CBRE’s biannual research launched today shows that take up in 2012 was the highest it has been since 2008. Demand across Southampton remained stable with almost 71,000 sq ft of transactions completing in the second half of the year. When combined with the take-up in the first six months, total take-up for the year reached 213,976 sq ft the highest achieved in the last four years and in line with the ten-year annual average of 207,432 sq ft.
However, this increase was largely as a result of Ageas’ acquisition of Portswood House at the beginning of April which totalled 87,308 sq ft. Much of the remaining transactions were made up of 12 core deals of over 5,000 sq ft. Commenting on the findings, CBRE Regional Managing Director James Brounger said:
“Those occupiers that are moving are being driven by the combination of a lease event; typically either a break clause or lease expiry, together with a business reason to move such as a consolidation or rationalisation and, positively, we are seeing some examples of corporate expansion.”
Supply
Availability at the end of 2012 was marginally down on 2011 at 648,707 sq ft, only 26% of which is Grade A. There are few developments proposed with two key schemes in the long-term pipeline to provide the next generation of space for the city.
• Development Securities’ plans for a 60,000 sq ft office scheme called Aqua at West Quay;
• Cumberland Commercial’s The Bond, a 157,000 sq ft office development in the City centre
While construction of these schemes is not expected to start on a speculative basis, there is optimism that their prime locations and high specification will lead to strong interest which may result in a pre-let to re-start Southampton’s office development.
During 2012 the highest City centre rent achieved was circa £18.50 per sq ft at Town Quay. Both the NHS and Peer 1 were attracted by the high level of refurbishment offered, parking and accessibility. . Prime rents have remained stable with the anticipation of a two tier market with pre-letting rents driven up by the cost of delivery of new buildings.
Investment
The investment market in Southampton and the wider M27 market has seen very limited activity, primarily due to a lack of quality stock. However, completed transactions were reflective of the wider national trend for investors seeking the very best assets.
Two key transactions which completed in the second half of the year were both acquired with overseas money-
• Skandia House on Portland Terrace was purchased by Britannia Invest for £26.625m, representing a net initial yield of 7.2%, almost 50 bps higher than the quoting yield of 6.75%. The property provides a long-term income stream of just over 15 years to the next break, and over 20 years to lease expiry.
• Solent Business Park saw Rhine Property Investment purchased Building C occupied by Zurich Insurance. This 53,000 sq ft office sold for £13.5m, a net initial yield of 7.25%.
Opportunities to purchase comparable assets across the wider South Central region are limited. Where assets are available the biggest issue is the short income stream offered which is reflected in the price. However, there are several buildings currently on the market that have been attracting interest, specifically Queens Keep, Wessex House and Threefield House. These are typical of the secondary properties currently available providing opportunities for investors with some appetite for risk. If such buildings can be acquired at competitive prices, allowing for the costs of refurbishment to attract a new occupier, their value could be enhanced.
