Take-up across Southampton for the first half of 2011, although lower than the comparative period last year, showed a marked improvement in terms of unit size according to CB Richard Ellis’ half year regional offices review.
Take-up of units over 5,000 sq ft reached 39,419 sq ft across six deals and while this was just over half the total take-up recorded in H2 2010 it is a positive outcome when compared to the same period last year when there were no recorded deals over 5,000 sq ft. The largest deal completed was the 10,000 sq ft letting to E-Digital at Vanbrugh House. Other significant deals included Lucite which took 7,320 sq ft at Cumberland House, 6,000 sq ft of Grade A space was let to i2o Water at 4 Benham Campus while 5,000 sq ft transacted at West Park House in the second quarter, to the Health Insurance Group
Commenting on the findings, CBRE South Central Regional Managing Director, James Brounger said: “Although take-up has been relatively low, those deals we have seen have been companies with lease breaks and expiries, rather than inward investment into the Southampton area. As with 2010, demand appears to be coming from businesses which have a consolidation or rationalisation reason to relocate rather than for any expansionary reasons. We do not anticipate much change over the coming months with demand largely expected to remain static through the rest of the year.”
Most cities had a quiet start to the year however activity started to pick up towards the back-end of the second quarter with a large number of deals to be closed in the third quarter. The clear winner so far in 2011 is Aberdeen which had an exceptionally strong first quarter, by mid-year take up in the city was already well ahead of its 2010 total with record prime rents of £31 per sq ft.
On the whole, new supply has decreased whilst secondhand space has edged up, or at the best remained unchanged. The only exceptions are Liverpool and Bristol which have both seen an increase in new space, both cities seeing speculative schemes reaching completion.
The investment market has also had a subdued start to the year, with overall purchasing activity down. A total of £2.09 billion of stock has been purchased in 2011, boosted by the sale of Chiswick Park, a business park in West London.
Across the South Central Region, the first half of 2011 has seen very few investment transactions, largely due to a low volume of stock coming to market. The most significant deal so far this year in Southampton is the purchase by Standard Life of 1 Dorset Street, a prime multi-let building totalling 25,129 sq ft over four floors with an average weighted unexpired term of 5.5 years and passing rents of between £17.50 & £21.15 psf. Originally marketed at 7.5% initial yield, the property transacted at 7.9%. The second completed deal in the city centre is Kings Park House, 22 Kings Park Road, a 14,170 sq ft building let to Coffin Mew Solicitors until June 2019. A yield of 8.1% initial has been achieved.
Phil Owen, Capital Markets Director at CBRE in Southampton comments: “Central Southampton prime yields are currently at around 7.00%, moving out slightly from the 6.75% we saw over the last two years. With the dearth of comparable evidence it is difficult to be sure of the current gap between prime and secondary yields and how this has changed over the last 18 months.
“Based on the wider regional marketplace, we believe the gap is getting bigger and will continue to do so as the banks release further distressed assets and interested parties drive even harder bargains in terms of offers and pricing levels.”
