2013 take-up reached 4.1m sq ft, 22% ahead of the 10 year average annual take-up figure of 3.3m sq ft and 33% ahead of 2012’s total. Although take-up was inflated by Google’s 800,000 sq ft pre-sale at King’s Cross, the number of transactions is 13% above 2012 levels.

As predicted in last year's report, the West End’s fringe submarkets saw increased levels of transactional activity, in particular Hammersmith, Victoria and King’s Cross. These submarkets all experienced take-up growth of 20% and above when compared to the 10-year average. Conversely, the core market of Mayfair & St James’s saw 2013 take-up down 11% on the average.

Take-up levels in the core have failed to reach average levels for the last three years (2011-13). A combination of restricted supply of prime Grade A product and rising rents has seen ‘traditional’ core occupiers relocate east. 2013 relocations to Midtown and the City included private Swiss bank Julius Baer, magazine publisher Hachette and asset manager Brookfield.

The migration of traditional West End occupiers east is a reversal of a historic trend and not restricted to just the core. Other high profile occupiers that have moved east in 2013 included Amazon and Publicis from Noho and The Co-Operative from Paddington. We estimate that in 2013 the West End has lost approximately 750,000 sq ft of potential take-up to the City and Midtown markets.

The dominant business sector in 2013 was the Technology, Media & Telecoms (TMT) sector, accounting for 22% of total take-up (excluding Google). The Media sector accounted for 14% of this. The Business & Consumer Services sector took the next largest share of take-up accounting for 15%, significantly up on the long term average of 9%.

Unsurprisingly, the biggest decline in sector demand comes from the Banking sector, which accounted for an average of 4% per annum over a 10 year period. In 2013 the sector accounted for 1% of total take-up.

The Insurance & Financial and the Professional sectors, historically dominant business sectors in the West End, have both experienced falls in share of take-up. Oxford Economics, however forecast a return to positive GVA growth in the Insurance and Financial sector in the City of Westminster this year and average growth of 3.4% per annum over the next five years (2015-19). Furthermore, the Professional sector is estimated to grow by 4.4% this year. We therefore expect to see, increased demand from these two sectors as a result.

With several new >100,000 sq ft requirements circulating, demand stands at 3.4m sq ft, 11% above the 12 month average.

Developments

The addition of several developments and major refurbishments due for completion in 1H 2014 resulted in a small increase in year end supply to 4.6m sq ft in December 2013, a vacancy rate of 3.8%. As at end December 2012 the vacancy rate stood at 4.2%.

Developments and major refurbishments due to complete in 1H 2014 include 225,500 sq ft at Aviva and Exemplar's 1 & 2 Fitzroy Place, W1, 67,500 sq ft at Green Property's 8 St James's Square, SW1 and 93,000 sq ft at British Land's 39 Victoria Street, SW1.

We estimate that 1.7m sq ft of new developments and major refurbishments will be delivered in 2014, just below the long term average annual figure of 1.8m sq ft. This will offer some reprieve to the tight supply currently being experienced in the West End. However, we expect the majority of this to be absorbed fairly quickly; indeed 397,000 sq ft (24%) of the 2014 pipeline is already pre-let and 173,000 sq ft is currently under offer.

Looking further ahead, 2015 and 2016 will see above average levels of development completions, totalling 2.1m sq ft and 2.2m sq ft respectively. 15% of this pipeline is committed.

Rents

The highest recorded rent in 2013 was £120 per sq ft at Devonshire House, W1. This contributed to average prime rental growth of 20% in 2013.

Taken from
Review and Outlook: Central London Offices - February 2014