Occupiers scrambling for the best offices in London have rarely had to move faster or start planning earlier.
News that the redevelopment of Procession House in the City of London is almost entirely let months ahead of completion has underlined once again how quickly firms are having to act to snap up new space in the capital.
With supply slowing and flashy office space of growing importance for employers when trying to attract talent, tenants are increasingly jostling to strike prelet or pre-completion deals, agreeing to take space in a new office either before it is finished being built or refurbished, or even before construction has started.
Chris Valentine, head of West End agency at JLL, estimates that more than a third of take-up in London so far this year has been on a prelet basis, with half of all stock under construction already taken.
“The shift towards pre-completion lettings has been primarily driven by larger occupiers vying for premium space that is reflective of their brand and forms a key part in the attraction and retention of the best talent,” Valentine says.
“With the continued erosion of the supply pipeline and low vacancy rates, occupiers are having to begin the search for new space earlier and earlier.”
Intermediate Capital Group, an asset manager, and Crowe, an accountancy firm, struck separate deals to take a combined 86,500 sq ft of space at Procession House, EC4, which owners Greycoat Real Estate and Goldman Sachs have renamed The Ludgate as part of a revamp started when they bought the site in mid-2018.
Those deals leave only space on the ground and upper ground floors without tenants. The building is expected to reopen next March.
“Prelet activity is at its highest level for 10 years and vacancy rates in London’s Midtown area are at just 2%, their lowest level since records began,” says Alistair Subba Row, senior partner at agency Farebrother, which acted for Crowe on its lease.
“Hopefully the increased number of prelet deals will stimulate a new wave of badly needed speculative construction, which will take at least three years to deliver,” Subba Row adds. “Good buildings in good locations across the capital such as Greycoat’s Procession House and Stanhope’s Gresham St Paul’s major refurbishment schemes have reaped the rewards in the meantime.”
Elsewhere, Maxwell Shand, co-founder of developer YardNine, said the firm is already engaged in “preliminary discussions with prospective tenants” at its EightyFen office development on Fenchurch Street, EC3, set to open next year.
Faisal Durrani, associate in central London research at Knight Frank, says: “Occupiers are commencing their search for space far earlier than they would have done historically; up to two years out on 10-year leases now, which is up from 12-18 months typically.
“The demand fundamentals remain solid with the finance and banking sector, along with professional services and corporates, accounting for over 50% of active demand.”
Durrani says that his colleagues are currently tracking 27 requirements for space of more than 100,000 sq ft in London. “However, there are just 14 schemes that can service this, none of which are in the West End,” he adds.
“The dearth of stock is certainly a challenge for occupiers who are finding options limited, while others are increasingly location agnostic, with West End occupiers looking to the City for options and scale, for example.”
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