The City bounces back

As I write this piece, the team and I are busily crunching the numbers for our Q3 London Offices Market Analysis. The picture of how the quarter will look overall isn’t clear yet, although one thing that stands out is that after a couple of quiet quarters, the City is back. The deals are still coming in and being verified but already take-up for the City core is hovering around the 1.6m sq ft mark, which is a considerable increase on the 820,000 sq ft and 930,000 sq ft achieved in quarters one and two respectively. The City core has been buoyed by the giant prelet to M&G at Generali Real Estate’s 10 Fenchurch Avenue. Having finally overcome the obstacle of a ransom strip at 118-119 Fenchurch Street that was holding up the deal, this prelet has been included in the Q3 figures. M&G has signed a 20-year lease. Aside from that deal, there are only three others (Amazon at Leadenhall Court, Lloyds Banking Group at Alban Gate (below) and London School of Business and Finance at Sceptre Court) in the figures to date that are more than 50,000 sq ft. Beyond this top four, there are only another 12 deals in the 20,000 to 50,000 sq ft bracket. This freakishly large take-up figure – the highest since 2010 (a year blessed with two particularly high peaks) – has not been driven by a reliance on large lettings, but by a good spread across size brackets. The range of 2,500 to 20,000 sq ft currently includes 80 deals and accounts for 40% of take-up. This is in stark contrast to the two peaks of 2010 when that same size range accounted for only 25% and 22% in take-up of 1.8m sq ft and 1.6m sq ft in Q1 and Q3 respectively. It is perhaps a good sign that business confidence is returning to firms of all sizes, not just big, headline-grabbing names. What is also encouraging is that these deals are happening in a market that is operating at higher rents than in 2010. EGi data suggests that new-build rents are 20% higher than they were four years ago. Deals seem to be driven by a combination of confidence and expansion rather than lease events, which have been a big feature of the market in recent years. As I have said many times, for this growth to be sustained the City desperately needs construction starts, or a combination of a chronic space shortage and unaffordable rents will force occupiers elsewhere. Our site visits suggest that there might be light at the end of the tunnel on this front, though. Full details will be available in the Q3 London Offices Market Analysis, published in Estates Gazette next week.   Tom Pilkington is head of EGi London Offices Research