Leasing volumes in the South East office market are projected to reach 3.9 million ft² by year-end, the highest level since 2008, according to the latest research by global property adviser Knight Frank. This has been supported by the largest deal in the M4 corridor since 2012, the leasing of 211,000ft² to Publicis Media at Television Centre, White City. TMT firms accounted for the highest proportion of lettings at 28% up from 26% in 2017. The 2018 South East market has seen an upturn in out-of-town activity, with take-up in business parks expected to top 2.1 million ft², the highest level since 2015. Crossrail is accelerating leasing momentum, with close to 1.2 million ft² of office space being acquired around Crossrail stations, up from 800,00ft² in 2017.
Co-working providers are also contributing to the high levels of leasing activity in the South East market, accounting for 16% of total take-up, an increase from 12% in 2017. Investors continue to view the South East office market favourably, with 2018 volumes predicted to hit €3.12bn (£2.8bn), lower than the last three years but 16% above the 10-year average. Of those deals completed in 2018, councils have been the dominant purchaser representing 34% of the market. Funds were the dominant sellers this year, representing 47% of the sales in the market. Interestingly, funds have also been more active on the buying side with UK fund investment up by 28% year-on-year.
Emma Goodford, Partner at Knight Frank commented: “We are on course for a strong year-end in the South East office market with leasing volumes set to reach a ten-year high, the highest since the financial crash. A convergence of factors including Crossrail, out-of-town activity, the attractiveness of co-working and the continued growth of TMT are driving the increased volumes, making the projections for 2019 on par with levels last seen in 2002 post the dot-com crash. Looking ahead to next year, we believe the property fundamentals in the South East remain particularly positive, driven by ever-improving infrastructure, talent pools and town centre offerings. At the same time, a lack of development and a continued erosion of offices to residential usages means the supply/demand imbalance will be maintained. Some markets, for example, Brighton and St Albans, have almost no grade A space and continued strong levels of occupier demand. Add in the lack of development sites in these markets and it is easy to see why further rental growth is anticipated."
“However, there is only 800,000 ft² of speculative office development due to complete in 2019, which accounts for approximately three months of take-up. We are also experiencing vacancy rates across all South East markets sitting below their respective long-term averages and moving on a downward trajectory. We’d expect this trend to continue into 2019. The market imbalance will serve to support the prospect of rental growth and in 2019 we predict that 32 out of 49 locations are forecast to see rental uplift, with Oxford, Slough, Watford and Woking set to be the main rental growth areas.”
Simon Rickards, Partner at Knight Frank commented: “Investors continue to view the South East office market favourably, driven by an affluent workforce, increasingly strong supply and demand fundamentals and significant infrastructure improvements. Volumes have been held back by a quieter than usual Q4, typically the busiest time of the year, with investors understandably taking a watching brief as wider political events unfold. UK buyers have dominated the market in 2018, accounting for 75% of total volumes, in contrast with 2017 when overseas investors accounted for approximately half of all volumes. UK councils accounted for the largest proportion of the market – a third of all transactions by volume, up from 14% in 2017.”