- Take up in Q2 reached 3 million sq ft – 25% above the five-year Q2 average
- West End recorded its highest volumes in the first half of the year since 2006
- Demand for office space is outpacing the availability of new space
New data from real estate services firm Cushman & Wakefield shows that leasing activity in Central London offices appears to be rebounding with take-up in Q2 2022 amounting to some 3 million square feet – 66% up on Q2 2021 and 25% above the five-year Q2 average.
The findings suggest that the pandemic-influenced trends of 2020 and 2021 are making way for more traditional supply and demand dynamics – with robust demand resulting in falling supply levels and rising rental values on prime space.
Across the first half of the year, 5.2 million sq ft of leasing activity was recorded in Central London. In the West End, volumes reached 2.1 million sq ft – 20% ahead of the five-year H1 average, and the highest H1 leasing volume since 2006.
The ‘flight to quality’ trend has been a factor in grade A availability dropping to its lowest quarterly proportion of overall availability since 2010 (42%), and it is expected to continue to diminish into the second half of the year.
Andy Tyler, Head of London Office Leasing at Cushman & Wakefield, said: “The supply of Central London office space has declined for a second consecutive quarter, indicating that demand is outpacing the supply of new space. This is particularly true for grade A accommodation, which is being increasingly prioritised among occupiers – alongside connectivity – as they fight for talent and culture retention amid changing workplace expectations.”
Supply for the next five years also looks under pressure with 39% of space under construction and due for delivery by 2026 already pre-let and accounted for in Cushman & Wakefield’s figures.
Total space under offer in Q2 2022 fell by 23% to 2.6 million sq ft. Over the same period, availability declined by 0.7% to 23.1 million sq ft; the second consecutive quarter in which supply has fallen. A fall in both space under offer and available space is due in part to continued strong leasing activity. The vacancy rate dipped to 8.11%, a marginal decrease on last quarter when vacancy was at 8.18%. A decline in grade A vacancy was also recorded, from 3.85% to 3.43% over the quarter.
The banking & finance sector represented the largest portion of Q2 take-up, accounting for 19% of total leasing volumes. Media & technology was also active, accounting for 18%, with the legal sector similarly active with a 16% share of take-up. During Q2, nine of the 10 largest deals were pre-lets, including: Capital Group at Paddington Square, W2; Kirkland & Ellis LLP at 40 Leadenhall, EC3; and MSD at Belgrove House, WC1.
Tyler concluded: “As we look towards the second half of 2022, certain headwinds may influence activity. We can expect cost inflation to impact decision making on future office developments and the on-going changes within the UK Government may also create some short-term uncertainty. Nonetheless, the underlying fundamentals for the London office leasing market remain positive.”