Midtown defies low vacancy levels with standout Take-up
10 July 2015
London’s Midtown market defied its historic low vacancy levels in the 2nd Quarter to record a standout 733,424 sq ft of Take-up.
The 2nd Quarter saw strong rents achieved across the market, with United Artists Media Group paying £83.00 at Orion House, 5 Upper St Martins Lane, WC2, and ACCA completing a standout transaction for 38,000 sq ft at The Adelphi, WC2 at £75.00.
A record 22 deals at over £60 per sq ft were transacted in the period April – June, compared to 16 in the 1st quarter and 31 for the whole of 2014, pointing to a paradigm shift in rental tone across the market. A record rent for Hatton Garden was achieved in the 2nd Quarter, with Ragged Edge Design paying £65.00 per sq ft at Lector Court, EC1.
Take-up in the 2nd quarter, undoubtedly buoyed by DLA Piper’s 150,000 sq ft pre-let of 160 Aldersgate Street, EC1, was driven by the sheer number of transactions. There were 109 in the quarter, two thirds of which were in the 1,000 – 5,000 sq ft range. Smaller occupiers are moving forward with expansion plans with renewed confidence, following the General Election.
However, there remains a paucity of office stock in Midtown, with the Availability Rate currently at a record low 3.2%. Demand is most intense at the smaller level, driven largely by occupiers across the DAMIT sectors [Design, Advertising Marketing & PR; Media; Internet and Technology & Telecoms] seeking to cluster in the very centre of London, namely Midtown’s Farringdon and Clerkenwell.
There is little sign of Midtown’s supply shortage easing, with an additional 565,000 sq ft currently under offer and the majority of the market’s 1.27 million sq ft development pipeline expected to let during construction.
Take-up in the second half of 2015 will be supported by the launch of two flagship schemes, Wainbridge’s 120 Holborn, EC1, and Rowan’s Aldwych House, WC2.
Investment activity in the 2nd Quarter points to continuing illiquidity in the market, with investment totalling £332 million, approximately 50 per cent down year on year. The limited opportunities in the market is underlined by just 11 transactions in the period April to June, with the majority completed by UK investors.
Jules Hind, Leasing & Development Partner at Farebrother says, “The Midtown market is performing as we expected; with Take-up driven by large Pre-lets and a high volume of transactions at the lower level. What has surprised us is the sheer level of activity, given how constrained supply is, translating directly into strong rental growth across all areas and stock profiles. This is unchartered territory, and underlines that there has been a fundamental shift in the occupational market with occupiers looking to the Centre of London – Midtown and South Bank – ahead of the West End and City.”
Alastair Hilton, Investment Partner at Farebrother says, “We have been highlighting the illiquidity in the market for some time, and we are now seeing this being reflected in our statistics. We are 50% down on the previous quarter and 50% down on the corresponding quarter for 2014. This however is not a paradigm shift in appetite. We know that demand remains fierce for assets, particularly in Midtown and its more peripheral locations such as Farringdon where a thriving occupational market is driving exceptional returns. This, coupled with the imminent arrival of Crossrail, means that Midtown now rivals the West End in terms of both long term prospects for investors and its future stability.”