City and City Fringe Letting Market

Take up for the year to date remains strong at 4.7M sq ft and is in line with the 10 year average

The City and City fringe markets have continued to defy the uncertainty surrounding the current political climate and Brexit by recording significant demand in Q3 2019 for both pre-lets and recently completed schemes.

Many businesses and in particular the legal, financial and tech sectors have activated their searches years in advance to secure off plan pre-lets due to the diminishing level of development pipeline available between 2020 and 2022. There are currently 9 legal practices all considering relocation options in excess of 100,000 sq ft well in advance of their lease expiries.

The largest deals that have taken place in Q3 include; BT acquiring 320,000 sq ft at 1 Braham Street, Aldgate, Convene acquiring the lower levels at 22 Bishopsgate (floors 3-6) totalling 99,907 sq ft at a rent of £65 per sq ft, Kingsley Napley having committed to an off plan prelet of 50,000 sq ft at Twenty Bonhill Street (leased by Allsop) on a 15 year lease, Monzo under offer on 80,000 sq ft from British Land at Broadwalk House, 5 Appold Street and Knotel having signed on 82,000 sq ft at City Gate House, EC2.

With the most recent failed IPO and negative press relating to We Work, many ongoing negotiations have been placed on hold by Landlords. This is allowing other serviced office operators to re-consider previously secured We Work deals, although we are likely to see a reduction in the level of serviced office take up for Q4 2019 as developers re-consider the serviced office offering versus the ability to deliver Cat B options directly to the occupier.

Take up for the year to date remains strong at 4.7M sq ft and is in line with the 10 year average. Active demand is expected to deliver significant take up for Q4 2019 with 1.4M sq ft currently under offer.

Supply in the City has remained constant at 6.2M sq ft. The most notable completion was the launch of 100 Bishopsgate where the top floors (levels 33-35) were launched at £90 per sq ft in October 2019.

Vacancy remains low for the City market at 4.9% with Grade A stock still at an all time low of 2.5%.

The City fringe continues to match the City Core for average rents for new build stock at £70 per sq ft. Supply remains extremely tight with many businesses looking to secure pre-lets at record fringe rents. These include Rabobank taking 120,000 sq ft at The Bloom; rumoured to be at an average rent in the £80’s per sq ft and several parties interested in Helical’s Kaleidoscope, Smithfield due for completion in Q4 2019.

100 St John Street recently refurbished by Aberdeen Standard has the top 2 floors under offer at £82.50 per sq ft and £73.50 per sq ft respectively.

The Stills, Farringdon, a building of 38,000 sq ft, expected for completion in Q4 2019, is under offer to JA Kemp and is rumoured to be at a blended rent in the £70’s per sq ft.

Grimshaw Architects are under offer to secure Harella House, 90 Goswell Road at an average rent of £65 per sq ft for a refurbished scheme.

Aldgate has witnessed growing demand from the tech and media sector moving to more affordable premises. The most recent completion is Wool and Tailor, 10 Alie Street where 4 floors have been pre-let on a floor by floor basis securing rents for the best space in the £60’s per sq ft (Allsop leasing).

There continues to be a lack of high quality large floor plates (9,000 sq ft upwards) in the City fringe. These are highly sought after and many developments are unlikely to be able to deliver the space required until late 2021-2022.

With the continued low vacancy rates in both the City and City Fringes we expect to see rental growth for prime developments and in key areas for Q4 2019.

James Neville

DL +44 (0)20 7588 4433