London midtown office 27th June 2014

For the first time in almost a decade availability in Midtown has dropped below a vacancy rate of 4% as occupier demand shows little signs of abating, according to research from Farebrother.

Following a surge in leasing activity in the 2nd quarter, there is just 1.14m sq ft of available office space in Midtown, putting availability at the lowest ever measured rate of 3.6%. Take-up in Q2 exceeded 580,000 sq ft, well above the five-year quarterly average of 475,000 sq ft. This high level was achieved without the large early commitment deals, such as Publicis Groupe (Saatchi & Saatchi) and Bird & Bird, which characterised the market in 2013.

The research shows robust demand at all levels; while 51% of deals were at the 1,000 – 5,000 sq ft size range, Q2 saw nine significant transactions over 20,000 sq ft, including Octopus Investments subletting 60,000 sq ft at Sainsbury’s headquarters at 33 Holborn, EC1, and media outlet Euromoney letting almost 70,000 sq ft across the refurbished 4 and 8 Bouverie Street, EC4. The shortage of available stock has been exacerbated by the delay in completion of King House and Melbourne House at Aldwych Quarter, WC2, totalling 95,000 sq ft, and 90,000 sq ft at Blackstone’s The Adelphi being withdrawn.
Julian Hind, Head of Leasing, Sales and Development at Farebrother, said: “The last time we saw Availability at anything like these low levels was in 2007 before the collapse of Lehman Brothers. “With a strong economic outlook and occupier confidence at a high, we predict any new space delivered in the 3rd and 4th Quarters will be taken very quickly, and Availability could potentially drop as low as 3%. “These market dynamics present a significant challenge for Midtown occupiers; the paucity of stock is putting upward pressure on rents, and there are few options for those companies seeking to move but stay in the market.”

Alastair Hilton, Head of Investment at Farebrother, added: “There will be two camps of thought in respect to these results from an Investment perspective. “For those who already have assets, these results are extremely encouraging. For those looking to get market exposure, there will be a concern that this could push pricing beyond their reach. “In the round, however, it is a welcome dynamic as it continues to underpin performance in the Midtown Investment market.”