South East: Corporate activity stimulates commercial property market

The firm has analysed the relationship between corporate investment and the subsequent impact on corporate property needs and the research "clearly demonstrates an ensuing period of business expansion resulting in an overall uptick in real estate requirements for the region".

Savills research shows that in this time period, the western sector of the M25 office market, most notably the towns of Slough, Bracknell and Windsor, has seen the highest amount of investment totalling £29b, equating to 48% of the M25 market. Examples of large corporate transactions in 2017 include Reckitt Benckiser, Vocalink, Affinity Water and E2V Technologies, which combined have seen up to £5.4b of funding.

The two stand-out business sectors for corporate investment since 2015 have been technology and manufacturing, raising £29.1b and £8.8b respectively. In direct correlation, Savills notes that these sectors have also been the most active in the occupational market, based upon the regions five-year average take-up, accounting for 17% and 21% of total space transacted.

Simon Preece, associate in the commercial research team at Savills, said: “In particular, the technology sector has continued to expand in the region, most notably in the Thames Valley. For example, Reading now has the largest digital cluster in the UK, which is supported by the highly skilled resident labour force and excellent public transport connections to London making it a strong location for venture capitalists and private equity investors to explore.”

Savills suggests that developers and investors could potentially capitalise on the high levels of investment activity by speculatively developing in the market, especially as financial backing continues to drive demand. For instance, following £60.9 million of funding into drug development start-up Autolus this year, the firm now has a requirement to double its office space in White City, west London from 15,000 to 36,000 sq ft.

Despite this, there is limited speculative development taking place. This is most notable in the northern and southern M25 sectors, where only four schemes have been announced or are currently under construction.

Savills reports that this could create a problem in the medium term, considering that £31bn has been invested into companies in these regions since 2015. Furthermore, with prelet deals extremely rare in the market, the long term average is just 0.9%, the case for speculative development becomes stronger still.

Jon Gardiner, head of national office agency, added: “It is absolutely crucial that there is sufficient office space available that will allow these companies to prosper. In certain smaller markets there has been limited amounts of development which has resulted in companies having to relocate in order to expand. If there continues to be a lack of good quality supply, then it is likely to hinder further employment and economic growth.”