According to Savills, take-up in the South East office market is expected to hit 3.56 million sq ft by the end of 2018, 10.9% up on last year’s figure of 3.21m sq ft. This growth can be attributed to the significant increase in corporate activity with more than nine deals totalling more than 50,000 sq ft, compared with just two in 2017.
Savills figures show that the Western sector remained the most active part of the market, accounting for 59% of all take-up this year.
While Brexit uncertainty resulted in falling take-up in 2017 with large requirements put on hold, Savills has witnessed a renewed confidence in 2018 with big corporates resuming making real estate decisions to ensure the ongoing growth of their businesses. Occupiers who have leased more than 50,000 sq ft in the South East in 2018 include Publicis Media, ASOS, Virgin Media and Pernod Ricard.
Looking back to 2017, Savills predicted that the life sciences sector would be particularly active in 2018. This proved to be correct, with life sciences firms accounting for more than 23% of take-up across the market with Novartis taking space in White City and Sanofi at Thames Valley Park, Reading. The next two most active business sectors were professional services and technology.
Other growth sectors include serviced offices. Savills research suggests that this will make up at least 12% of total take-up by the end of 2018, which is the highest proportion since 1991. This is likely to continue into 2019 as occupier demand for flexible office space remains strong.
As a result of this increase in activity stock has continued to fall. Savills estimates that by the end of 2018 supply will total just 12.8 million sq ft, the lowest amount available since 2001. This lack of availability has the potential to limit further expansion by corporates in the area. Looking at corporate investment trends, which include M&A, venture capital and private equity deals, provides a future indicator of occupier demand. In total, there have been 1,018 deals amounting to £47.6 billion invested by companies involved in these transactions who are headquartered in the region. This is 10% up on 2017 figures and in line with 2018 take-up.
What’s more, at present the development pipeline is failing to address the chronic lack of supply. Excluding Royal Albert Docks there is just 902,000 sq ft under construction, which is circa 10% below the five year average. However, there have been a couple of recent announcements including Mapletree’s decision to speculatively develop two buildings at Green Park in Reading totalling 228,000 sq ft and Legal & General’s 43,000 sq ft scheme in Windsor. This uptick in speculative activity in Q4 this year highlights growing developer confidence in the market that should continue into 2019.
As a consequence of the supply crunch, Savills notes that record rents have been achieved in numerous locations including Reading, Slough, Leatherhead, Brentwood, Croydon, Ealing, High Wycombe and Stockley Park.
Jon Gardiner, head of national office agency, commented: “Overall it has been a strong year for the region, bouncing back from what can only be described as a subdued 2017. Now that we are essentially back to business as usual we need to kick-start further development to ensure future growth.
“Looking to 2019, whilst there are some obvious and immediate political and economic uncertainties to play out, we believe that investors and developers should focus on identifying opportunities to deliver substantial new Grade A development either through direct development or refurbishment. With rents staying robust, and sentiment from occupiers being surprisingly positive despite the headwinds, we remain of the view that enhanced returns are obtainable to those investors who properly understand the market dynamics and can deliver office space meeting the needs of modern business.”