The South East and Greater London office market has recorded its strongest first quarter since 2008, with leasing volumes reaching 111,500 m², according to Knight Frank. The remarkable 39% quarter-on-quarter surge was predominantly driven by premium space demand, with 86% of transactions involving new grade A buildings, highlighting the growing flight to quality trend among corporate occupiers.
Defence giant BAE Systems secured the quarter's largest deal, leasing 10,220 m² across two buildings at Reading's Green Park, while technology firm ARM pre-let the entire 8,825 m² Optic building at British Land's Peterhouse Technology Park in Cambridge. Reading emerged as the region's most active market with 23,800 m² of take-up exclusively within new grade A offices, followed by Cambridge with 14,275 m² of leasing activity, 98% of which involved grade A stock.
Despite robust demand evidenced by 483,100 m² of active requirements and 1.26m m² of upcoming lease events over the next three years, the development pipeline remains critically constrained with just 167,200 m² of speculative office space under construction. Available grade A space across the region stood at 1.1m m², representing a tight 6.9% availability rate, creating ideal conditions for landlords to achieve premium rents in undersupplied markets.
Roddy Abram, Head of South East & Greater London Offices at Knight Frank, commented: "The region's best business parks that have invested in delivering high quality office stock with strong amenity provision continue to perform strongly. Occupier appetite to upgrade their headquarters ahead of lease events remains robust. Landlords bringing new or refurbished offices into undersupplied markets are often able to command higher rents compared to historic levels, with certain markets witnessing double digit growth year on year. The development pipeline uncertainty beyond 2027 means that large pre-lets will continue to characterise the market, given availability shortage in buildings already completed."
Investment activity remained more measured, with €303m (£259m) transacted in Q1 across smaller deals averaging €12m (£10.3m). Iroko Zen's €31.6m (£27m) acquisition of Brighton's Brinell building represented the largest transaction, with three other deals exceeding the €23.4m (£20m) threshold.
Simon Rickards, Head of National Offices Capital Markets at Knight Frank, said: "Investors are slowly buying into the demand and prime rental growth story in new office buildings, which continue to attract blue-chip tenants on strong lease terms. Investment activity continues to hinge on pricing confidence and although prime office values have already bottomed out, the lack of motivated sellers means that deal volumes remain subdued. However, property companies are increasingly recognising the current window of opportunity and many are eyeing value add deals given larger upside potential because of depressed values and shortage of modern office stock."
- Roddy Abram, Head of South East & Greater London Offices, Knight Frank
- Simon Rickards, Head of National Offices Capital Markets, Knight Frank
- Knight Frank - Global real estate consultancy
- BAE Systems - Defence manufacturer and major occupier
- ARM - Technology firm and major occupier
- British Land - UK property developer
- Iroko Zen - French real estate fund and investor
Photo by Ed Robertson on Unsplash
Get the latest real estate news and investment insights from Europe Real Estate - your trusted source since 1999. To receive daily or weekly updates. Sign up here!
