City vacancy rate increases as more tenant release space comes onto the market
Please note that this piece is not intended as an analysis of Covid-19 on the office market, rather a factual analysis of the market metrics.
Take-up in the first month of 2021 reached 363,746 sq ft across 12 deals, this is an increase of 53% on this point last year, and this was achieved in half the number of transactions (24 in 2020). Though it should be noted that take-up is skewed due to Latham & Watkins acquiring 200,000 sq ft at One Leadenhall, EC3 on confidential terms.
100% of take-up in January 2021 was of Grade A standard, this is compared to the 10-year average of 73%. The 12-month rolling average take-up is down 55% on January 2020 figures, reaching 3.1m sq ft.
Other notable transactions that occurred in January also included, Forrester Research acquiring the eighth floor (17,702 sq ft) at 25 Centrium, 61 Aldwych, WC2 on a 10-year lease at £63.00 per sq ft. Another transaction of note was Dolfin acquiring the sixth floor (10,519 sq ft) at 77 Coleman Street, EC2 on a 10-year lease with a break at five years at £81.50/sq ft.
The Professional Services sector continues the trend of 2020 being the main driver of take-up across the City, so far accounting for 60% of year-to-date take-up. Moreover, even without the Latham & Watkins LLP deal, the Professional Services sector still accounts for the highest proportion of take-up. This is followed by the Insurance & Financial sector with 13%, and then by the Public sector with 9%.
The uncertainty surrounding the pandemic can certainly be seen in the amount of space under offer, January 2021 figures fell to 1m sq ft, this is down 57% on this point last year and 23% down on the long-term average.
Furthermore, total demand fell 14% from December 2020 to 9.3m sq ft, with both active and potential City & Central London requirements down on the previous month, standing at 6.3m sq ft, and 3.1m sq ft respectively.
The Professional Services sector accounts for over a quarter of active occupational demand across central London and the City. This is followed by the Insurance & Financial sector and Tech & Media sectors with 25% and 18% respectively.
Supply continued to rise during January and at the end of the month supply stood at 11.6m sq ft, up 12% on December 2020’s 10.4m sq ft. This brought the vacancy rate to 8.4%, up 80 bps on the previous month and 170 bps on the 15-year average of 6.7%. The steep rise in supply was partially contributed to by the 461,567 sq ft of tenant supply entering the market over at the start of this year. Some notable tenant release spaces include Thames Court, 1 Queenhithe, EC4 with 86,247 sq ft of tenant release space. Additionally, 20 Old Bailey, EC4 has 66,443 sq ft of tenant release space available.
Some noteworthy landlord supply that entered the market in January 2021 include City Point, 1 Ropemaker Street, EC1 with 134,521 sq ft of space available and 68 King William Street, EC4 with 75,701 sq ft of available space.
A quick look ahead sees 3.7m sq ft in space due for completion in 2021, 34% of which is already pre-let, leaving 2.4m sq ft of space left to be delivered speculatively. 2022 has 2.8m sq ft in the pipeline, of which none is pre-let yet. 2023 see 5.1m sq ft and 2024 sees 4.4m sq ft scheduled for completion, with 6% and 9% pre-let respectively.
Analysis close up
Market of the Month – EC3
In this month’s City Office Market Watch, we are focusing on EC3, this is because of the record take-up during January 2021 (217,410 sq ft), this was up on the long-term average by 210%. As discussed above, the Latham and Watkins LLP deal at The Leadenhall Building, EC3 contributed massively (200,000 sq ft) to the total take-up figure.
Currently, there is 2.3m sq ft of supply available, this is up on January 2020 by 15% and up 54% on the 10-year average. Additionally, 88% is of Grade A quality and therefore, 12% is of Grade B quality. The vacancy rate for EC3 in January 2021 was 11% compared to the long-term average of 8.1%. On a more positive note, 21% percent of under offers have EC3 postcodes, illustrating continued demand for space in this sub-market.