Databook Q1 2021

Market commentary

The Industrial Market

The end of Q1 2021 marked 12 months since the start of the pandemic and one thing we have learned throughout the various lockdowns is the importance of logistics and supply chains to the economy and everyday life.

The past year has been a strong one for the industrial market within the Glenny region, with take up hitting its highest level in five years at just under 8m sq ft and ‘Big Box’ activity peaking at 4.2m sq ft in a record number of deals for the region. The 2.3m sq ft Amazon pre let at the former Littlebrook power station site accounted for more than 50% of the Big Box activity but even excluding this, its been a remarkable 12 months.

The first quarter of 2021 has seen activity ease back but this is to be expected given the strength of the previous 12 months and the market becoming familiar to the new Brexit environment. Requirements, which stand at 15.3m sq ft, remain considerably ahead of the current levels of supply (11.4m sq ft).

Demand has moved back from its peak of 21m sq ft in Q3 2020 but this is entirely due to a reduction in Big Box requirements, again unsurprising given last year’s record levels of activity.

Supply has increased over the course of the pandemic, rising by 3.2m sq ft to 11.4m sq ft, but this was from historically low levels. Even after the increase, the availability rate stands at 4.0%, with 2.4m sq ft of grade A space currently being marketed.

Prime rents have reacted to the strong market, rising by 14.7% on average from their pre pandemic levels, with most locations inside the M25 seeing values increase by more than 20%. Looking ahead we are expecting another high performing year as the market responds to the London and UK economy coming out of lockdown.

The Office Market

The past 12 months has been a period of transition for the office market and the Eastern M25 has not been immune from these changes. The rise of the ‘work from home’ phenomena has seen the demand for office floor space reduce, although the first three months of 2021 has seen somewhat of a rebound as employers have begun to reframe their office requirements. Demand at the end of Q1 2021 has recovered to 1.6m sq ft, 31% above pre pandemic levels, with only larger requirements falling below Q1 2020 levels.

Office take up during 2020 was slow, with a total of 1.2m sq ft of transaction completing, and Q1 2021 has been similar, with 221,600 sf ft of lettings. Overall activity is down to around one half the normal levels of activity in the Eastern M25 market, with the majority of activity in letting below 10,000 sq ft.

The largest transaction in the post pandemic era was the 205,600 sq ft letting to BP at 25 The North Colonnade, E14 in mid 2020 but activity in the Docklands market has also reduced significantly since.

Supply increased over 2020, rising by 21.5% to 7.1m sq ft but we have seen a slight reduction in the first three months of 2021. Grade A space amounts to 2.3m sq ft across the region as a whole, with almost three quarters of supply in the East London and Docklands markets. The availability rate across the region as whole stands at 7.6%, broadly in line with the 10 year average for the region.

Uncertainty in the market has led to a slight downturn in prime rents in most locations, with values down by 4.4% from the start of the pandemic to the end of last year but values have recovered some of the lost ground. In the first three months of 2021, prime values improved by 2.3% on average, although this growth was focused on just a handful of the key locations across the region.

Optimism has certainly picked up over the early part of this year and we are confident that market activity in the office sector during 2021 will prove to be stronger than the previous 12 months.