Pre-letting offices in London
November 22, 2019 Leave a comment
The London office market has seen 42 medium/large pre-lets of office space so far in 2019, totalling 2.5m sq ft, which represents a 20% rise on 2018. With one month to go the 42 pre-lets matches the record from any of the previous ten years. Central London occupiers launching searches further in advance of their planned lease expiries than ever before. Pre-letting has gradually risen in importance and is now accounting for around 25% of London office space being transacted.
Cushman and Wakefield say that pre-letting has historically been an important part of the Central London office market, accounting for 23% of total transactions over 5,000 sq ft between 2009 and 2018. Some 24.4 million sq ft was pre-let across 267 pre-let transactions completed during this period. On average, there were 27 pre-lets each year. The pre-let market will play an increasingly important role in the London office market over the next five years.
Pre-letting has traditionally been more prevalent in the City and City fringe of London than in the West End, with 148 pre-lets and 119 pre-lets, respectively. The average duration between exchange and practical completion was 13 months. Pre-lets for buildings which were under construction, the average duration between exchange
and completion was 9 months.
Many pre-lets tend to involve large-scale occupiers with examples in 2019 including 300,000 sq ft to BT at 1 Braham Street, E1 and 360,000 sq ft to EBRD at Bank Street, E14. This trend has historically been driven by the financial services sector (such as EBRD) taking large pre-lets in the City Core and Canary Wharf. But in the last ten years the most active sector for pre-lets has been the media & technology sector (eg BT in 2019). Followed by banking & financial companies and public & government sector.
Large transactions from several new London market entrants have boosted pre-let volumes in recent years including Apple’s acquisition at Battersea Power Station (475,000 sq ft), Dentsu Aegis’ 312,000 sq ft pre-let at 1 Triton Square and Facebook’s recent signing at King’s Cross (600,000 sq ft).
Last year pre-lets to finance sector companies such as Deutsche Bank at 21 Moorfields (469,000 sq ft), SMBC’s acquisition at 100 Liverpool Street (161,000 sq ft) and TP ICAP’s acquisition of 135 Bishopsgate (122,000 sq ft) dominated the league table.
The City Core has seen the largest volume and the highest total number of pre-let transactions such as Brewin Dolphin and Smith & Williamson, but King’s Cross is becoming a close competitor with virtually all the new office stock pre-let in recent years (Sony Music pre-let 130,000 sq ft this year). In addition, West End submarkets such as White City, Battersea and Nine Elms have attracted pre-lets of a large part of their total stock levels. Stratford has also seen a high level of pre-let activity.
C&W estimate that the total potential size of the development pipeline over the next 5 years is 35 million sq ft, with 10m sq ft already either pre-let or under offer. The prospect is that shortages of completed speculative space could make pre-lets even more popular and a large number of companies are currently at an early stage in London large move searches.
Paul Ives, November 2019
London Office Market Q3 2019
December 5, 2019 Leave a comment
The London Office market saw an increased level of letting activity in Q3 2019. Overall quarterly take-up rose by 13% from the 2nd quarter to a 12-month high. Appetite for pre-letting is growing as occupier concern over supply shortages, encourages deals to conclude at an increased rate, with 1.3m sq ft of London office pre-lets concluded in Q3.
Absorption levels are more subdued as a high proportion of secondhand space is bypassed in favour of new builds. However, the good new for the fit-out industry is that confirmed major pre-lets for schemes completing in 2020-2022, include G-Research, Cooley, Bridgepoint, Splunk and Millbank increasing the size of their floorspace in their pre-lettings.
Central London office market vacancy levels have has edged below 5% for the first time since early 2017, with availability of completed recently new/refurbished space just above the all-time record low for London.
Recently emerging separate requirements for over 100,000 sq ft, across the entire London market, prioritising product availability over include occupiers such as IBM, BNY Mellon, Mastercard, The Telegraph
and Kingfisher.
The City office market has seen an increased level of demand. In the last three months deals to BT, Monzo, ICG Longbow, Urban Outfitters, ION and Reinsurance Group of America have boosted Grade A letting activity surpassing 1 million sq ft for the first time in nearly 20 years. Rival flexible offices providers are also active with Knotel pre-letting 82,000 sqft at City Place House, Uncommon forward purchasing Templar House WC2 (140,000 sq ft)and Convene taking over 100,000 sq ft at 22 Bishopsgate, EC2. The pipeline in the City of London is set to see 2.5 million sq ft of speculative space delivered up to the end of 2021. Future large-scale schemes not under construction will not impact the market until 2022 at the earliest.
The West End also saw take-up improve in Q3, to 1.0 million sq ft, with pre-letting activity accounting for 30% of lettings including Diageo, Bridgepoint and Nationwide Digital. Vacancy rates rose very marginally, but the future pipeline includes 3.5m sq ft to be delivered up to end of 2020, albeit that 80% of that is pre-let, There are only three speculative schemes over 50,000 sq ft set to be delivered up to the end of 2020.
Thanks, best wishes and Merry Christmas to all Metropolis office blog readers!
Paul Ives, Apollo Business Research, can be reached via Linkedin
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