Impact of Brexit on the leasing market to be assessed – H1 2016 take-up 2% below long-term average

Supply and demand snapshot

■ Take-up in June totalled 204,869 sq ft across 33 transactions. This brought total Q2 take-up to 803,334 sq ft compared to the 1.04m sq ft of take-up recorded in Q1.

■ The 1.85m sq ft of H1 2016 take-up is 14% below the 2.16m sq ft of take-up recorded in H1 2015 and 2% below the long-term average.

■ However, the 12 month rolling take-up in the West End is 4.03m sq ft, 15% above the long-term average (Graph 1 below).

TABLE 1Key June stats

^{Source: Savills Research}

GRAPH 1Rolling 12-month take-up

^{Source: Savills Research}

■ Encouragingly, we have added 200,000 sq ft of new requirements to our demand schedule since the EU referendum result.

■ We have also seen several significant transactions complete since the referendum decision. We will analyse the initial impact of Brexit in greater detail next month once July's statistics are finalised.

■ Interestingly, we have seen a rise in Grade B lettings in 2016 with 44% of all transactions completed this year of a Grade B standard compared to 36% in 2015.

■ The largest transaction to complete in June was ETC Venues' acquisition of the 4th floor at County Hall, Westminster totalling 42,821 sq ft on a 10 year lease at a rent of £45.00 per sq ft.

■ Elsewhere Savills acted on behalf of SG Hambros on their acquisition of the 4th floor at 8 St James's Square totalling 10,141 sq ft. The transaction brings the French Bank's total occupation in the building to 18,000 sq ft.

■ Looking at take-up by business sector for the first half of 2016, Tech & Media firms have been the most active accounting for 24% of take-up. Insurance & Financial Services and Retail & Leisure firms have been the next most active, both accounting for 16% of year to date take-up.

■ We have continued to see an upward pressure on rents in the first half of 2016. The average Grade A rent at the end of Q2 was £76.64 per sq ft, 5% above 2015’s average Grade A rent of £73.07 per sq ft. Similarly, the average Grade B was £66.75 per sq ft, 13% above 2015's average Grade B rent of £58.87 per sq ft.

■ With all development due to complete in Q4 2016 added to the supply pipeline, supply at the end of Q2 stood at 3.93m sq ft equating to a vacancy rate of 3.2%, this is 9% above the 3.61m sq ft of supply available at the end of Q4 2015 (Graph 2 below).

GRAPH 2Supply

^{Source: Savills Research}

■ 544,645 sq ft is currently under-offer, 17% below the 657,452 sq ft under-offer at the end of Q4 2015. 159,128 sq ft went under-offer in June.

■ Looking forward, there are 2.14m sq ft of developments and extensive refurbishments that are scheduled to complete in the West End in 2017, of which 38% has already been pre-let.