Offices offering strong amenities and connectivity continue to drive occupiers to take space in the South East despite subdued take-up levels across the region as a whole, says global property advisor, Colliers International, which recently released its Q2 South East Offices Snapshot.
Colliers’ report shows that whilst H1 take up sits at a healthy 1,468,377 sq ft, the figures for Q2 2019 reached 662,198 sq ft which was more subdued than Q1 levels and down 14% year on year.
“The large majority of occupiers across the South East and West London continue to seek the best Grade A space that can provide good building amenity, nearby retail offering and travel connectivity all of which are now becoming a real priority for many occupiers trying to both retain staff and attract new talent,” said Mark Emburey, South East Office Agency at Colliers International. “This has certainly been evidenced with the office developments in White City Place which are complimented with its food and leisure offering the likes of nearby Westfield Shopping Centre and White City House members club & hotel. The scheme continues to attract some significant office occupiers over and above other West London locations and are now close to being fully let.”
Demand for office space from 10,000 – 20,000 sq ft improved in Q2 2019 as the number of transactions increased from eight deals in Q1 2019 to fourteen deals in Q2. Meanwhile, eight deals completed in the South East in Q2 in the 20,000-50,000 sq ft size band, three of which were the largest deals in the quarter. Tech & Media surpassed Manufacturing in Q2 as the most active occupiers across the South East accounting for 26% and 21% of total take-up, respectively.
Mark Taylor, Head of National Offices, Colliers International, adds: “There was more than 750,000 sq ft of known demand in Q2, which is expected to complete before the end of the year. Given vacancy rates in the South East have fallen to 7.7% and the demonstrable drive from occupiers to secure the best space in the best locations, we anticipate pre-commitments or pre-lets will become more prevalent. That said, Landlords are being very proactive, engaging with their existing tenants and implementing change where necessary in order to keep them in occupation. This in turn has recently seen an increase in live occupier requirements being aborted in place of lease re-gears or renewals.”
Tightening supply dynamics in the South East are keeping headline rents strong with some key centres still witnessing annual rental increases; including Bracknell (14 per cent), Ealing (10 per cent) Stockley Park (10 per cent) and Brighton (7 per cent).
The investment picture
Q2 2019 witnessed an increase in investor activity following a subdued start to the year. Q2 witnessed 35 transactions totalling investment volumes of approximately £495 million, 30 per cent down on Q2 2018 investment volumes. At the half year point, £828 million has been transacted, which is 51 per cent down on H1 2018 when £1,677 billion of investment deals transacted.
“We’ve seen an increase in investor activity in Q2 as a result of vendors seeking to take advantage of the period before the Brexit deadline,” said Alex Titheridge, National Capital Markets at Colliers International. “South East offices continue to offer competitive returns when compared to Central London and the industrial market. However, there remains a gap in pricing aspirations between vendors and purchasers, which needs to close to improve liquidity.”
Colliers’ report shows a diverse group of buyers with the largest market share attributed to private equity at 23 per cent, along with councils (20 per cent), residential developers (14 per cent), property companies (11 per cent), private investors (11 per cent), financial institutions (9 per cent), owner occupiers (6 per cent), overseas investors (3 per cent), and an industrial developer (3 per cent) who all invested in the second quarter of 2019.
Notable by their muted activity were the financial institutions, who have been gradually decreasing their buying market share as evidenced since Q4 2018 (19 per cent), Q1 2019 (15 per cent) and Q2 2019 (9 per cent).
