London Docklands & Stratford office markets in review - Q2 2019

FINANCE SECTOR STILL MOST ACTIVE

Take-up in the Docklands and Stratford market totalled 472,000 sq ft in Q2, significantly higher than the 224,000 sq ft recorded in Q1 and double the long-term average. This was also the highest level recorded since Q2 2015 and the second highest in nearly 10 years. 

Although a reflection of the strength of demand in the market, like elsewhere in London, this performance was underpinned by some exceptionally large lettings. Chief of these was the acquisition of 359,000 sq ft at 5 Bank Street, E14, by the European Bank for Reconstruction & Development (EBRD), which accounted for 76% of take-up. 

The EBRD’s transaction in Q2 has helped to cement the financial service sector’s position as the most active, accounting for 39% of transactions in the last 12 months. This is followed by the public sector at 18%. Following the completion of EBRD’s requirement, the level of under offers in this market has fallen to below 100,000 sq ft. 

STRONG ACTIVE REQUIREMENTS 

Looking at active requirements in this market, total pent up demand stands just shy of 860,000 sq ft, marginally below the 912,000 sq ft registered in Q1, but still well above the long-term average of around 450,000 sq ft. It is worth pointing out that the shortage of stock across London generally is driving an end to geographic loyalty, with many of those on our demand schedule from other submarkets who are actively considering the Docklands and Stratford as part of their wider search.

AVAILABILITY SET TO FALL 

Supply in Docklands and Stratford totalled 2.1 million sq ft in Q2 19, down 14% on the quarter, however, levels are still 36% ahead of the long-term average. Despite this, we believe availability in Canary Wharf will fall in Q3, as WeWork has just completed their acquisition from the European Medicines Agency of circa 280,000 sq ft at 30 Churchill Place, E14. 

In Stratford supply also remains limited, with just over 200,000 sq ft available on the market. However, here too, availability is set to fall following HMRC’s 58,000 sq ft prelet commitment in a 12 storey office building under development near Westfield Stratford in early July, making the government department the sole tenant in the building. The current vacancy rate is now 10.9% for the whole Docklands market, with Canary Wharf at 8.7%.

RESTRICTED FUTURE SUPPLY 

Despite the seemingly high vacancy rates when compared to other submarkets in London, future supply remains tight. Looking at the development pipeline, there is close to 2 million sq ft of office space due to complete by the end of 2022. However, approximately 52% of this is already either pre-let, or under offer. 

There is just over 1 million sq ft due to complete this year, albeit, only 180,000 sq ft of this is currently untenanted. This includes the refurbishment of R2 Republic, East India Dock, E14 and 2 Redman Place (S9), International Quarter London, E20. 

MIXED RENTAL PROFILE 

The prime headline rent increased quarter-on-quarter from £47 per sq ft in Q1 to £49.50 per sq ft in Canary Wharf. Prime headline rents for Stratford remained stable at £44 per sq ft and the Rest of Docklands at £32.50 per sq ft. The demand we are recording in this market, coupled with the availability of larger lot sizes means occupiers from other parts of London are giving serious consideration to the Docklands as a viable alternative, which is underpinning our rental expectations. 

LACK OF INVESTMENT STOCK 

There were no investment transactions during the second quarter of the year. The supply of investment stock is extremely limited in this market. There are two assets on the market in Stratford, with a number of opportunities available at International Quarter London, E20