Tech and media lead take up in West End office market in London
Take up in London’s West End office market reached 243,902 square feet in January 2018, taking the total under offer to 980,976, up 63% on the long term average, the latest analysis report shows.
Tech and media occupiers were the busiest at the start of the year, according to the report from Savills, accounting for 56% of the space taken by the end of January. They were followed by the serviced office sector at 18% and insurance and financial services at 10%.
The international real estate advisor suggests that the West End office market will be shaped by several indicators in 2018, including a knock-on effect of serviced office providers, availability of grey space, and the commitment to new office development.
In 2017 activity by serviced office providers accounted for 19% of total take-up in the West End and Savills says their arrival is expected to impact the number of sub 5,000 square feet lettings recorded this year as occupiers at the smaller end of the market opt instead to commit to desks within serviced offices.
The firm also says that 2018 will be a year for landlords to really consider how best to deliver space to the market, whether to compete with serviced offices or to create a hybrid flexible solution.
Another force set to shape the market, says Savills, is an increase in the volume of grey space coming to the market, space that may be available for sub-letting from existing tenants. Yet the firm points out the current level of demand, against a vacancy rate of 4%, below the long term average of 4.5%, is seeing much of this space quickly re-let.
According to Savills, of the 1.4 million square feet of newly developed and refurbished office space set to be delivered in the West End in the second half of 2018, some 964,617 67% is already pre-let.
It explains that this goes to show the extent to which occupiers are making their real estate decisions further and further into the future. For some this has always been true, particularly for the larger, corporate occupiers, says Savills, but the market is seeing evermore smaller firms also thinking ahead in terms of leasing commitments.
‘With serviced office providers having expanded quickly and looking to fill their offices over the course of the coming year this is likely to impact landlords in the small suite segment of the West End market, which tends to be concentrated around Mayfair and St James and traditionally appeals to the same type of occupier,’ said Hunter Booth, director and co-head of Savills West End office agency team,.
‘However, it does force landlords of all size bands to evaluate how they deliver space to the market and how accessible they make this space to occupiers. Speculation over grey space could also impact market fundamentals but the balance of supply and demand that currently prevails in the West End has absorbed this extra space to date,’ he pointed out.
‘A high level of pre-letting reduces the impact of near term speculative deliveries and keeps supply levels low. Yet while we need to continue operating with caution, there is a strong argument for the delivery of more speculative developments to commence in 2018 that can provide the type of accommodation today’s occupiers have come to expect,’ he added.