City Leasing
Overview
Q2 witnessed market activity slow following a disrupted period with numerous bank holidays across May. Take-up once again was below the 10-year average hinting that the office occupier market eased following a strong recovery in 2022. Despite this, the City office market has shown some very encouraging signs with a number of significant pre-lets and re-locations of major firms such as HSBC ending its two decades in Canary Wharf and subsequent relocation to Panorama, St Paul’s in late 2026 (currently under offer for 550,000 sq ft). Many occupiers are also looking to gear up for pre-lets into 2025 where there is likely to be an undersupply of best-in-class space.
Take-up remains subdued, keeping trend with the previous quarter and c.25% down compared to this time last year. Rising costs and economic uncertainty continue to fuel occupier cautiousness. A growing trend of lengthy transaction speeds continue to blur take-up statistics with under offers taking on average 6 months to complete and well above the historical average.
‘Best in Class’ transactions continue to polarise the market with over 90% of take-up being Grade A quality with firms jostling for the best space to attract and retain employees whilst also achieving good sustainability credentials on a CRE level that align with their brand image. Poor quality stock is under pressure with many developers required to either refurbish or change the use altogether.
Prime rents are strong with the best buildings attracting the best rents. Grade A space in the City is achieving rents in excess of the high £70.00’s per sq ft and tower floors continue to hit well in excess of £95.00 per sq ft. Prime stock is low and is expected to result in prime rents increasing over the next 5 years. Future development pipeline should address some of the demand with c.16M sq ft delivering over the next 5 years, however, much of this is either already pre-let or delayed. A direct result of rising construction costs, skilled labour shortages and uncertainty over interest rates will leave a shortage of space in 2025/2026.
City vacancy rates have increased slightly to 10% and above the pre-pandemic average of sub 5%. Hybrid working has seen numerous occupiers downsize leading to an increase in lower grade sublease space being brought to market.
Headline Market Deals
Law firms continue to drive activity in the City with a number of significant pre-lets. Goodwin Procter took a large pre-let of Sancroft, EC4, taking 90,000 sq ft. Aviva meanwhile completed a major pre-let at their One Liverpool Street, EC2 development, due to complete in 2026, with Dentons, a global law firm taking 67,000 sq ft on a 15-year lease. Latham & Watkins also exercised their option on 4 floors at 1 Leadenhall Street, EC3 following their substantial pre-let in 2021.
The tech industry continues to perform steadily in the fringes, although activity within the sector has been dampened over the past year. Insurance and Finance firms have contributed to a large chunk of take up to date.
Headline Allsop Deals
Allsop was thrilled to welcome the completion of two large deals at The Gilbert, Finsbury Square, EC2 on behalf of Brookfield Properties, with TrueLayer Limited and Greystar Group Holdings taking 17,105 sq ft and 17,153 sq ft respectively.
Reed Smith UK LLP further expanded their holding at Blossom Yard and Studios, E1 following their pre-let of Ground – 7th, executing their option for the 8th floor of 10,939 sq ft.
On par with the overall trends of the market, Allsop was also involved in the sub-let of the part 9th of Moor Place, EC2 to Equiniti Limited on a 7 year term for 6,329 sq ft.
Direction of Travel
The City office market as a whole, has remained positive with active demand still high. With several developments due to complete before the end of the year such as British Lands’ Norton Folgate, E1 scheme (Allsop instruction) and 6-8 Bishopsgate, EC2 which is 75% pre-leased, activity is expected to ramp up in the second half of the year with a strong pre-letting trend to continue within the City as prime pipeline remains challenged.