INTRODUCTION
Despite 2015 being a year in which the 500,000 sq ft take-up barrier was broken on the South Coast for the first time since 2007, Q4 saw a drop in enquiries, ongoing supply constraints and a take-up of 9.1% below the ten year average.
Andrew Hodgkinson, Lambert Smith Hampton’s director of office agency, comments: “We anticipate the current trend of lower enquiry and take-up volumes to continue due to an ongoing lack of relocation opportunities.
“Permitted development rights has been responsible for a significant proportion of the fall in supply, however, with office rents on the rise and with the supply/demand balance for student accommodation shifting, we anticipate offices in strong locations that may have been subject to change of use now being refurbished and retained as office accommodation. This is likely act as a brake on the fall in supply throughout 2016.”
Q4 ENQUIRIES THE LOWEST SEEN FOR SOME TIME
• Q4 enquiries were 34% lower than in Q3 and, at 28, the lowest level seen for some time
• The number of enquiries as a whole was healthy in 2015, due to strong Qs 1, 2 and 3
The most significant fall has been in the 4,000 – 8,000 sq ft range, possibly as these properties are not popular with new start up companies looking for small premises or larger corporate organisations forecasting growth and looking towards expansion or relocation.
There is also a perception that due to an ongoing lack of supply, businesses are renewing leases on their current premises with opportunities to relocate being constrained. From a macro-economic perspective, there are factors in the global markets that may also be having a negative effect on business confidence in some sectors. As a result, we are expecting this lower level of enquiries to continue into 2016.
TAKE-UP DROPS TO 9.1% BELOW THE TEN YEAR AVERAGE
• Take-up in Q4 2015 was 86,059 sq ft, 9.1% below the 10 year quarterly average of 94,709 sq ft and 32% below the 2015 quarterly average of 126,902 sq ft
• Despite this, 2015 take-up broke the 500,000 sq ft barrier for the first time since 2007 at 501,196 sq ft. This is 14% higher than the 10 year average of 428,911 sq ft
It is possible that the fall in take-up for Q4 was a rebalancing of the market after strong take-up throughout the rest of the year and with a number of significant deals already in the pipeline for 2016, we are expecting to see a slight recovery, however, it is likely to remain somewhat subdued due to the lack of supply.
Despite a fall in the number of transactions in Q4 2015, the average deal size increased from 6,809 sq ft to 7,823 sq ft. This is consistent with our experience that a number of larger transactions are taking place across our region.
Rents are continuing to rise and incentives are reducing – £19.00 per sq ft has been achieved in the city centre and out of town markets in 2015 and quoting rents are higher than this in prime locations such as Ocean Village in Southampton and Gunwharf Quays in Portsmouth.
SIGNIFICANT OCCUPATIONAL TRANSACTIONS
| PROPERTY | SIZE (SQ FT) | VENDOR/LANDLORD | PURCHASER/TENANT | INFORMATION |
| 8 Berrywood Business Village, Hedge End, Southampton | 18906 | Private | E-Digital | 10 year lease |
| Cumberland House, Southampton | 16668 | Kingsbridge Estate | Regus | 15 year lease |
| Building 3000 Lakeside, Portsmouth | 14800 | Northwood Investors | Lead Forensics | 10 year lease |
| Ground floor, Forum 4, Solent Business Park | 9350 | M&G Real Estate | Innovation Group | 10 year lease |
| First floor, The Port House, Port Solent | 6521 | Premier Marinas | Gamma Communications | 10 year lease |
SUPPLY INCREASES SLIGHTLY BUT IS STILL LESS THAN THREE YEARS’ WORTH
• Supply increased by 7.3% from 1.219m sq ft in Q3 2015 to 1.316m sq ft in Q4. Based on current take-up levels, this still reflects less than three years’ supply
• Availability at the start of 2015 was 1.507m sq ft which therefore reflects an overall fall across the year of 12%
Q4 2015 saw some much needed high quality space return to the market, such as at Building 3000c, Solent Business Park (53,000 sq ft) and Buildings 2000 and 3000 Lakeside (115,507 sq ft) which are undergoing refurbishment by owners Northwood Investors. Work has also commenced on the region’s first speculative office building since Charlotte Place at Southampton Science Park (36,000 sq ft), again providing grade A space. This is due for completion in September 2016.
Office space leaving the market for alternative uses via permitted development or successful change of use applications continues to play a major role in the reduction of supply in the market.
This includes The Bond in Southampton, which had consent for a 160,000 sq ft grade A office building, but has recently been successful in its application for change of use to student accommodation. However, with office rents on the rise and with the supply/demand balance for student accommodation shifting, we anticipate offices in strong locations that may have been subject to change of use now being refurbished and retained as office accommodation. This is likely to act as a brake on the fall in supply throughout 2016.
INVESTMENT REACHES A PLATEAU
The South Coast has continued to be attractive to investors, as stock becomes more difficult to secure within Central London and demand dissipates out across the regions. However, we have started to see the market plateau, with limited anticipation of further yield compression.
Sales due to complete and new opportunities being brought to market include…
• Frizzle House, Bournemouth, is under offer with a quoting price of £21.185m, reflecting a net initial yield of 5.25%
• Linea House Harvest Crescent, Ancells Business Park, Fleet, is for sale with a quoting price of £3.45m, reflecting a NIY of 8.31%
• Brunel House, 21 Brunswick Place, Southampton, is for sale with a quoting price of £2.15m reflecting a NIY of 7.5%
KEY INVESTMENT DEALS
• Link 1, Link 2 and Link 414, Chestnut Avenue, Chandlers Ford, Eastleigh, were sold by M & G Real Estate to Troika for £12.85m, reflecting a net initial yield of 8.22%. The properties are let to Cisco International Ltd on two separate leases at a combined rent of £1,117,021 per annum.
• NATS 4000 Parkway, Solent Business Park, Fareham, was sold by a private investor to Greenbridge for £67m, reflecting a net initial yield of 6.45%. The properties total 261,049 sq ft and are fully let to NATS at a current rent of £4,577,977 per annum, for an unexpired term in excess of 9.5 years.
• 7-12 Manor Court, Segensworth, was sold by Legal & General to a private investor for £1.41m, reflecting a net initial yield of circa 7.21%. The 18,758 sq ft property is multi-let at a passing rent of £107,580 per annum.
