The curious case of West End take-up

By James Buckley - Tuesday, October 24, 2017 9:47

It’s a head scratcher: despite cautious market sentiment, office take-up in London’s West End in September 2017 reached 871,693 sq ft – bringing total take-up in the third quarter to 1.64m sq ft.

This is the highest quarterly total ever recorded in the West End, writes Ed Betts, director and co-head of  Savills’ West End office agency team.

Along with Aegis pre-letting the entirety of British Land’s 1 Triton Square, The Boston Consulting Group (BCG) pre-let 123,500 sq ft at 80 Charlotte Street and Spotify acquired 104,133 sq ft at The Adelphi in what perhaps is an alignment of the stars, both having had requirements in the market for over a year. Nonetheless, its a stellar quarter of leasing activity that has brought total take-up for the year to date to 4.01 million sq ft, surpassing 2016’s total annual take-up (3.97 million sq ft) and places the West End in good stead to exceed 2015’s record of 4.3 million sq ft. This feels wrong...

How?

Tech and media occupiers remain the busiest. Whether this is driven by building obsolescence and a desire for better offices, or an end to pent up referendum inertia, the over-riding point remains: London is Europe's creative hub and a modern yet characterful building in an amenity rich location can be a key weapon in the war for talent.

The Rub:

So far in 2017, serviced office providers have accounted for a fifth of West End take-up, compared with just six per cent in the previous five years. While every year has a ‘whale’ affecting take-up (Apple/ Facebook) some do not regard serviced office operator activity as true take-up because the space remains available to tenants just in a different, more flexible way. Whichever view you take, the rate of growth – both from those that are new to the market and those already established – shows no sign of abating.

Evidently, the office market is being disrupted and it is being driven by hassle, or the removal thereof. Like Uber, Deliveroo and Amazon, all variants of serviced office space mitigate hassle: capital expenditure, refurbishment, phone line installation and, increasingly, the looming impact of IFRS 16 - new international accounting standards requiring all parties to show leases on their balance sheets. Time will tell whether there is enough demand to fill all these new centres, but it is too structural to be dismissed as a trend (as some have) and feels more like an overhyped maturing of what was a fragmented sector; similar to the residential private rented sector. There has always been a rental market but ‘amateur’ providers are being replaced by professional operators.

Of course, serviced space is not for everyone and most occupiers continue to prefer their own front door, but the lessons learnt from the last 12 months must be grasped by landlords because tenants = income and traditional ‘Category A’ delivery is becoming, or perhaps even is already, a thing of the past. Landlords have their work cut out to close the gap and improve their relevance to an increasingly demanding consumer base which, in turn, provides the opportunity for advisors to outshine brokers going forward.

Ignoring the granular detail, together, the growth of tech and media and serviced office operators in the West End complements the ongoing desire from professional and more traditional businesses that have long chosen to reside in London’s West End. It is this dynamic mix of occupiers, combined with world class retail, culture, public spaces and heritage that makes the West End office market robust in the face of any uncertainty around wider geo-political events.

jbuckley@costar.co.uk

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