South East Office Market Rising

Recent Metropolis research into occupier moves in the South East, has revealed 250 relocations over the last 6 months and forms part of a pattern of rising level of market activity, that saw nearly 3.5m sq ft of office space let in the region in 2018.

Occupier confidence returned to the market with a number of high profile lettings being agreed including Sanofi’s 71,000 sq ft letting at Thames Valley Park in Reading, Starbucks acquired 54,000 sq ft at Building 7
Chiswick Park, and healthcare analytics company IQVIA leased 56,000 sq ft at No. 3 Forbury Place, Reading. However, the main volume of mover activity took place in the 5,000-20,000 sq ft bracket, accounting for 70% of transactions in 2018.

Take-up in the South-East office market of 3.5 million sq ft was the highest since 2007. Whilst deal numbers increased by 44% in the second half of 2018. CBRE say that over two thirds (69%) of office take-up occurred in H2. Whilst the overall number of deals increased, there was a surge in larger sized deals. There were 10 deals over 50,000 sq ft, accounting for 873,120 sq ft in 2018, all of which took place
in the second half.  Publicis took 211,000 sq ft at White City in west London and Virgin Media who took 121,000 sq ft at Green Park in Reading. The serviced office sector, which accounted for 10% of take-up in 2017, was increasingly active during 2018 with 19 new centres acquired. These sites totalled 512,000 sq ft and represented 15% of all take-up, with Spaces/Regus the most active operator.

Other large moves included KPMG, Chivas Brothers and McLaren Technology Group finding space.

Looking ahead, CBRE say that lease expiries in excess of 6 million sq ft in the next two years will be a key driver of take-up in 2019. As will a continuation of the recent merger activity. Future requirements could include Starling Bank, Allergan and telecom giant Three. Continued demand for new, high quality office space combined with a finite supply of available Grade A space and only a moderate pipeline of new stock coming through will result in competition for the best office stock, and a potential increase in pre-let activity.

Spring Step for South East Offices

A recent report from Colliers International concluded that office lettings in Q1 2017 in the South East reached 741,295 sq ft, which is down around 5% on a year ago

The largest deals in the first quarter were to ASOS at Leavesdon Park, Watford (75,000 sq ft), Rank in Maidenhead (40,000 sq ft) and Allegis in Bracknell (31,000 sq ft). Macquarie Bank recently moved some office functions from their City HQ to Reading taking 12,500 sq ft.

Some 51% of take-up this quarter was for office space between 20,000 sq ft – 50,000 sq ft, which came in 12 deals.

Watford witnessed strong take up this quarter (105,000 sq ft), including ASOS at Leavesdon Park and Salmon Ltd who took a 30,000 sq ft pre-let at Clarendon Works.

Demand for space across the south east remains high according to Strutt & Parker, currently standing at 4.6m sq ft – of which 10% (462,000 sq ft) is under offer.

Metropolis added nearly 50 new searches for office space in the South East region to its live database in Q1 2017. Sectors with most occupiers newly searching include law, insurance pharmaceutical and a number of IT-related companies.

There continues to be strong occupier demand for best quality office space across the entire region say Colliers. However, supply of new office space is down 7% on Q4 2016 and the availability of vacant offices is down to half the 2010 level. There are relatively few schemes coming to the market over the next two years in both the Thames Valley and the wider South East.

Q1 2017 saw new record office rents set in Hammersmith (£59.00 per sq ft), Maidenhead (£38.00 per sq ft), Reading (£36.50 per sq ft), Watford (£31.50 per sq ft) Redhill (£31.50 per sq ft) and Slough (£28.50 per sq ft).

South East Offices Focus

BNP Paribas report that the South East office market has continued to enjoy a solid, if unspectacular year to date. Around 2.2m sq ft of office deals have transacted across the South East office market, outside central London, down 6.5% year-on-year to end August 2016. Take-up in the first half of 2016 totalled 1.32 million sq ft. This was around 450,000 sq ft lower than the second half of 2015, although only 8.7% below the five half yearly average.

The largest deals include HMRC’s decision to take 183,000 sq ft at Ruskin Square scheme in Croydon, Ocado signing for 137,000 sq ft at Hatfield Business Park, Neilsons took 45,000 sq ft at Oxford Business Park, Superdrug (53,100 sq ft) at Pinnacle House, Croydon and Black & Veatch (21,950 sq ft) at Red Central, Redhill. The majority of requirements are still being triggered by lease events, although Thales’s consolidation at Green Park, Reading and Blackberry’s relocation to Maidenhead, are due to corporate restructuring.

Along the M4, total take-up fell by 30% in Q2 to 349,100 sq ft. The largest transaction along the M4 during Q2 was the 85,000 sq ft taken by technology firm Amadeus at Heathrow Business Park. Alnylam took 21,000 sq ft at Braywick Gate, Maidenhead, while 20,400 sq ft was let to pharmaceutical firm Mallinckrodt at Lotus Park in Staines.

The majority of demand is in the sub 20,000 sq ft size band. There are, however, a number of larger (50,000 sq ft+) active requirements in the market, such as: Future Electronics, L’Oreal, Medidata and FM Global. Some of which are expected to sign in the second half of 2016.

Metropolis is currently tracking around 120 companies looking for office space in the South East region

Current demand is largely being driven by lease breaks and expiries as opposed to occupier expansion. Looking ahead, The South East will continue to benefit from its broad occupier base. It is not overly reliant on
the finance and banking sector.