Take-up across the region totalled approximately 516,000 sq ft, representing an increase of 31% on the corresponding quarter of 2017. Investment volumes were muted in the first quarter with £350 million of transactions taking place compared to Q1 2017 when £560m of deals were recorded.
JLL said the primary focus for occupiers in Q1 2018 was securing well-located, good quality space, with Grade A take-up accounting for 70% of the deals. It said: “This flight to quality has defined the Western Corridor market for some time and occupiers continue to pursue high specification buildings and Grade A take-up accounted for 85% of all deals in 2017.”
The first quarter of 2018 was characterised by smaller deals, according to JLL, with the majority of activity (80%) taking place in the 10,000 sq ft to 50,000 sq ft size band. Deal numbers increased by 50% from 24 deals in Q1 2017 to 36 deals in Q1 2018.
The beginning of the year has seen supply levels flatten, falling below 10m sq ft and this is expected to moderate further over 2018. Looking further ahead, JLL cited that vacancy should continue to decline in 2019 and 2020 as the number of active speculative development schemes reduce.
James Finnis, head of south east office agency at JLL, said: “The Q1 take-up figures represent a solid start to 2018. The 50% increase in the number of deals in Q1 illustrates growing occupier confidence. Occupiers are focused on the best space and there is widespread evidence of tenants trading up but taking less overall sq ft. Flexibility remains important with occupiers wanting to build in options to either grow or downsize. The addition of serviced or co-working space into multi let buildings is a natural extension of this, providing on site swing space.
“The lack of new supply coming through in the wider South East market is becoming acute. The development pipeline in 2019 and 2020 is limited and a number of key centres face supply shortages, assuming net absorption continues on its current trend.
“Developers and investors across the region are generally risk off as a result of political and economic uncertainty, but the sustained levels of demand should encourage them to assess their portfolios and look at development and refurbishment options that can be brought forward when the risk appetite improves.”
JLL highlighted that the Western Corridor investment market recorded volumes of £350m in Q1 2018, a fall of 37% from the corresponding quarter of 2018.
Angus Minford, director of capital markets at JLL, said: “2017 saw record transactional volumes which were heavily assisted by a flurry of business park transactions, conditions which were unlikely to be replicated in the first quarter. Investors continue to focus on prime/core assets seeking steady and predictable income streams. Availability of suitable product remains thin and motivated sellers remain in short supply.”