According to Savills, take-up in the south east office market has been characterised by a number of sub 20,000 sq ft deals in 2017, which can be attributed to a noticeable drop in corporate activity due to continued uncertainty around Brexit. Despite this, the firm anticipates a considerable uptick in 2018 as businesses are forced into making key real-estate decisions.
Savills research shows that tech occupiers accounted for up to 27% of new leasing activity across the region in 2017, with the south east continuing to benefit from London’s status as a global technology hub. Looking forward however, Savills believes the life sciences sector will see significant take-up as demand remains strong and the sector faces a renewed focus as part of the UK Government’s new industrial strategy. This is already evident as the largest requirements in the market are currently from life sciences companies including Sanofi, Merck, UCB and Novartis.
Despite an absence of larger transactions, key deals for 2017 included technology business Fiserv acquiring 28,000 sq ft at Brockton and Landid’s new The Porter Building in Slough and Grass Roots, the employee benefits group, taking 44,000 sq ft at Westside in Hemel Hempstead.
The serviced office sector has also seen significant growth, with Regus’s new Spaces concept taking centres across the south east, including 41,000 sq ft at McKay Securities recently refurbished scheme at 9 Greyfriars in Reading town centre. Savills predicts that take-up of this type of space will continue into 2018 as, in addition to established operators such as Regus and Orega, new entrants such as Work Life, Central Working and Fora will become increasingly active in the region.
Jon Gardiner, head of national offices, commented: “Whilst take-up in 2017 has been muted, we are confident that larger corporate occupiers will resume making decisions in 2018 and commit to new space. With a new impetus on wellness and fierce competition to both attract and retain staff, companies with tired, old and uninspiring accommodation are recognising the need to be located in modern office buildings that provide plenty of amenity. For example, global firms such as Ericsson and Orange have already starting searching for new premises and this is likely to encourage others to follow suit.”
With a number of larger deals on the horizon in 2018, this is set to greatly reduce Grade A supply across the region, which will be compounded by limited delivery of new stock. Savills notes that there is little to no development finance available for speculative product and this looks unlikely to change in the next 12 to 18 months, particularly as Brexit draws near.
Gardiner added: “Due to an acute lack of speculative development over the next few years, those that do commit to delivering new stock are likely to emerge as winners. In the meantime, we expect landlords to look to new innovative ways of increasing value and appealing to occupiers. One suggestion is to engage more with serviced and co-working providers, particularly in buildings of more than 20,000 sq ft, where this amenity is then offered as part of a multi-let building.”