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Savills Research
UK Commercial
City Office
Market Watch
City take-up is now 26% up on this point last
year, all but confirming total take-up will exceed
that of last year
October 2014
GRAPH 1
Serviced Office Operator take-up
Supply and demand
snapshot
n September saw a record amount of
City take-up in one month at 1.5m sq
ft. This has brought total take-up for
the year to date to 6.29m sq ft, which
is 26% up on this point last year.
n The large take-up in September can
be primarily explained through three
deals which amounted to 868,000
sq ft alone. Amazon completed on
their 430,000 sq ft pre-let of Principal
Place, E1 this month along with taking
115,000 sq ft of interim space at
Leadenhall Court, 1 Leadenhall Street,
EC3. Furthermore, M&G acquired a
322,000 sq ft pre-let at 10 Fenchurch
Avenue, EC3.
n Another notable deal from
September is the acquisition of 49,500
sq ft at Albert House, 1-4 Singer
Street, EC2 by The Office Group at a
rent believed to be just under £40 per
sq ft. This deal highlights the strong
activity seen this year from serviced
office operators.
n Serviced office operators have
already accounted for 260,000 sq ft
of take-up this year, which is a 74%
increase on the equivalent take-up
period last year (Graph 1). If we
consider space currently under-offer,
we expect the industry's total take-up
to exceed 350,000 sq ft this year,
which is roughly the same amount for
the years 2005 - 2011 combined. The
increase in demand for this type of
workspace is due to the rise of smaller,
mostly technology based companies
who require flexible lease lengths and
a 'co-working' environment.
n As previously forecasted, the
vacancy rate has continued to fall this
month. Supply is currently at 7.9m sq
ft producing a vacancy rate of 8.2%,
down from 8.7% last month. Supply
has fallen on average 5% each month
over the last three months, and we
expect this trend to continue across
the next year.
n The continued strong take-up
combined with the constraint on
supply will have a positive effect on
rental values. We have already seen
evidence of this in that the average
prime rent for the City has risen since
Q1 2014 from £60.39 per sq ft, to
£65.06 per sq ft for Q3 2014.
n Furthermore, the average grade A
rent for Q1 was £47.42 per sq ft, which
has risen to £50.07 per sq ft for Q3.
City core average grade A rent has
risen from £46.13 per sq ft for Q3 2013
to £50.38 per sq ft for Q3 this year, and
in the Fringe it has risen from £47.78 to
£49.53 per sq ft (Graph 2).
n The falling trend of tenant incentives
provides further evidence that the
market is moving in favour of the
landlord. For instance, in Q3 last year
the average amount of months given
rent free for a 10 year lease with no
breaks was 23, this has since dropped
to 21 months for Q3 this year.
Source: Savills Research, N.B. 2014 data as of end September
GRAPH 2
Average Rents
Source: Savills Research
TABLE 1
Key September stats
September
stats
Monthly change
1,543,653 sq ft

7.9m sq ft

8.2%

Top rent
£69.50

Demand
8.3m sq ft

Take-up
Supply
Vacancy Rate
Source: Savills Research
savills.co.uk/research
01
Market Watch | City offices
Analysis close up
TABLE 2
TABLE 5
Monthly take-up
Supply
Sq ft
% Grade A
Total
% Grade A
% chg on
prev month
Vacancy
rate (%)
Sep-13
506,596
43%
7,663,359
79%
1.3%
8.0%
Oct-13
431,489
70%
7,603,389
80%
-0.8%
7.9%
Nov-13
354,710
66%
7,163,250
80%
-5.8%
7.5%
Dec-13
1,279,021
80%
6,762,769
78%
-5.6%
7.0%
Jan-14
523,894
62%
7,699,510
79%
13.9%
8.0%
Feb-14
392,845
90%
7,596,745
78%
-1.3%
7.9%
Mar-14
383,818
80%
7,931,546
75%
4.4%
8.3%
Apr-14
405,984
64%
9,361,041
80%
18.0%
9.8%
May-14
777,760
90%
9,142,794
79%
-2.3%
9.5%
Jun-14
861,232
89%
9,214,569
80%
0.8%
9.6%
Jul-14
933,037
70%
8,712,152
79%
-5.5%
9.1%
Aug-14
467,274
78%
8,339,046
80%
-4.3%
8.7%
Sep-14
1,543,653
88%
7,890,856
80%
-5.4%
8.2%
TABLE 3
TABLE 6
Year to date take-up
Development pipeline
Sq ft
% change on
previous year
% Grade A
Jan 13 Sept 13
4,993,232
56%
75%
Jan 14 Sept 14
6,289,497
26%
81%
TABLE 4
Rents
Grade A
Grade B
Prime*
Rent
free**
Sep-13
£55.00
£43.35
£31.22
£57.15
23
Oct-13
£70.00
£53.00
£36.50
Nov-13
£62.50
£49.57
£35.83
Dec-13
£70.00
£52.53
£35.38
Jan-14
£72.50
£45.63
£39.15
Feb-14
£62.50
£46.25
£31.32
Mar-14
£70.00
£46.56
£28.01
Apr-14
£63.50
£46.42
£27.92
May-14
£72.50
£48.96
£42.67
Jun-14
£80.00
£49.91
£33.22
Jul-14
£65.00
£48.42
£36.16
Aug-14
£64.00
£50.65
£36.59
Sep-14
£69.50
£50.44
£36.80
Completions due in the next 6 months are included in the supply figures
02
Refurb
Devs
Total
%
Prelet
2014
2,550,877
2,903,010
5,453,887
43%
2015
832,596
2,300,272
3,132,868
56%
2016
1,573,456
2,925,654
4,499,110
21%
2017
946,729
3,452,070
4,398,799
9%
Total
5,903,658
11,581,006
17,484,664
31%
Average
Top
achieved
£ per sq ft
Sq ft
£64.45
21
TABLE 7
Demand & Under Offers
City Potential demand (sq ft)
2,364,000
City Active demand (sq ft)
5,968,000
City Total demand (sq ft)
8,332,000
% change on 12 month ave
Total under offer (sq ft)
£60.39
19
£63.70
20
£65.06
21
2%
2.0m
Under offer this month (sq ft)
419,667
% change on average
70%
Landlord controlled supply
76%
Tenant controlled supply
24%
*Average prime rents for preceeding 3 months *
* Average rent free on leases of 10 years with no breaks for preceeding 3 months
Market Watch | City offices
TABLE 8
Significant September transactions
Sq ft
Grade
Rent
achieved
Tenant
Lessor
1 - 15
430,917
A
Confidential
Amazon
Brookfield
10 Fenchurch Avenue, EC3
3 - 13 & Part
Mezzanine
322,686
A
Confidential
M&G
Generali/CORE
Leadenhall Court, 1 Leadenhall
Street, EC3
Building
115,000
A
Confidential
Amazon (Interim space)
Brookfield
Albert House, 1 - 4 Singer Street,
EC2
Building
49,523
B
£39.50
The Office Group
A & A Investments
30 Finsbury Square, EC2
LG, 2
29,572
A
£36.55
Grant Thornton
Invesco
85 Fleet Street, EC4
B, 5, 6, 7
29,521
A
Confidential
Radcliffes LeBrasseur
Norton Rose Fulbright
20 Fenchurch Street, EC3
24
23,876
A
Confidential
Vinson & Elkins
Land Securities/Canary
Wharf
75 King William Street, EC4
G, 1
22,602
A
Confidential
S Three Ltd
SWIP
Thames Exchange, 10 Queen
Street Place, EC4
Part 1
21,746
A
Confidential
Bates Wells Braithwaite
Lembaga Tabung Haji/
KMW
Address
Floor/s
Principal Place, Shoreditch High
Street, E1
TABLE 9
Significant supply
Address
Postcode
Available
Sq ft
Comments
The Shard
SE1
375,000
6,500 sq ft under offer
Aldgate Tower
E1
317,000
Aldwych Quarter
WC2
278,000
The Leadenhall Building
EC3
270,000
71 Queen Victoria Street
EC4
187,000
Cannon Place, Cannon Street
EC4
125,000
120 Holborn
EC1
117,000
3 Thomas More Square
E1
110,000
Alphabeta Building
EC2
40,000
5 Cheapside
EC2
40,000
03
24,000 sq ft under offer
65,000 sq ft under offer
Market Watch | City offices
MAP 1
Savills City office market area
City 2014 percentage of take-up by postcode
Please contact us for further information
Peter Thursfield
City Agency
0207 409 8928
[email protected]
Josh Lamb
City Agency
0207 409 8891
[email protected]
Ben Raywood
Research Analyst
0207 409 8791
[email protected]
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