Oxford and Cambridge underpin rise in Q3 South East office take up

Office leasing volumes across the South East and Greater London increased 30 percent to 870,831 sq ft in the third quarter of 2023, according to Knight Frank's commercial property team. The Q3 total was marginally (three per cent) above the 10-year average  and represents the highest quarterly take-up total in 2023. A high deal count was contributory to the rise, with ninety occupier transactions  completed; well above an average of sixty. Notably, 83 per cent of the space leased was in new or Grade A buildings, demonstrative of the occupational preference towards acquiring the best quality workspaces.

Demand in Oxford and Cambridge continued to bolster the market, with the cities accounting for 26 percent of total take-up during the quarter. The UK government’s Nuclear Decommissioning Authority 53,000 sq ft lease agreement in Oxford’s Harwell Science and Innovation Campus was the largest deal out of the fifteen completed across these markets in Q3. Year-to-date, the two university cities account for 31 per cent of total take-up in the South East. 

Moving into the final quarter, 1.3 million sq ft of space was under offer, with Cambridge and Oxford accounting for 20 per cent of this total. More than one million sq ft was under offer across the wider South East region, providing a positive platform for transactional levels in the coming quarters. Looking further ahead, current active demand breached the five million sq ft mark in Q3 2023, finalising at 5.4 million sq ft. This is the highest total for two years, with the Technology Sector accounting for 39 per cent.

Investment transactions in the third quarter totalled £112 million across 15 deals, with smaller sized acquisitions dominating activity due to the current debt financing environment. The largest deal of the quarter was Mid West’s £17.5 million acquisition of The Lansdowne Building in Croydon, with the majority of deals transacting below the £10m mark. The quarter also saw Citi Private Bank purchase Kia’s UK headquarters in Walton-on-Thames for £12 million. 

Deal sizes in Q3 were reflective of the year so far, with all but two transactions during in 2023 having completed at a price under £50 million. However, over £500 million of stock is currently under offer or had recently exchanged at quarter end, suggesting a busier end to the year.

Prime office yields in the South East softened by a further 25bps to 6.75% in Q3, albeit the potential for further outward shifts is reducing. The Bank of England’s recent decision to hold base rates and the recent dip in the 5-year SONIA swap rate, lend weight to the prospect of a slightly more favourable investor environment moving forward.

Roddy Abram, Head of South East & Greater London Offices at Knight Frank, said: “Whilst Q3 was again dominated by the Oxford and Cambridge, greater interest and optimism is developing across other key South East markets. The level of space under offer and new requirements remains encouraging, with prime product monopolising activity and enquiries. Viewings are certainly rising, particularly for grade A space, and these indicators substantiates our opinion of a gradual upward trajectory for the South East market.”

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Simon Rickards, Head of National Offices Capital Markets at Knight Frank, added: “Although Q3 volumes were lower than historical levels, we are seeing an increasing numbers of buyers looking to invest in both income deals and the stronger office markets. There is now a growing conviction that we have reached the bottom of value erosion, at least for the better quality stock. A busy end of year is anticipated.”