Soho Office Market Update - Q3 2019

Take-up levels this year so far, have already exceeded the total take-up recorded in 2018, furthermore, the highest annual level recorded in over 10 years. 

The largest deal of the quarter was Diageo’s pre-let acquisition at 16 Great Marlborough Street, totalling circa 105,000 sq ft, this has also been the largest deal in the last 12 months. There were 17 deals during the quarter, down from 32 last quarter, of which 67% were below 5,000 sq ft. The average deal size in the last 12 months is 6,610 sq ft, at an average rent of £75.41 per sq ft. 

Soho office take-up 

The corporate sector was the largest contributor to take-up during the quarter, accounting for 68% of total transactions, followed by TMT and miscellaneous both with 13%. If we compare this to a 12-month rolling basis, the tech sector have accounted for 39% of deals in Soho, followed by corporates with 29% and the flexible offices and miscellaneous both with 12%. 

Soho office take-up by sector

Named active demand across the wider West End remained stable at 2.2 m sq ft, unchanged from Q2, but still 5% ahead of the long-term average. The TMT sector is now the most active in our demand profile, accounting for 34%, followed by finance (31%) and corporates (25%). There are currently 15 active requirements over 50,000 sq ft that are focussed on the West End. Occupiers who are looking for sizeable units, especially new and refurbished options, appear to be launching their search well in advance of their lease events to secure to right option.

Soho office market balance

Availability in Soho fell for the third consecutive quarter from 321,032 sq ft in Q2 to 306,376 sq ft at the end of Q3. The current vacancy rate in this market now stands at 4.2%, the third lowest across all West End markets. Supply levels are now 12% below the long-term average, with new and refurbished stock less than 20,000 sq ft.    

There are still very few options to satisfy a requirement of over 10,000 sq ft, with 77% of available units less than 5,000 sq ft. The largest available units include Air W1, 20 Air Street, 30 Golden Square and UK House, 2-4 Great Titchfield Street, W1. 

Soho office availability

There have been no development completions during 2019. Looking forward at the development pipeline, there are currently no schemes under construction that are due to complete before 2021. Furthermore, of the 496,000 sq ft under construction which is due in 2021, 53% has already secured a tenant. These include Ilona Rose House, National Magazine House, 72 Broadwick Street and Soho Place, 1 Oxford Place. 

Soho development pipeline

The prime rent in Soho increased to £90.00 per sq ft in the third quarter of 2019, reflecting 9.1% growth year-on-year. Rent-free periods remained at 21-24 months on a typical 10-year term certain. We are forecasting the prime rent to reach £92.00 per sq ft by the end of the year.

Soho office prime rent

There were three investment transactions in the third quarter of 2019 totalling £38.13m, significantly below the £170.4m recorded in Q2. The largest transaction of the quarter was 37-38 Golden Square, purchased by Shaftesbury Plc for £16.0 million, reflecting a NIY of 4.6%. The prime yield in the West End Core market remains at 3.75%, unchanged for the third consecutive quarter.