South East market recovery demonstrates continued commitment to offices

The South East office market saw strong activity in Q1 2021, with take-up on par with the 10-year quarterly average, according to the latest research by global property consultancy Knight Frank.

Office take-up in the South East reached 784,170 sq ft with a total of 44 transactions, the highest quarterly total since Q4 2018 and the highest first quarter total since 2016.

The first quarter of the year recorded more deals over 50,000 sq ft than in the whole of 2020. The Public Sector accounted for 35 per cent of total take-up and serviced office providers remained active, accounting for 13 per cent.

The M4 saw the highest recorded take-up levels since Q4 2018, with a total of 457,500 sq ft, supported by the 112,000 sq ft lease to 3 at Green Park, Reading. Similarly, the M3 recorded strong activity, with take-up 20 per cent above the 10-year quarterly average.

Despite the increase in take-up, vacancy in the South East increased to 7 per cent from 6.8 per cent in Q4 2020. Total available space in the M25 and M3 remain below the 10-year averages, however, vacancy in the M4 is now 9.5 per cent, above the 10-year average of 9 per cent. The amount of space under construction stands at 1.6 million sq ft, 47 per cent of which has already been leased.

Emma Goodford, Head of National Offices at Knight Frank, says: “Current market activity demonstrates a continued commitment to offices and the strength of the workplace in the South East. The M4 has performed strongly, reflecting the underlying tech sector dominance and connectivity of this region. Structurally, the market is in balance.”

Investment volumes saw an 18 per cent increase compared to Q4 2020, with a total of GBP482 million transacted, on a par with the 10-year average for a Q1 period and the highest level since pre-Covid, demonstrating a steady improvement in investor sentiment.

Overseas capital accounted for 61 per cent of investment volumes, with foreign buyers completing five of the seven deals over GBP20 million. By deal number, Prop Co’s were the most active buyer, accounting for nine out of 22 deals, however private equity accounted for 33 per cent of investment volumes across three deals. Throughout the Covid-19 pandemic, Prop Co’s and private equity have accounted for 47 per cent of deals and 58 per cent committed capital combined.

Simon Rickards, Head of National Offices Capital Markets at Knight Frank, comments: “Increased investment activity is a major positive for the market post Covid-19, particularly the strong commitment from foreign buyers. The life science sector continues to be a large focus for many overseas buyers, with the largest and most notable deal being Brockton’s purchase of five buildings at Cambridge Science Park from L&G for GBP98.7 million.”