South East leasing activity continued solidly in Q2 with volumes totalling 631,789 sq ft, in line with the level recorded in Q1, based on data from BNP Paribas Real Estate. This brings total take-up for H1 2018 to 1,259,751 sq ft, 13% down on the same period in 2017 but just 4.7% below the 10-year H1 average (2008-17).
BNP Paribas Real Estate highlighted that the co-working and serviced office sector, which has boomed in central London in recent years, is showing increasing signs of filtering out into the wider South East market. Over 230,000 sq ft of take-up over H1 2018 was driven by such firms, with the most recent large-scale letting seeing Regus brand Spaces acquiring 39,000 sq ft at the newly completed Woking One. Landlords Wrenbridge and Palmer Capital were advised by BNP Paribas Real Estate.
The M4 Corridor, and in particular the Reading submarket, has dominated the market over H1 2018, accounting for 42% of demand. Appetite within the west London centres had fallen behind over the first six months of the year. However, looking ahead, Q3 has already seen a significant amount of activity with the agreement of the 212,000 sq ft Publicis deal at 2 Television Centre, White City.
In terms of development, H1 2018 has recorded the completion of 460,500 sq ft of new office space. Many of these schemes had already received high occupier interest during construction, testament to the appetite for high quality space in core locations. Of the developments to complete over H1 2018, 51.3% was let or under offer prior to the scheme’s completion. Looking ahead, 466,000 sq ft is currently under construction and due for completion across 2018-2019.
The delivery of new stock has prompted rental growth within a handful of submarkets across H1 2018. Prime rental levels in Reading, for example, are now at £38.00 psf, up from £36.75 psf at Q4 2017, whilst in Woking prime rents have reached £32.00 psf, up from £30.00 psf.
Looking ahead over the second half of the year, the research indicates a positive outlook for the leasing market. Identified demand has risen further over Q2 to stand at 4.85m sq ft, up from 4.6m sq ft at end-Q1 2018. Of this, c. 625,000 sq ft is currently under offer, pointing to a solid second half of the year for the region.
Edward Smith, Head of Office Agency at BNP Paribas Real Estate, commented: “Although the number of leasing transactions is down compared with this time last year, there are a number of positive stories and emerging trends across the region. In particular, we are pleased to see the anticipated filtering out of the co-working and serviced office sectors beginning to pick up. This is a real growth sector and offers an exciting proposition for businesses looking to move to the area.
“Additionally, the interest we are seeing for properties pre-completion highlights the growing demand for Grade A office space in the region. The pipeline of properties completing both this year and 2019 is significantly down on the previous two years and we are already seeing an acute shortage of new offices at this standard in a number of towns.”
