Take-up in the City of London for the year to the end of June reached 3.5 million sq ft, 10% up on the same point last year, and 31% up on the 10-year average, says Savills.
The City Core has accounted for the vast amount of take-up, with 68% of acquisitions taking place within its borders so far this year, with the rest in Fringe areas. This has led to a greater gap emerging between rents in the two sub-markets, as rental increases in Fringe areas have tailed off, says Savills. The average grade A rent in the Core for 2018 as of the end of Q2 was £63.55/ sq ft, compared with £58.23/sq ft in the Fringe. This difference of £5.32/sq ft is the largest Savills has seen between the two sub-markets since 2014.
Savills says that the occupier base in the City has become more diverse in the past few months. Due to the Chinese Embassy deal at Royal Mint Court, EC3, the Public Services/Government, Education & Health sector accounted for the greatest proportion of take-up this year at 19%. However, there has been consistent demand from Insurance & Financial services (17%), Tech & Media (15%), and Professional Services companies (13%). Serviced office providers have accounted for 9% of take-up so far this year, compared with their 18% share for the same time period in 2017.
Total City supply stood at 7 million sq ft at the end of Q2, according to Savills, equating to a vacancy rate of 5.6%, comparable to the same point last year and down on the long-term average of 6.6%. However, Savills says that with 1 million sq ft of new speculative office development set to complete in the first quarter of 2019 the vacancy rate will rise in Q3 2018 as this space is factored into figures.
Philip Pearce, head of the central London office agency team at Savills, comments: “The City leasing market has got off to a strong start in 2018, and the diversity of occupiers and requirements in the marketplace signals a positive H2 ahead. The changing face of London’s City Core is an ongoing theme which continues to build momentum. Complementing the arrival of an ever more varied mix of office occupier are the new hotel operators and all-day dining restaurants such as The Ned appearing, alongside new gyms and different bar and leisure operators. All of this makes the City a very different place to work than 10 years ago.”
Savills says that in addition to Royal Mint Court, key deals in June 2018 included British Land’s new serviced office subsidiary, Storey, acquiring 67,176 sq ft at British Land-owned 2 Finsbury Avenue, EC2. The new flexible workspace company has also opened at 18-20 Appold Studios (11,333 sq ft), and it is believed to be an additional 80,000 sq ft of lettings to come in the rest of the year.