Posted on 13 Nov, 2015
Numbers released by JLL for Q3 2015 show a drop in office space take-up across Docklands and East London. Total volume of take-up was 208,000 sq ft which while still considered solid, pales in comparison to the thriving Q2 figure of 1.2m sq ft – the highest since Q4 2010.
Healthy Q2 overshadows Q3
The JLL report attributes the large disparity in take-up of East London office space to the high rate of large transactions seen in Q2. After a slow start to 2015, the second quarter witnessed the first two considerable transactions at The International Quarter, Stratford's new E20 scheme powered by project funding giant, Lend Lease, and government-owned property asset developer, LCR. Both deals were pre-lets – 270,000 sq ft being taken by Transport for London (TFL), while the Financial Conduct Authority (FCA) signed on for 425,000 sq ft. Ten additional transactions involving 556,000 sq ft accumulatively bolstered Q2 further.
While the 208,000 sq ft taken up in Q3 was spread over ten transactions, only two less than Q2 (which boasted the highest number of deals completed in a single quarter since 2004), they were concerning considerably smaller lets. The largest was Crossrail's 44,000 sq ft signing at 1 Westferry Circus, E14.
Little change in rental rates and sector demand
Canary Wharf has maintained its rental price of £42.50 per sq ft from Q2 to Q3. This is up £2.50 on Q1, and a £4 increase over those charged a year ago. The three-tier rental market features Grade A office spaces (the aforementioned prices), more affordable second-hand tenant controlled locations, and new build venues that pre-let for upwards of £50 per sq ft. Multinational property provider, Regus offer Grade A serviced offices in Canary Wharf and Canada Square areas. Located within 200 yards of the Canary Wharf DLR station both are replete with modern amenities including professionally trained reception staff and free car parking.
East London prime rents stood fast in Q3
The Banking and Finance sector held a 46% share of the demand in Q2, climbing to 49% in Q3. The professional sector's footprint grew in the third quarter to 16%, matching the TMT industry which dropped from a Q2 demand of 22%. Manufacturing and Public and Administrative both gained space, while Service reduced their influence to just 1% of total active demand.
Vacancy rate down on average
In keeping with the trend across the capital, the overall availability of East London office space dropped through the third quarter. Leasing volumes grew in Q2 amid limited development, resulting in a 15% drop in overall supply. The number fell again in the third quarter from 1.3m sq ft to 1.1m sq ft, an 11% decline. This creates a vacancy rate of 5.4% which is down on the ten-year average of 7.1%. Good news for those looking in the area for prestigious rental property is that the majority of the locations available – 1m of the 1.1m sq ft obtainable in Q3 – were Grade A offices.
Overall supply is down on the 10-year quarterly average
Office space in the works
The sole major scheme under construction during Q2 was Canary Wharf's 1 Bank Street, which is scheduled to reach practical completion in early 2019. Sporting 688,000 sq ft in total, the 27-storey site has been pre-let in part by Société Générale to the tune of eight floors or 280,000 sq ft. Their 25-year lease leaves 408,000 sq ft of office space available at the modern building designed by Kohn Pedersen Fox Associates.
A ground-breaking ceremony took place at The International Quarter in the third quarter, as work began on the pre-let TFL and FCA buildings. The mixed-use development is surrounded by an ethos of health and well-being which has had a noticeable influence on the design of both buildings. The FCA premises is to feature extensive natural daylight, a large roof terrace and internal connecting staircases. Set to house 3,500 FCA employees, the build is scheduled to be completed by mid-2018. This their third accommodation hub, the TFL office space is expected to be occupied by an estimated 3,000 workers from Autumn 2015.