Office take-up in the South East hit 1,537,365 sq ft in the first half of 2018 which was 10% above the 10 year average. This comprised of 122 transactions, this making it the most active H1 period in a decade, according to the latest research from global property adviser Knight Frank.
The market is trending towards smaller deal sizes, with a total absence of transactions over 50,000 sq ft occurring in H1. The average deal size in the South East is 12,600 sq ft, which is the lowest ever recorded. At the end of Q2 approximately 1 million sq ft was under offer, with only two requirements above 50,000 sq ft, highlighting the trend is set to continue.
Flexible offices is a growing subsector in the region accounting for 20% of take-up in Q2 and 15% of the overall take-up in the South East for the first six months of 2018.
Investors continue to target the South East with investment volumes reaching £544 million in Q2 2018, a total on par with the 10-year quarterly average. At the end of H1 investment into South East offices reached £1.2 billion. This is 27% ahead of H1 2017 and 26% above the 10-year average.
A significant feature of the South East office market investment is the activity of UK councils. Over the first six months of 2018 council spending was £332 million – accounting for 27% of the market. UK councils have been responsible for a third of the transactions exceeding £50 million in the first half of the year.
Emma Goodford, Head of National Offices, Knight Frank, commented: “We are continuing to see a changing landscape in the South East office market with smaller deals becoming more prevalent and the growth of the co-working and serviced space expanding, particularly in multi-let buildings. The market feels and is busier, with the increased volume of transactions being supported by solid investment into the area.
“The level of space under offer is also significant running at 1 million sq ft across the South East. Just after the H1 close, Publicis signed at Television Centre but the level of potential commitments remain high.”
Simon Rickards Partner South East Capital Markets added “UK councils are playing a significant part of the spending into the area, including the notable acquisition by Runnymede Borough Council of four office assets totalling £162 million. Councils represent 30% of total investment this quarter including being responsible for three of the nine transactions exceeding £50 million. Given the shape of the market we would expect UK councils to remain active throughout the second half of the year.”
