City of London take-up is already 5% ahead of last year’s total and is expected to reach 6.25m sq ft by the end of the year, according to JLL research.
Total take-up so far this year is at 5.6m sq ft – ahead of the 10-year average of 5.4m sq ft.
In addition to the space already transacted, there is a further 1.7m sq ft of office space under offer, of which 750,000 sq ft is expected to complete by the end of the year.
Dan Burn, head of City agency at JLL, said: “The reality of the City market’s performance in 2017 is dramatically different from the more pessimistic views broadcast at the beginning of the year. This high level of take-up should also allay some of the fears that the market was set to experience an over-supply of space going into 2018/19, as 26% (1.5 m sq ft) of the deals undertaken this year have been pre-completion lettings of stock due to be delivered over the next few years.”
Flexible office providers
JLL’s research cited an explosion in the amount of space taken by flexible office providers in 2017, with the sector accounting for 1.2m sq ft, as a contributing factor to the high levels of take-up. The year saw the sector reach its peak so far with more than double the take-up reported by flexible office providers in 2016.
Burn added: “There has been some concern that these transactions distort the take-up figures, as the flexible office providers still have to source tenants to occupy the space. However, many of these centres pre-sell the space and new centres are typically opening 65% pre-let and reach an occupancy level of between 80% and 90% within six months.
“It has also been suggested that this increased demand for flexible offices has negatively impacted traditional leasing, particularly in the sub-5,000 sq ft markets, yet the figures demonstrate that take-up in this size bracket has remained consistent for the past three years.
“Our interpretation is that the City market is developed enough to meet the evolving demands of occupiers, who are increasingly seeking a mix of core and flex space, and that flexible offices and traditional leasing can co-exist, while offering the best solutions for tenants.”
Mix of occupiers
This year’s take-up has involved a diverse mix of occupiers. JLL reported that while banking and finance continued to be active throughout 2017, with 1.2m sq ft transacted in this sector accounting for 22% of deals, take-up by the TMT sector accounted for the highest proportion of space transacted at 1.3m sq ft, equating to 23%.
Ben Burston, head of UK office and capital markets research at JLL, added: “Despite fears that the uncertainty around Brexit may deter financial occupiers from taking new space in the City, or delay their decisions, 2017 has actually delivered strong take-up levels from the sector. This resilience has been demonstrated by several major international operators such as Deutsche Bank, NEX Group and GAM who have all recommitted their long-term presence to London.
Sustained employment growth
“At the start of the year, many feared that the City would see the release of significant amounts of sub-lease space, but this has not occurred; sustained employment growth has helped keep net absorption broadly stable, and as a consequence, vacancy in the City remains well below average at 4.7%, providing a substantial cushion against downside risks to demand.”
Burn added: “The strong take-up levels we have seen this year along with the continued pre-leasing demand, and consequently the erosion of future supply, suggests that the City market may not see a softening of headline rents. We could see some nervousness return from businesses if the Brexit trade negotiations are protracted, although the substantial pipeline of active demand combined with the historically low levels of supply means that we have relatively sound fundamentals going into 2018.”
• To send feedback, e-mail Louisa.Clarence-Smith@estatesgazette.com or tweet @LouisaClarence or @estatesgazette
