West End Leasing Market
After a slightly muted start to 2023, leasing activity has continued to increase as we move forward into Q2.
The slightly slow start to the year is a result of many larger pipeline deals having completed at the end of 2022 as opposed to any lack of demand in the market. The next wave of transactions are taking slightly longer to complete, mainly as a result of occupiers undertaking more rigorous analysis of their occupational strategies and focusing on what they want out of their office space (usually, the best quality with the highest sustainability credentials).
That said, the large amount of space under offer points to continued buoyant demand for the best space, with many major occupiers rushing to commit early in advance of lease expiries, in order to secure the best quality space amid a restricted development pipeline, across central London but particularly in the West End.
West End Deals
Once again, large pre-lets played a crucial role in key lettings at the start of 2023. PIMCO’s acquisition of the 5th to 9th floors at Derwent London’s 25 Baker Street, on space comprising 106,000 sqft is a huge vote of confidence in the West End. PIMCO secured a 15 year lease at a blended rent of £103.00 per sqft, some 2 years before the project is expected to reach completion. In addition, it is understood they secured an option on additional space within the building, which they are already coming under pressure to commit to as there is serious interest in the space from other occupiers.
The second large pre-let is Virgin Media securing the 4th – 9th floors at 3 Sheldon Square from British Land. The pre-let of 83,000 sqft at a rent understood to be in the late £70’s per sqft is understood to be as a result of relocating staff into a more centrally located hub out of existing offices in Hammersmith and Slough.
Both of these transactions illustrate the continued “flight to quality”, with both occupiers keen to meet their ESG targets, securing buildings with BREEAM “excellent” ratings and robust environmental credentials. Moreover, occupiers such as these are becoming evermore focused on central, well connected locations with high levels of local amenity for staff to utilise when they are attending the office.
Headline Allsop Deals
The transactions undertaken by the Allsop West End Leasing team in a busy Q1 continue to bear out the overall themes we are seeing in the market.
Firstly, the core sub-markets of Mayfair / St. James’s and Marylebone are continuing to perform strongly with low levels of availability and strong rents being set.
We were delighted to let the part 3rd floor at Rex House, Regent Street, St. James’s, SW1 comprising 6,000 sq ft to Dajaroo (Financial Recruitment Company). In addition, the 2nd floor at 6 Chesterfield Gardens comprising 4,500 sq ft has been let to iSquared Capital. There are several other notable deals under offer in Mayfair that are due to complete soon.
Secondly, we are seeing continuing strong demand for alternative uses such as from medical and educational occupiers. The Allsop leasing team was pleased to represent the Private Landlord at 16-17 Greek Street, W1 on the leasing of an outstanding 12,000 sq ft self-contained building, in this prominent central Soho location to the Vidal Sassoon Hair Academy.
What is the Direction of Travel?
The West End Leasing market seems set to continue on its current upward trajectory for Grade A office space. Whilst the development pipeline for 2023 is significantly higher than previous years, with c 2.4m sqft set to complete this year, the level of pre-letting is still high with large amounts of space under construction already pre-leased.
Overall office vacancy at 6.5% for the West End is above the long-term average but still sits someway below Central London as a whole, with many West end submarkets having vacancy levels at well below 5%, which indicates a ‘Landlord's market’.
A key observation made recently is “Just good enough is now no longer good enough for the majority of occupiers when taking office space.” Companies are now more focused on what they and their staff require than ever before. This is outstanding news for owners of high quality, well located office product. It does mean however that occupiers are less willing to make compromises when securing space, which may result in extended void periods for some buildings that do not tick all the boxes.