South East office take-up surges

Take-up for South East and greater London offices has more than doubled on levels recorded last year, according to figures from Knight Frank. Demand totalled 979,125 sq ft in the first quarter, which was also 12% above the 10-year quarterly average. Take up of new and grade-A offices accounted for a record 94% of all letting deals during the first quarter, with researchers citing the ongoing flight to quality as the key driver. Grade-A office take-up accounted for 82% of total leasing volumes over the course of 2023. Researchers said the relaxing of permitted development rules earlier this year, most crucially the lifting of the 16,000 sq ft size limit, will boost transaction volumes as PD buyers seek vacant or short-term income offices for conversion. This is expected to reduce levels of secondary stock and support leasing activity. The first three months of the year witnessed the highest proportion of space leased at buildings under construction since 2001, with 421,600 sq ft agreed. The biggest deal in Q1 was pharma giant Johnson & Johnson’s 97,000 sq ft move to new headquarters at the Tempo building in Maidenhead. Oxford accounted for the highest volume of lettings by submarket, with 28% of all South East deals completed in the city. Deals included electric vehicles manufacturer YASA Motors’ agreement to lease 88,000 sq ft at Bicester Motion’s new Innovation Quarter. Active requirements stood at 4.8m sq ft, above a five-year average of 4.6m sq ft. Availability has increased 14% year-on-year to 14m sq ft, which Knight Frank said was largely driven by higher vacancy rates in older, secondary buildings. Overall, there were five deals involving office space above 50,000 sq ft being let, the highest number in just over two years, driven by lease events and corporate expansion plans. The financial and professional services sector accounted for 30% of total take up. Investment volumes in the region totalled £398m, up 83% on Q4 2023. Knight Frank said the figure was 43% below the 10-year quarterly average, with prime yields unchanged at 7%. Roddy Abram, head of South East and Greater London offices at Knight Frank, said: “The volume of demand for new and best quality offices, against a stalled development pipeline, means that rental values continue to trend upwards in premium buildings. “This contrasts with the secondary stock currently available, which continues to witness higher vacancy rates and value erosion without the necessary capital expenditure.” Simon Rickards, head of national offices capital markets at Knight Frank, added: “With inflation falling and the economy showing signs of stabilisation, investor confidence around pricing is steadily increasing. “This will also be coupled with more motivated asset owners, with the buyer and seller gap narrowing, particularly for prime office buildings. “South East and Greater London office assets are attractively priced by historical standards, and contrarian buyers are looking for value-add opportunities to build out the high-quality stock which is in short supply.” Check out lettings in the South East >> Photo © SevenStorm JUHASZIMRUS/Pexels