Central London’s leasing market has seen a strong start to the year, with nearly 4.8m sq ft let in the first two quarters – a 10% increase on the previous year – despite concerns about businesses delaying decisions over Brexit uncertainty.
Provisional research by Cushman & Wakefield has shown that just over 2.6m sq ft was let in Q2 2017, which is in line with the five-year quarterly average of 2.7m sq ft – and up by 58% on the same quarter last year.
Media & tech and flexible offices accounted for more than half of all space let in Q2. Two deals with Almacantar were the largest of the quarter, together totalling 438,450 sq ft, at Two Southbank Place, SE1, and 125 Shaftesbury Avenue, WC2.
The West End saw the strongest increase year-on-year, with take-up 30% higher for the first two quarters at 1.8m sq ft. Just under 1m sq ft was let in Q2, the highest quarterly volume since Q4 2016. The submarket has now seen two quarters of above-average take-up and has enjoyed four consecutive quarters of volume growth.
Provisional Central London H1 2017 leasing activity (Source: Cushman & Wakefield)
| Time period | City (sq ft) | West End (sq ft) | East (sq ft) | Emerging West (sq ft) | Total (sq ft) |
|---|---|---|---|---|---|
| 2016 Q1 | 1,511,546 | 844,513 | 348,755 | 0 | 2,704,814 |
| 2016 Q2 | 944,672 | 576,607 | 131,371 | 0 | 1,652,650 |
| 2016 Q3 | 1,084,698 | 577,927 | 160,046 | 548,000 | 2,370,671 |
| 2016 Q4 | 1,856,634 | 805,633 | 627,041 | 81,000 | 3,370,308 |
| 2017 Q1 | 1,227,331 | 918,573 | 34,453 | 0 | 2,180,357 |
| 2017 Q2* | 1,567,982 | 931,277 | 30,488 | 84,993 | 2,614,740 |
| Q2 2017 v Q1 2017 (% change) | 28 | 1 | -12 | – | 20 |
| Q2 2017 v Q2 2016 (% change) | 66 | 62 | -77 | – | 58 |
| H1 2017 v H1 2016 (% change) | 14 | 30 | -86 | – | 10 |
* provisional
The City also performed well, with H1 2017 volumes 14% up on 2016, driven by a strong Q2 bolstered by the Two Southbank WeWork letting.
East London, defined by C&W as Canary Wharf and the Docklands, performed least well, with H1 lettings totalling just 64,941 sq ft – down by 86% on the previous year. However, the adviser said there was “a relatively significant volume of space under offer”, which could boost leasing volumes in the second half of the year.
Elaine Rossall, C&W’s head of central London research, said: “The east London market tends to be more volatile than elsewhere with one or two large transactions making a significant difference to the total figures.”
Vacancy rates have also fallen sharply in the past two to three years to just under 5.9% at the end of May, closing in on the 5.2% central London average.
Financial services take-up across central London has slowed to around 15% of take-up in H1, compared with circa 22% last year. Rossall said the slowdown was the result of factors other than Brexit uncertainty. “Since 2008 volumes have been coming down gradually anyway,” she said. “A number of pressures have come to bear on that sector. Not only Brexit, but consolidation, automation and northshoring are all having an impact.”
Five largest central London transactions in H1 2017
(Source: Cushman & Wakefield)
| Submarket | Building | Landlord | Size (sq ft) | Tenant |
|---|---|---|---|---|
| Southbank | Two Southbank Place, SE1 | Almacantar | 283,450 | WeWork |
| Covent Garden | 125 Shaftesbury Avenue, WC2 | Almacantar | 155,000 | WeWork |
| Shoreditch | London Fruit and Wool Exchange, E1 | M&G Real Estate | 115,680 | NEX Group |
| Midtown | 28 Chancery Lane, WC2 | Viridis Real Estate | 93,882 | Framestore |
| Covent Garden | LSQ London, WC2 | Linseed Assets | 70,915 | Hearst |
Forecasts for the rest of the year are relatively positive. C&W estimates that there is around 3.2m sq ft under offer across central London and estimated volumes for 2017 will be similar to 2016, when total take-up was just over 10m sq ft. “We’re pleasantly surprised at the volume of leasing activity and the volume under offer,” Rossall said. However, she said that after the EU referendum and General Election occupiers were “definitely more cautious” and that it “remained a challenging market”.
She added: “I think some of those transactions are taking a bit longer to complete than they would have in 2012-14.”
The serviced office sector is expected to continue to grow as uncertainty encourages occupiers to adopt more flexible working practices. Media & tech companies are also expected to continue to commit to London. “Media & tech growth forecasts are still strong for the economy so you would expect that to continue to be relatively positive,” Rossall said.
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