Midtown momentum to stabilise after office leasing surge

Office leasing activity in London’s Midtown is expected to moderate after a strong 2024, in which areas including Farringdon, Holborn, Temple and Bloomsbury all outperformed their long-term averages. Bloomsbury and the Squares – bounded by Euston Road to the north and Holborn to the south – took the largest share of leasing activity last year at just under 520,000 sq ft, according to Devono’s Midtown Office Market 2024 Review. The submarket saw a remarkable spike in leasing activity last year – deals over 10,000 sq ft nearly doubled to 26, said Devono, the largest being the Creative Artists Agency’s 80,000 sq ft prelet of 21 Bloomsbury Street. This took the submarket to more than a fifth above the long-term average and an 80% increase on the previous year. Grade-A leasing hit 193,500 sq ft, which was up from the previous year, although still below the 2022 peak of 396,000 sq ft. With 475,000 sq ft expected to be completed over the next two years and a similar volume for the following two, the pipeline of space is set to expand. Average rents for all space within the submarket have fallen to £54 per sq ft, down from £61 in 2023. But the agency predicts prime rents will nonetheless rise from £95 per sq ft, where they remained for a second consecutive year, with some rental growth also expected for lower-quality or second-hand space. A lift from law firms The Farringdon and New Street Square submarket, which stretches from Fleet Street to Clerkenwell Road, similarly has the potential to set new record rents, Devono said. The average deal size rose from 3,727 sq ft to 7,849 sq ft, as demand for mid-to-larger office spaces drove leasing activity for the year to 486,621 sq ft – double the year before and a quarter higher than the 10-year annual average. Two projects – BauMont and YardNine’s Edenica at 100 Fetter Lane and a Qatari consortium’s redevelopment of the former Goldman Sachs and Daily Telegraph HQs at Peterborough Court on Fleet Street – accounted for 44% of total activity in 2024. The legal sector dominated, with around a quarter of all take-up, including the year’s largest deal, which saw Morgan Lewis take 76,000 sq ft at Peterborough Court, with the financial sector close behind with just over a fifth of take-up – neither held more than a 10% share the previous year. Future developments, of which 276,000 sq ft are set to complete next year and another 420,000 sq ft between 2026-2027, are expected to be met with healthy demand, which could see rents pushed to new highs, with the largest space currently available being just 27,500 sq ft. Overall availability fell to 441,893 sq ft, though 88% was made up of second-hand space and just 53,520 sq ft was grade-A – lower than the previous low point set in 2020. Prime rents rose from £90 per sq ft in 2023 to £95 per sq ft last year, though rents generally varied greatly, with the lowest achieved being £19 per sq ft for second-hand space, but the agency nevertheless found average rents rose to £57 per sq ft – a 12% increase year-on-year. Supply incoming Holborn and Temple, which stretches from Holborn down to the north bank of the Thames, also surpassed the 10-year annual average take-up for the area of 369,657 sq ft, clocking in 435,598 sq ft. This was, however, a drop of nearly a fifth from the previous year, with the most significant drops concentrated in Holborn and Temple, where activity fell by roughly half and 42% respectively. Other parts of that submarket, however, saw healthy performance. Leasing in Lincoln’s Inn Fields and Chancery Lane was buoyed by PR firm Brunswick’s 67,241 sq ft letting of 15-23 Lincoln’s Inn Fields. The EC4Y postcode also saw take-up grow by nearly a quarter to 122,000 sq ft, fuelled by Irwin Mitchell’s 29,684 sq ft letting at The Northcliffe on Tudor Street. Yet, according to Devono’s report, the most in-demand size category was 2,501 sq ft to 5,000 sq ft, which accounted for 41% of all deals within the submarket. Average rents grew by 10% on the previous quarter to £58 per sq ft – and, notably, from pre-pandemic levels. While prime grade-A rents remained at £80 per sq ft for the third year in a row, the report said the submarket was in “critical need of new office stock”, with grade-A space available in just four locations. And new supply is coming – 215,000 sq ft is set to complete by 2026 and another 400,000 sq ft in the works, all of which the agency predicts will tap into an expected increase in demand for proximity as the new Justice Quarter on Fleet Street completes in 2027. Covent Garden and Kingsway, a submarket spanning from Leicester Square to Aldwych, was the only area of Midtown not to beat its long-term average annual take-up. In fact, activity fell for the second year running and fell short of the long-term average by 41%. The submarket recorded the highest level of availability, reaching 1.1m sq ft at the end of the year – a 55% increase, driven by a sharp rise in grade-A availability, which the report found was four times higher than it was in 2023. Devono largely attributed this sharp rise to the completion of two large schemes – Space House at 1 Kemble Street, which added 237,000 sq ft of office space, and 90 Long Acre, which delivered 195,000 sq ft. Despite comparably slow leasing activity, prime grade-A rents in the submarket saw the sharpest rise during the year – up by 28% to finish at £115 per sq ft, taking the area into the £100-plus club and pushing the area’s overall average to £73 per sq ft. The agency, however, predicts that leasing activity will moderate after last year’s strong performance, with economic uncertainty set to put a damper on demand. Prime grade-A rents are expected to continue growing, as new-builds are set to be delivered and let up at new benchmarks, while demand for second hand space is expected to remain lacklustre. Devono also expects smaller transactions to come to the fore, particularly in Covent Garden and the Holborn and Temple submarkets, while Farringdon’s connectivity and proximity to the City is expected to see the submarket continue its expansion. Image © Adobe Stock