.

Supply in Covent Garden moved back down to 434,900 sq ft following the letting of the Nationwide space but Grade A space continues to dominate availability, accounting for 37% of the total. The largest Grade A space on the market at the end of Q3 is at The Kodak Building on Kingsway, where 61,370 sq ft of newly refurbished space is available. The availability rate is one of the highest amongst the West End sub markets at 6.1%.

Further information can be obtained by contacting a member of the office agency team.

West End Offices Sub Markets Research