West End leasing deals in Q3 saw companies commit to 1.2m sq ft of office space, according to the latest figures from Knight Frank.
The property consultancy revealed that a drop in availability over the last 12 months and competitive tension has led to an increase in prime rents of 6.5% year-on-year which has brought Q3 leasing figures in line with the long-term average.
In the West End submarket, which includes locations such as Mayfair and St James, the agency is now seeing headline rents at £125, compared with £100 per sq ft five years ago.
Highest demand is focused on the prime end of the market, with occupiers concentrating on finding ESG-compliant offices with top grade facilities. The agency recorded that 59% – or 688,057 sq ft – of Q3 take-up in the West End was for grade-A offices that were newly completed or comprehensively refurbished.
Continued high levels of demand have seen availability of new or refurbished grade-A stock in the West End fall to 2.5m sq ft for the second quarter in a row. The vacancy rate in the West End is 5.7% compared with 8.6% across London.
Across central London submarkets, office take-up totalled 2.6m sq ft. This was propelled largely by financial and professional services occupiers, that accounted for 33% and 30% of leasing activity respectively.
The recent quarter saw several global firms agree to take new headquarters, including global asset manager Blackstone, which agreed to lease the entirety of the 226,000 sq ft AHMM-designed Lansdowne House scheme on Berkeley Square, Mayfair, W1. The letting deal was the largest in Q3.
Another relocation took place for law firm Addleshaw Goddard, which agreed to relocate its London headquarters from Milton Gate, EC1, to take 114,000 sq ft at 41 Lothbury in the City, EC2.
Knight Frank says the leasing pipeline is still strong, with 175 active requirements for office space over 10,000 sq ft across London and 3.2m sq ft of deals under offer.
However, the development pipeline on office space is suffering due to rising build costs and labour shortages, which is further pressuring availability. Figures show a total of just 15.8m sq ft of office space under construction and due for delivery between now and 2026.
Of this space, 3.3m sq ft is already pre-let, leaving overall availability at 12.5m sq ft. According to Knight Frank, this makes for a 7.5m sq ft shortfall when accounting for long-term average take-up on high-end stock, which sits close to 5m sq ft a year.
Another contributor to recent uptake, the agency notes, is the imminent opening of the Elizabeth Line at Bond Street on 24 October, with developments in the area such as Great Portland Estate’s newly refurbished 220,000 sq ft development at Hanover Square fully let.
Knight Frank London research partner Shabab Qadar said the demand for high performing, top quality space is “gathering pace”: He added: “This has seen prime availability fall in the West End, with the future pipeline constrained by inflation, which is leading to increased build and labour costs. This is likely to result in further delays to planned completions.
“London’s growing financial, legal and professional services sectors are also creating upward rental pressure for West End offices, with workspaces located around Bond Street and Tottenham Court Road benefiting from the opening of the Elizabeth Line.”
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