CBRE predicts year of two halves for South East offices as rents stay strong

By Paul Norman - Tuesday, January 10, 2017 15:40

Nearly 2.8m sq ft of offices were taken up in the South East office markets in 2016 (in units of 10,000 sq ft or more), reports CBRE, 3% down on the five-year average and around 14% down on 2015. In a wide-ranging report the agent has also focused on the trends for the key market in the year ahead.

There was circa 660,000 sq ft under offer at the end of 2016 which was just under 6% below the level at the end of 2015.

Analysing the number of transactions over 10,000 sq ft, CBRE said the South East office markets have seen 25% fewer transactions in 2016 than in 2015.

A comparison between 2015 and 2016, reveals a 30% reduction in the number of deals in the 10,000 sq ft to 20,000 sq ft range, from 86 to 62.

There has also been a sizeable decrease (41%) in the number of lettings in the 30,000 to 50,000 sq ft size bracket with 17 deals in 2015 versus only 10 deals in 2016.

However, CBRE pointed out that the number of deals in the 50,000 sq ft and above size bracket remained almost on parity with 12 deals versus 11 deals in 2015 and accounted for 39% of the year’s take-up.

Take-up in 2016, distributed between the three main SE submarkets was:

 

  • Thames Valley: circa 1.4m sq ft (24% down from 2015)
  • M25 North: circa 600,000 sq ft (14% increase from 2015)
  • M25 South: circa 760,000 sq ft (9% down from 2015)

 

Take-up in 2016, distributed between the three main SE submarkets was:
 Thames Valley: circa 1.4 million sq ft (24% down from 2015)
 M25 North: circa 600,000 sq ft (14% increase from 2015)
 M25 South: circa 760,000 sq ft (9% down from 2015)
Key Trends for 2016 and Beyond
 Staff recruitment and retention continues to be the most influential factor in determining preferred location/building, along with connectivity and choice of amenity playing a key role.
 Landlords react to increasing demand from occupiers for ‘creative’ space and a media-type feel.
 The ‘traditional’ serviced office offer has evolved significantly and the growth and provision of collaborative workspace will continue.
CBRE Press Release
In select locations where the Grade A supply / demand dynamic allows, 2016 has seen a continuation of record rents being set across the wider SE. Examples are £37.50 per sq ft in Maidenhead, Croydon achieved £34.00 per sq ft, £27.50 per sq ft in Farnborough and £34.50 per sq ft in St. Albans.
2016 has seen the peak of new development delivered to the market, predominantly in the Thames Valley submarket. This has led to a 21% increase in Grade A stock over the past year. In contrast, the M25N submarket has nearly 47% less Grade A space than it did a year ago. This has triggered new speculative development at Building 1 Croxley Park (65,000 sq ft) and at 36 Clarendon Road, Watford (25,000 sq ft).
Looking forward, approximately 1.7m sq ft of new development is expected to complete in the wider SE region in 2017 with nearly 750,000 sq ft of this due in Q1. Following this, CBRE anticipate a significant slowdown in new development activity, given there is an optimum level of supply. There also continues to be a significant loss of traditional office stock being converted to alternative uses, predominantly residential (PDR).
Notwithstanding the new development position, 2016 saw three pre-let deals across the SE regions. Amadeus took circa 87,000 sq ft at Heathrow, Network Homes Limited took 59,000 sq ft at Wembley Park and AC Neilson circa 45,000 sq ft at Oxford Business Park.
Luke Hacking, Head of South East Office Agency at CBRE said: “Despite the economic turbulence of the past 6 months and 25% fewer deals in 2016 than 2015, the overall take-up was surprising and encouraging at only just behind the 5 year average.
2017 will see continued political uncertainty and whilst take-up over the first half may be slow we predict a year of two halves with H2 gathering momentum.Take-up in 2016, distributed between the three main SE submarkets according to CBRE was: Thames Valley: circa 1.4m sq ft (24% down from 2015); M25 North: circa 600,000 sq ft (14% increase from 2015); M25 South: circa 760,000 sq ft (9% down from 2015).

Key trends for 2016 and beyond

CBRE highlights a number of key trends for the year ahead:

 

  • Staff recruitment and retention continues to be the most influential factor in determining preferred location/building, along with connectivity and choice of amenity playing a key role.
  • Landlords react to increasing demand from occupiers for ‘creative’ space and a media-type feel.
  • The ‘traditional’ serviced office offer has evolved significantly and the growth and provision of collaborative workspace will continue.

 

In select locations where the Grade A supply/demand dynamic allows, 2016 has seen a continuation of record rents being set across the wider SE.

Examples are £37.50 per sq ft in Maidenhead, Croydon achieved £34 per sq ft, £27.50 per sq ft in Farnborough and £34.50 per sq ft in St. Albans.

CBRE reports that 2016 has seen the peak of new development delivered to the market, predominantly in the Thames Valley submarket.

This has led to a 21% increase in Grade A stock over the past year.

In contrast, the M25 north submarket has nearly 47% less Grade A space than it did a year ago. This has triggered new speculative development at Building 1 Croxley Park (65,000 sq ft) and at 36 Clarendon Road, Watford (25,000 sq ft).

Looking forward, approximately 1.7m sq ft of new development is expected to complete in the wider SE region in 2017 with nearly 750,000 sq ft of this due in Q1.

Following this, CBRE anticipates a significant slowdown in new development activity, given there is an optimum level of supply.

There also continues to be a significant loss of traditional office stock being converted to alternative uses, predominantly residential (PDR).

CBRE writes: "Notwithstanding the new development position, 2016 saw three pre-let deals across the SE regions. Amadeus took circa 87,000 sq ft at Heathrow, Network Homes Limited took 59,000 sq ft at Wembley Park and AC Neilson circa 45,000 sq ft at Oxford Business Park."

Luke Hacking, Head of South East Office Agency at CBRE, said: “Despite the economic turbulence of the past six months and 25% fewer deals in 2016 than 2015, the overall take-up was surprising and encouraging at only just behind the five year average. 2017 will see continued political uncertainty and whilst take-up over the first half may be slow we predict a year of two halves with H2 gathering momentum.”

pnorman@costar.co.uk

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