The second half of 2013 was an altogether better six months for the Docklands office market, with just under 500,000 sq ft leased on the Canary Wharf estate alone. This positivity has continued into 2014 with the announcement that professional services company EY has taken 207,000 sq ft on the 14th to the 21st floors of 25 Churchill Place. This announcement has come on the back of KPMG's acquisition of 216,167 sq ft on floors 6 to 13 of 30 North Colonnade in Q3 of 2013.

The pick-up in leasing activity in the second half of 2013 means that the total take-up for the year reached just under 637,000 sq ft, a 54% increase on the previous year's total.

Leasing activity outside the core was muted, with the largest letting being 6,430 sq ft to Zamir Telecom at Greenwich View Place.

The total availability at the end of 2013 was 5% lower than the previous year, at 1.6m sq ft. This is equivalent to an overall vacancy rate of 11.6%. The core market vacancy rate is now much lower at 7.1%.

One of the characteristics of the letting activity in the second half of the year was the widening occupier base in this submarket.

The paucity of Banking sector demand across central London has to a certain extent been compensated for a pick-up in demand from other sectors. As well as the EY deal mentioned above, the second half of 2013 saw acquisitions of office space at Canary Wharf by Total Gas & Power, Shell, Infosys and Skrill. The later two of these companies could be described as being from the Financial Technology (FinTech) sector, a type of business that Canary Wharf are actively targeting through their Level 39 and other initiatives. Given that 27% of the office space leased in the City of London in 2013 was to the Telecommunications, Media and Technology sectors, this is undoubtedly a potential growth area for the Docklands as well.

Rents

Rents in the Docklands were broadly stable in the second half of 2013, with £41/sq ft achieved on a letting at One Canada Square. Rents outside Canary Wharf were also stable, with the current tone for good quality secondhand space being £22-£24/sq ft.

Interestingly the press release for the EY deal in February 2014 stated that EY were taking a 25 year lease at £48.50/ sq ft. This would be the highest rent paid in the Docklands since 2007, and a clear indicator that this market is recovering in line with the rest of central London. However, it is important to note that the EY deal involved Canary Wharf Group taking responsibility for EY's lease at Beckett House which runs until 2026 at a rent of £35/sq ft.

Outlook

The prospects for the Docklands office market are generally pretty closely linked to the City of London, albeit sometimes with a slight lag. The strong recovery in tenant demand for City office space in 2013 should feed through into a pick-up in take-up in the Docklands in 2014.

This is particularly likely given the widening rental gap between the two markets, and the increasingly footloose nature of central London requirements. Historically, the average differential between prime rents in the Docklands and the City has been 28%. This currently stand at 43%, the widest gap since 1997. This should ensure that the Docklands remains on the radar of more cost-sensitive occupiers, and we expect that 2014 will see rising take-up and falling supply.

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