Vacancy rates across the South East office market are at their lowest since 2001, driving rental growth to hit record highs in towns across the region – Knight Frank reported at their annual M25 breakfast presentation this morning.
The M25 vacancy rate stood at 5.9% in Q1 2015. This falls to 4.2% when only new and Grade A space is analysed, low by London, UK and global standards. Availability fell by 13% compared to a year ago, across all grades of stock, moving the market back towards the landlord’s favour. Following the re-election of a Conservative led Government and financial market rally, economic performance of the region is improving and there is an expectation of a further boost to demand.
Strong investor demand and a lack of deliverable product is holding back stock volumes in the investment market, where we are seeing a hardening of yields across the spectrum, with investors increasingly factoring in likely rental growth during hold periods.
Prime yields now stand at 5.00% NIY – the combination of weight of money and lack of product is expected to drive yields down further moving forward in 2015.
Emma Goodford, head of national offices leasing team, Knight Frank, commented; “2015 has started positively supporting our view that take up in the M25 will be almost 30% ahead of 2014, and above the ten year average. Vacancy levels are heading towards crunch point in combination the market seeing rental growth across a growing number of key centres. In some cases rents are now at an all-time high- motivation for occupiers to identify and secure the best space now. The election has removed uncertainty and will drive demand.”
Tim Smither, head of South East investment, Knight Frank: “The investment market continues to strengthen, with prime yields standing at 5% NIY. We expect this yield compression to continue for the rest of the year, driven by a combination of a lack of stock, significant levels of equity looking to be deployed and anticipated rental growth in most core markets.”
