Activity in 2019 remained broadly in line with the 10 year average for the ‘core’ West End markets, with take up of 2.9m sq ft. There were a mixed set of results amongst the sub markets, with Soho seeing a record level of take up, whilst Noho and St James’s also saw above trend levels of activity. Both Mayfair and Marylebone saw take up for the year fall significantly below trend levels, with turnover held back by shortages of stock.
Two factors that will define the trends in take up over 2019 will be the number of larger transactions that completed and the focus on Grade A space by occupiers. Larger transactions in the ‘core’ West End markets amounted to more than 1m sq ft of lettings during the year, with the most recent being the pre let of 83,100 sq ft to Apollo Global Management at Derwent London’s One Soho Place. Take up of Grade A space represented 57% of space (1.6m sq ft) let during the year.
Supply has continued to reduce across all markets over 2019, falling by 14% to 2.1m sq ft at the end of the year. The availability rate in the ‘core’ West End markets now stands at 4.3%, with only 809,000 sq ft of ready to occupy Grade A space on the market.
Demand for floor space in the ‘core’ West End markets remains strong with just under 3m sq ft of requirements. The demand for larger space (> 20,000 sq ft) in the West End accounts for 56% of total requirements, although this is a sector of the market where supply is most constrained.
Take up fell below the 10 year average for the Mayfair market for the first time in three years in 2019, with activity totalling 555,920 sq ft. The total number of transactions completed over the year was also down falling to 159, some 32% the transaction levels recorded in the previous year.
Larger lettings were a notable absence throughout the year, with only four transactions above 20,000 sq ft completing, the most recent of these being the 24,650 sq ft letting to Renaissance Capital at Park House, 116 Park Street at the end of November 2019. This was indicative of the trend throughout the year, where Financial Services companies dominated activity in Mayfair, accounting for 37% of all lettings.
Supply continues to edge downwards, with only 512,100 sq ft on the market at the end of 2019, equating to an availability rate of 4.1%. Grade A supply is now at its lowest level in over a decade, with only 159,100 sq ft on the market, down from the recent peak of 521,600 sq ft at the end of 2017. Mayfair also has a shortage of larger floor plates, with only 92,600 sq ft in buildings that can accommodate requirements of above 20,000 sq ft.
Prime rents in Mayfair continued to edge up over 2019 and are now back to £117.50 per sq ft, although this is still below the peak levels recorded in 2015/16. The trend in rents on refurbished space is similar, with values still below their previous peaks, although values on unrefurbished space have reached a new peak level of £67.50 per sq ft.
Take up edged back above the 10 year average for the St James’s market in 2019, following the slowing in activity in the previous 12 months. Total transactions for the year were 294,000 sq ft, with more than 70% of the years letting activity focused towards Grade A space.
Two of the most significant transactions in the final quarter of the year were at the Crown Estate’s The Marq, 32 Duke Street, where the 2nd and 6th floors were let. There is now only one floor available in the building.
The availability rate in St James’s remains the highest amongst the ‘core’ West End sub markets, standing at 8.7% at the end of 2019. Whilst supply has reduced since the end of 2018, there was a slight upturn in availability in the final quarter of the year, with Rio Tinto placing 46,800 sq ft (40%) of their St James’s Square headquarters building on the market. Grade A supply continues to dominate availability, accounting for almost 70% of the total.
Prime rents in St James’s moved back down to £110 per sq ft in the final quarter of the year, on the back of increased Grade A space coming to the market. This has also been reflected in rents on refurbished space, where values are down by 3.1% over the past 12 months. Rents on unrefurbished space on the other hand are up by 8.3% since the end of 2018.
Take up in Marylebone moved below the 10 year average for the market in 2019, falling back to 353,230 sq ft. This is the fourth year out of the past five that activity has been below the long run trend level.
Activity in the Marylebone market has been held back by restricted supply, particularly of larger buildings, with the only letting above 20,000 sq ft during the year being Bridgepoint’s pre let of 83,000 sq ft at Marble Arch Place in Q3. The largest transaction in the final quarter of the year was Lazari Investments letting of the 8,480 sq ft recently refurbished 6th floor at 33 Wigmore Street.
Supply moved back down below 300,000 sq ft in the final quarter of the year, with Grade A availability at its lowest level in more than a decade at 38,500 sq ft. The availability rate In Marylebone now stands at 2.9%.
Rents have remained largely stable in the Marylebone market over the past six months as occupiers have been faced with tight supply conditions. Despite this, values have increased over the past 12 months, with prime rents up by 2.8% to £92.50 per sq ft, whist rents on un refurbished space are up by 8.7% to £62.50 per sq ft.
Take up in Noho has been boosted by a number of larger transactions during 2019, pushing activity for the year well above the 10 year average at 605,660 sq ft. There have been a total of six transactions above 20,000 sq ft during the year, with the most recent being the 39,400 sq ft letting of the recently refurbished 30 Cleveland Street to US computer games company Take Two Interactive.
The number of transactions in the Noho market rebounded to 146 in 2019, 15 % higher than the comparable figure for the previous year.
Supply fell to its lowest levels in more than a decade, ending the year at 320,060 sq ft, with the availability rate falling to 3.7%. Grade A supply remains constrained, with only 67,620 sq ft on the market. The only building that is able to accommodate a requirement of above 20,000 sq ft is at UK House, 180 Oxford Street, where 30,900 sq ft is being marketed.
Prime rents in Noho moved up by 6.5% in the first six months of 2019, rising to £82.50 per sq ft, but have remained stable since. The shortage of Grade A stock suggests that a further advancement should be expected. Whilst rents on refurbished stock have fallen back over the past 12 months, rents on unrefurbished space have grown strongly, rising by 10.0% to £55.00 per sq ft.
Take up in Soho reached record levels in 2019, with 718,400 sq ft of activity recorded, more than 31% above the previous peak level in 2016. Activity was boosted by four large deals during the year, with the largest transaction in the final quarter being the 83,100 sq ft pre let of the 2nd to 4th floors at One Soho Place to US private equity group Apollo Global Management. The office element of One Soho Place is now 96% let.
The number of transactions completing in Soho over 2019 was 102, almost 30% below the previous year’s level of transactions.
Supply in Soho has continued to tighten and is now down to its lowest level in 10 years, having fallen by 45% over the past two years. Total availability is 216,860 sq ft, equating to an availability rate of 3.3%. Grade A supply has fallen from 164,900 sq ft at the end of 2018 to its current level, 61,610 sq ft.
Prime rents have remained at £87.50 per sq ft despite the strong lettings market and the low levels of supply. If current market conditions continue, this should be expected to change over the next six to nine months. Rents on refurbished space fell back slightly in the final quarter of the year but remain 7.1% higher over the past 12 months. Rents on unrefurbished space remained at £57.50 per sq ft over the quarter.
Take up in Covent Garden moved below the 10 year average for the market in 2019 following the strong levels of activity in the previous 12 months. Letting activity totalled 371,830 sq ft across 74 transactions.
Activity slowed in the final quarter of the year, with a lack of larger transactions completing. The largest deal in Q4 was a 15,400 sq ft short term letting at 90 Long Acre, whilst the most significant transaction was to creative recruitment consultants Major Players at 7-11 Stuckley Street.
Supply has continued to edge down slightly over the past 12 months, ending 2019 at 335,600 sq ft, the lowest level on record in more than a decade. Grade A supply accounts for 45% of total stock on the market, with two of the larger spaces at 1 Kingsway, where 41,000 sq ft is being marketed, and 1 Smart’s Place where a further 39,000 sq ft is available.
Prime rents in Covent Garden have continued to edge up over the year, returning to £82.50 per sq ft by the end of 2019, growth of 10.0%. Rents on both refurbished and unrefurbished space also increased rising by 4.0% and 10.0% to £65.00 per sq ft and £55.00 per sq ft respectively.
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