South East: Savills reports office rents rising to record levels
Savills reports that the South East office market has seen record rents achieved across many of its core markets, with average prime Grade-A rents rising by 7% from £35 to £37.50 per sq ft. The rise has been driven by a combination of strong demand, fuelled by the cost advantage in comparison to central London, and a lack of good quality space in towns across the region which has placed upward pressure on rents.
The top rent has been achieved in Maidenhead at TH Real Estate’s The Pearce Building following a deal to Blackberry earlier this year. The trend in rising top rents has also been seen at M&G’s R+ Building in Reading town centre, and at Stockley Park’s Four Longwalk.
Jon Gardiner, head of national offices at Savills, said: “As predicted this time last year, and despite Brexit, prime headline rents have remained solid across core locations. While this is likely to continue in the short term, a number of Grade-A schemes such as The Charter Building in Uxbridge, 25 Windsor Road in Slough and Two Forbury Place in Reading are set to complete over the next 12 to 18 months, creating competition that will, in most towns at least, slow the rate of rental growth witnessed to date.”
Savills expects take-up to hit 3.6 million sq ft by the end of 2016, which is in line with the long-term average, driven in part by strong demand from the technology and pharmaceutical sectors.
This year to date, pharmaceutical firms in particular, have accounted for as much as 29% of take-up in the Thames Valley with significant deals to companies including Bayer, Mallinckrodt and Becton Dickinson.
Other key deals in the region have seen HMRC sign a 184,000 sq ft pre-let at Stanhope and Schroders’ One Ruskin Square in Croydon, Thales take 80,000 sq ft at Green Park in Reading and Ocado occupying 148,000 sq ft at T-Mobile’s Hatfield Business Park.
Overall, with the exception of the larger deals, this year has been characterised by smaller-sized transactions. Savills calculates that more than 80% of both demand and actual take-up was for lettings of less than 20,000 sq ft. This could be attributed to larger corporate occupiers in the area putting their real-estate decisions on hold until there is more clarity over Brexit and what Article 50 might entail.
Gardiner continued: “Despite ongoing political uncertainty, the South East office market has remained largely resilient, although the absence of larger corporate deals has made for a more challenging market in which landlords have had to adapt their leasing strategies to create more flexibility. However, going forward into 2017 we do expect to see further examples of some businesses relocating operations, in part or in full, from Central London to the South East, following the lead of companies such as Maersk, Macquarie Bank and Rank.
“Furthermore, we expect to see the continued evolution of office specifications and finishes delivered by landlords, as occupiers of all types and industries increasingly demand a unique workplace environment as a way of attracting and retaining staff.”
Credit: CoStar
