South East: Knight Frank reports office take-up holds steady

Knight Frank has reported that office take-up in the South East reached 778,300 sq ft in Q3 2016, defying the post-Brexit predictions of a sharp fall in occupier activity.

This higher-than-expected total meant that South East office take-up for the year increased to 2.6 million sq ft, on a par with the long-term average for a nine-month period. Most notably two further lettings above 50,000 sq ft were completed during the third quarter bringing the total above this threshold for 2016 to nine, just one short of the full-year total for 2015.

With take-up remaining above trend, availability stayed at a low level, despite an additional 300,000 sq ft of space coming to market in Q3. Total available space in the M25, M3 and M4 areas is now between 19% and 32% below the 10-year average. Markedly, the vacancy rate for the M25 region specifically has dropped to 4.8%, the lowest level since 2001.

Emma Goodford, head of national offices at Knight Frank, said: “Demand for space sub-20,000 sq ft space has been particularly strong. This has meant that rents and incentives have held firm for this size bracket, which is positive news for landlords.

"In addition, the low level of supply remained a significant factor in Q3, especially in the north and south M25 regions, with vacancy rates unlikely to change significantly for either of these areas in the next 12 months. However, we will see an increase in supply in the Thames Valley, with the first wave of new speculative developments due to come to market in Q4 2016. This though, will be a short-lived expansion of supply, because of the limited number of speculative starts in 2016.”

Investment volumes for the quarter proved encouraging with £719 million of stock transacted, albeit almost half of this Spelthorne council’s acquisition of the BP HQ in Sunbury for £340m. Prime yields now stand at 5.25%, 25 basis points softer than Q2. Encouragingly, total investment for 2016 has now reached £2.2 billion, the second highest total at the Q3 mark since 2006.

Credit: CoStar