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REPORT: Off-Plan Pre-Lets Increased by 178% as UK Office Supply Stalls

Update: Cushman & Wakefield reached out to us again after publishing this article with a new quote focusing on the Leeds office sector – we have included it at the end of the article.

Leading global real estate firm Cushman & Wakefield have revealed the extent of the impact pre-letting has had on the UK office market as supply falls nationwide.

As revealed in their recent ‘Race for Space’ report, Cushman & Wakefield have found that pre-letting is set to remain a ‘vital component ‘ of the UK office market, affecting both occupiers and landlords.

Since 2009, there has been a significant decline in the delivery of new office space in the UK as such, pre-letting looks set to continue, especially in Central London.

Historically, pre-letting has been an important part of the Central London office market, and as Cushman & Wakefield’s findings show, 23% of transactions in the UK over 5,000 sq ft were in Central London between 2009 and 2018.

Source: Cushman & Wakefield

Over the last 10 years, a total of 24.4 million sq ft has been pre-let across Central London with 57% of the 267 transactions occurring within the City.

The average size of all pre-lets across Central London since 2009 is 91,676 sq ft, for schemes ‘under construction’ the average for the same time period was 62,423 sq ft, while off-plan pre-lets averaged at 225,140 sq ft.

Since last year the average size of pre-lets under construction has fallen by 20% while off-plan pre-lets have increased a staggering 178%.

As noted by Cushman & Wakefield, this situation presents a ‘potential conundrum for developers’ as designing a scheme for large occupiers seeking off-plan pre-lets may compromise the appeal to other tenants requiring smaller units.

Key Pre-let Transactions (2018):

Facebook – 11-21 Canal Reach & P2, King’s Cross, N1C – 611,000 sq ft,(off-plan)
SMBC – 100 Liverpool Street, EC2 – 161,000 sq ft, (under construction)
Sony Pictures – Brunel Building, 55 North Wharf Road, W2 – 77,000 sq ft, (under construction)
LiveNation – Farmiloe Building, 34 St John Street, EC1
63,000 sq ft, (under construction)

Chris Dunn, Senior Insight Analyst and report author, commented: “London continues to be a destination for a diverse profile of businesses who are dedicated to a presence in the capital for many years to come. High-profile occupiers have committed very publicly to its strength. However, with [the] delivery of new office space falling, we are seeing a new kind of space race play out. To stay ahead of the game pre-let occupiers will increasingly be forced to look even further ahead of time to secure high-quality space; this could be four to five years for large transactions.”

London’s Development Pipeline:

There is a total potential size of 35 million sq ft in the development pipeline between 2018 and 2023, 9.9 million sq ft is pre-let (29% of pipeline) while only 6.72 million sq ft is under speculative delivery (19% of pipeline).

As shown on the map above, Kensington, Knights Bridge and Victoria suffer from a potential undersupply as the bulk of development is focused around the redevelopment of West London’s White City and the continued regeneration of Stratford post-London 2012.


Beyond London


Outside of the capital, Cushman & Wakefield found that on average, the regional markets have managed to ‘shrug-off’ Brexit concerns, registering a record level of performance in Q3 2018.

As noted by Cushman and Wakefield: “The regional markets beyond the capital has largely been driven by consolidation requirements from the Government following the implementation of the Government Estates Strategy 2018.”

The real estate firm anticipates that the relocation of the government’s estate out of London will place immense pressure on the development pipeline of regional markets.

Scott Rutherford, Partner in Cushman & Wakefield’s Office agency team in Birmingham comments: “With both Birmingham CBD and M42 office markets experiencing generationally low levels of supply, we are seeing a significant increase in the level of genuine pre-let and pre-completion enquiries as companies seek ‘first mover’ advantage on the best space in schemes which are starting on site or complete from the summer of 2019 onwards. The M42 has little or no new speculative space coming to the market, and this exacerbates this pre-let need.”

Meanwhile in Cardiff there is a shortage of ‘good quality’ of office stock and as explained by Chris Terry (pictured), Associate in Cardiff’s Cushman & Wakefield Office agency team: “Supply of Grade A offices in the city centre is currently sub 120,000 sq ft which represents less than six months’ worth of average take-up. Availability is expected to diminish further throughout this year and into 2020, and occupiers are having to move quickly to secure the limited space currently vacant.

Chris added: “With only two speculative office developments totalling 175,000 sq ft in the pipeline with a staggered deliverability of Q4 2021 and Q3 2022, some occupiers with lease expiries up to 36 months out are already active in the market and have engaged with developers to try to ensure that their future office requirements can be satisfied.”


Speaking on the Leeds market, Adam Cockroft, Partner and Head of Cushman & Wakefield’s Leeds Office agency team commented: “The Leeds market, like many regional centres, is suffering from a grade A office supply shortage with only two new build schemes currently on site and a black hole of supply until Q1 2020. We are now beginning to see the emergence of a number of pre-let enquiries and expect to see a number of others entering the market as they realise that is the only way of securing the right space that will allow their business to grow.”

Featured Image: Chris Terry – Cushman & Wakefield Office Agency (Cardiff)

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