2011 office take up focuses on M27 corridor

Office take-up across Southampton during 2011 remained at similar levels to 2010 with a total for the year of 66,000 sq ft. On a wider basis, across the major UK cities, take-up during 2011 was, on average, 10% lower than the previous year.

The largest transaction of 2011 saw Lloyds Register’s taking 13,000 sq ft at Mountbatten House, closely followed by E-Digital’s acquisition of 10,000 sq ft at Vanbrugh House, the only other noteworthy deal of this size in the Southampton area.  Much of the demand throughout 2011 focused principally on short-term solutions for many occupiers, with most lettings achieving terms of five years or less. Whilst there have been few major trends or sector ‘bias’ during year, demand continues to be driven by lease expiries and break clauses.

The out of town market, particularly the M27 Corridor, has seen significantly more activity with Pall acquiring 110,000 sq ft at North Harbour and Raymarine relocating to a smaller unit of 63,000 sq ft in Segensworth. At Lakeside, Highcross had a very successful year, letting over 115,000 sq ft, the majority of which was in two major transactions to Capita, who took 50,000 sq ft, and the Co-Op which took 17,000 sq ft.

Commenting on the findings, CBRE South Central Regional Managing Director, James Brounger said: “Whilst 2011 was a tough year in many respects, we are seeing opportunity in various sectors of the market. Rents and yields have remained stable throughout the year and we expect this to continue in 2012. Investors are able to capitalise on low pricing and occupiers are finding excellent value and flexibility.”

Although supply levels remain high across most regional cities, in Southampton supply has continued its downward trend, 9% lower than at the end of the first half of 2011 at 635,492 sq ft and 8% lower than at year ago. Secondhand space continues to dominate regional markets: for every square foot of new space, there is 3.6 sq ft of secondhand space, a ratio which has risen rapidly during the downturn from a level of just 1:1.5 in 2008.

In common with other cities, Grade A availability is also down as occupiers favour quality stock and any footloose occupier looking for over 50,000 sq ft of new ready-to-occupy city centre space across all the major Regional Cities will have a limited choice.  The largest selection is in Birmingham, with a choice of four buildings. Edinburgh, Manchester and Leeds can offer up three buildings, whilst the choice is limited to just one in Bristol and at present nothing at all in Southampton.

Looking ahead net effective rents are likely to be relatively stable, but there is a possibility of downward pressure on incentives for better quality space in specific size brackets.  On the supply-side the key issue will be the lack of good quality stock, an issue which is common to many regional cities. With prevailing rent levels and constrained demand, speculative schemes are unlikely with any development relying on pre-lettings at higher rents and on longer term leases. Typically landlords will look at speculative refurbishments to fill the gap in the meantime providing a compromise solution for some occupiers.