Central London leasing activity for the year totalled just over 9.1 million sq ft, according to research published today by global real estate adviser Cushman & Wakefield. While the EU referendum resulted in a temporary pause in leasing activity in the run up to and in the immediate aftermath of June 23rd, leasing volumes were only down 10% on the five year average.
Activity has been supported by continuing momentum from large occupiers. Of the 30 leasing transactions over 50,000 sq ft signed during 2016, 18 completed in the six months post-referendum. This is higher than the average number signed over the last five years (28 transactions per year) and compares favourably with 2015 (33 transactions). The largest deal of 2016 was the transaction to the GPU, which at 537,000 sq ft is the biggest deal in Central London since Google committed to their new HQ in 2013. Other major transactions included lettings to Apple, Thomson Reuters, Wells Fargo, Investec, New Look, Jefferies Group, WeWork and Fidelity.
Pre-letting activity has bolstered the leasing market during 2016, accounting for 24% of transaction volumes, which, as a proportion of lettings, is above the five-year annual average (20%). Just over 1.32 million sq ft or 61% of pre-lets were signed post-referendum, suggesting that occupiers have not been afraid of committing longer term to London. The largest was to Apple at Battersea Power Station, followed by Wells Fargo’s pre-purchase at 33 Central and New Look signing for 127,000 sq ft at King’s Cross. A diverse range of occupiers has pre-let space during the year, but, interestingly, the banking & financial services sector has been particularly active, accounting for 31% by volume. Prelets included Wells Fargo, Rathbones, Jefferies Group in the City and Oaktree Capital Management in the West End. Banking & finance was the second largest sector behind technology, which, as a result of the Apple pre-let, accounted for 38% of pre-letting volumes.
Looking ahead, the volume of space under offer remains robust at 2.2m sq ft across Central London. This includes a further eight transactions in excess of 50,000 sq ft, of which five are pre-lets. This is 10% ahead of the five year Q4 average volume (2m sq ft) and is just 9% below the level recorded at the end of 2015.
Elaine Rossall, Head of London Markets research, Cushman & Wakefield, said: “Leasing volumes for 2016 are more positive than anticipated in the immediate aftermath of the EU referendum, particularly with the momentum seen with larger enquiries. London’s occupiers are still ready to make strategic decisions, albeit at a more cautious rate than pre-referendum, to ensure that their accommodation is as efficient, flexible and cost effective as possible, as they realise Brexit will not be a quick process and that we still remain in a low-supply environment.”
Andy Tyler, Head of West End, Cushman & Wakefield, said: “The move east has long been documented but we are now seeing the emergence of new West End submarkets that give clients value for money and access to the core West End, while providing an opportunity to provide the type of working environment increasingly demanded by employees. It is also worth noting the recent Business Rates increases could temper the competitive advantage the northern and eastern City fringes have hitherto enjoyed and might play more to the West End and western fringe in future.”
Andrew Parker, Head of City of London office agency, Cushman & Wakefield, said: “The City office market has held up well relatively well despite the vote to leave the EU. Pre-letting remains a key characteristic of the market as supply remains well below the long run average. Encouragingly a wider range of occupiers are committing to space in the City, which is seeking to diversify away from a reliance on the banking and financial services sector. Nevertheless, this sector has remained a stalwart of leasing activity in 2016, as companies continue to pursue a policy of consolidation and rationalisation that was underway pre-June 23rd.”