Market Watch:
Greater London & South East Offices

Greater London and South East Offices
Greater London & South East Offices

24 January 2017, by Simon Preece

2016 total take-up is 6% above the long-term average

■ Take-up in 2016 reached 3.8 million sq ft and there is 438,975 sq ft currently under offer. 2016 represented a robust year for the Greater London and South East office market, although 2016 take-up was 8% below 2015's total, it was still 6% above the long term average of 3.6 million sq ft. Q4 was particularly strong with 1.09 million sq ft being transacted, this highlighted the strong occupier demand currently within the market post the EU referendum. The Western Sector continued to be the strongest office market in the region as it witnessed the highest level of take-up across the South East accounting for 1.8 million sq ft. This equated for 47% of all take-up across the South East region.

 

GRAPH 1

Take-up by grade

 
Graph 1

Source: Savills Research

■ There were 11 deals this year over 50,000 sq ft, the largest being Lidl's 220,000 sq ft acquisition in Tolworth. Although the majority of activity was within the smaller size bands. The average deal size across the entire market is only 15,299 sq ft and 84% of deals in the market this year have been under 20,000 sq ft underlining that the majority of the market is comprised of churn of existing local occupiers.

■ The theme of decentralisation of occupiers from central London relocating certain operations to more cost effective locations has continued in 2016. Macquarie are under offer at R+ in Reading where they will relocate their asset finance team from the City of London. There are currently large requirements in the market from Virgin Media, Sony, Jacobs and Atkins who are all individually searching for in excess of 50,000 sq ft in the South East.

■ Contrary to previous years the technology sector was not the most active in the South East office market in 2016 as the manufacturing and industry business sector was the most active accounting for 22% of all space transacted this year. The pharmaceutical sector, which is part of this business sector, has been very active this year acquiring 337,000 sq ft of office space, which is nearly double the amount in 2015.

■ Total supply currently stands at 16.4 million sq ft which is a 2% fall from 2015. Available Grade A space has increased by 69% from 2015 with 6.5 million sq ft available as developers have responded to a chronic lack of Grade A supply. Grade B and Grade C offices have continued to be converted to alternative uses, further reducing supply. The vacancy rate is 7.7%, which is the lowest since 2001. There is 2.2 million sq ft currently under construction across 18 separate schemes.

GRAPH 2

Availability by grade

 
Graph 2

Source: Savills Research

■ Rental growth has been a key theme in 2016 with many core markets either achieving record rents or cycle high rents. This has been caused by a lack of Grade A supply in certain markets and new speculative stock setting new rental tones. We expect rental growth to ease in the markets where more than one building is being speculatively developed as there will be competition between the new buildings.

GRAPH 3

Average top rental forecasts

 
Graph 3

Source: Savills Research

MAP 1

Savills M25 market area

 
Map 1

Source: Savills Research

 
 

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Key contacts

Simon Preece

Simon Preece

Research Analyst
Commercial Research

Savills Margaret Street

+44 (0) 20 7409 8768

 

Steven Lang

Steven Lang

Director
Commercial Research

Savills Margaret Street

+44 (0) 20 7409 8738