West End Leasing Market
Overview
Q3 office take up has recovered well from a sluggish Q2 in the West End, with transactions increasing by 41%. There were double the number of transactions over 10,000 sq ft (22) than occurred in Q2 (11).
That said the year to date is still down 38% on the take up figures for the same point in 2022, standing at 2.4M sq ft following the more subdued first half of this year. More encouragingly the average deal size recorded for Q3 rose to over 5,000 sq ft for the first time this year.
In terms of supply the vacancy rate in the West End has remained constant at 7.2% of total stock. Completions of new space being delivered to the market continue to sit above the long-term average for developments, but key to the continued progression of the market is that much of this newly delivered space (81%) continues to be pre-let.
The managed / flex sector of the market continues to perform strongly with many operators, after a period of consolidation, back out actively seeking new sites, in addition to many large landlords continuing to increase the roll out of their own flexible and fully managed office solutions. It will be interesting to monitor how the well documented and continued restructuring of the WeWork empire will affect both the demand and supply dynamics of the market. At its peak the brand occupied over 4M sq ft in Central London – whilst this has been substantially reduced of late to c. 3M sq ft, it still has the potential to significantly alter the landscape of offices in Central London.
York House, 23 Kingsway, WC2
6 Chesterfield Gardens, W1
Headline Allsop Deals
The transactions undertaken by the Allsop West End Leasing team recently continue to exhibit the key themes we are seeing across the wider market.
Firstly, the demand for high quality, fully fitted turn-key solutions continues to dominate the sub 5,000 sq ft market across the West End and Midtown markets. We were pleased to let an outstanding suite on behalf of CBRE IM at York House, 23 Kingsway, WC2 comprising 2,500 sq ft to financial services provider Centralis Group at a rent equating to £72.50 per sq ft.
Secondly, the demand for high quality space in the core Mayfair and St. James’s submarkets shows no sign of abating. We have seen competitive bids for several offices we are marketing, and the lack of supply continues to increase the rental profile in the area. We were pleased to follow up recent lettings in 6 Chesterfield Gardens, W1 with a deal on the 3rd floor comprising 8,000 sq ft to oil traders Tupras Trading. This follows on from the recent lettings on the ground floor to Kallos Gallery and a private family office. Further space in the building is due to come available in Q1 2024.
Headline Market Deals
Pre-letting activity of the best new schemes has remained robust in the West End. Most notably Moelis & Co securing 50,000 sq ft over 2nd and 3rd floors in Derwent London’s 25 Baker Street at a headline rent equating to £100.00 per sq ft. This now takes the scheme to over 60% let with well over a year still to go before scheduled PC.
In addition, Audley Properties has backed up recent success at 31 St. James’s Square, SW1 with a letting of 34,000 sq ft to Symmetry Investments at a headline rent equating to £136.00 per sq ft. The building has just reached completion with the only remaining floor in the 100,000 sq ft scheme not pre-committed (but understood to be under offer).
Interestingly this quarter we have seen an uptick of activity in the Grade B sector of the market for the first-time post pandemic. This was predominantly driven by John Lewis’s decision to relocate to One Drummond Gate, SW1, securing 108,500 sq ft at a rent understood to be in the £30’s per sq ft. This transaction does appear to fly in the face of the well documented “flight to quality” and whilst perhaps a small exception to the rule, could indicate an increased desire from certain occupier groups to find occupational solutions at the lower value end of the market.
Interestingly this quarter we have seen an uptick of activity in the Grade B sector of the market for the first-time post pandemic.
Direction of Travel
The West End office occupational market continues to perform strongly despite wider economic uncertainties, and against wider expectations for the sector.
The supply/demand balance is currently at a crucial juncture, with the continuing high performance of the pre-letting market becoming key to keep the overall vacancy rate subdued.
Appetite from smaller occupiers will continue to be exclusively for fully fitted offices offering flexibility of occupation, whether this be on a fully managed or traditional lease basis. Their desire to keep initial capital expenditure to a minimum will render smaller offices that don’t provide turn-key occupational solutions incredibly difficult to market and let successfully.
The managed / flex sector has become a substantial part of the West End leasing market in a relatively short space of time. We see the influence of this part of the market only continuing to grow in response to the demands from occupiers both large and small.