Office take-up across the South East and Greater London markets increased by 55% year-on-year during H1 2024, according to new figures from Knight Frank.
Occupiers have leased almost 1.8m sq ft of space across 132 transactions this year, compared with just over 1.1m sq ft for the same period in 2023.
A number of large deals during the quarter helped boost figures, including the Atomic Weapons Establishment’s 67,280 sq ft letting at Reading’s Green Park office campus (pictured).
Reading recorded 204,543 sq ft of lettings in the second quarter, driven by a flurry of deals at its One Station Hill development, with Pepsi, PwC and NewFlex agreeing new leases totalling 112,355 sq ft.
Elsewhere, National Lottery operator Allwyn agreed to prelet 65,327 sq ft at Regal Workspace’s Clarendon Works in Watford.
Knight Frank said the deals reflected a wider trend across the Thames Valley market of global occupiers targeting new regional HQs, with US pharmaceuticals giant Johnson & Johnson agreeing to take 97,000 sq ft at Maidenhead’s Tempo development in March.
Take-up of new and grade-A offices has accounted for 83% of all letting transactions this year across the South East and Greater London.
Future letting activity is expected to be driven by the 17.3m sq ft of lease events over the next five years, plus the 5.1m sq ft of current active requirements across the region.
Debt costs, development inflation and planning uncertainty means demand for new grade-A offices is expected to continue outstripping supply, said Knight Frank. Some 3.6m sq ft of office space in the region is under construction, with 27% let.
Roddy Abram, head of South East & Greater London offices at Knight Frank, said: “Companies of all sizes are upgrading their office footprints to newly constructed buildings in locations offering premium amenities, often favouring those with good connectivity to London via public transport.
“Reading has been a magnet for TMT, healthcare and financial services firms in recent years, with 334 companies employing 1.2m people based in the city. Grade-A office availability in town centre locations across the region continues to be constrained, with upcoming lease events intensifying competition for space.”
Figures for investment in the South East and Greater London market are also on the up, with deals totals more than doubling from £363m in the second half of 2023 to £782m in the first half of 2024.
The £52m acquisition of Assembly London in Hammersmith, W6, by a private Middle East investor is the largest deal transacted so far this year. Other deals include Brydell’s £21m acquisition of North Bailey House in Oxford, which exchanged at a 6.85% yield, and the £20.5m sale of St Albans’ 10 Bricket Road at a net initial yield of 7.25%.
Simon Rickards, Knight Frank’s head of national offices capital markets, said: “Although there are pots of active capital looking to deploy into attractively priced office assets, the absence of any rate cut has held back bigger ticket transactions.
“However, with macroeconomic conditions showing early signs of improvement, political certainty and inflation back down to 2%, there is growing conviction amongst buyers that the prime end of the market has already bottomed out.”
He added: “This is evidenced by recently concluded deals, with liquidity beginning to re-enter the market for prime assets in the best locations with a strong income-return profile. Value erosion is likely to continue for secondary and tertiary assets with weak occupier retention qualities that don’t have a viable repositioning option.”
Image © JLL
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