Following a steady level of leasing activity in Q2, office take-up in the South East for the year increased to 1.6m sq ft, 4% above the long-term average for an H1 period.
Significantly, the number of deals completed in the first half of 2017 is equivalent to that of last year. Average deal size has decreased however, with only two deals completed above the 50,000 sq ft mark in H1 2017 compared with seven in the first half of 2016.
The Technology, Media and Telecoms (TMT) sector was the most active in Q2 and now represents 25% of total space let in 2017. Significantly, the amount of space secured by TMT occupiers in H1 2017 is equal to that recorded at mid-year 2016, highlighting both, the growth ambitions of the sector in the South East and its resilience to wider market disruption.
On the supply side, although take-up has been at a level consistent with trend, availability remains on an upward trajectory, bolstered in Q2 by the delivery of a further 510,000 sq ft of speculative development. Of this, four schemes along the M4 corridor totalling 350,000 sq ft reached practical completion. Availability in the M4 catchment breached the 6m sq ft mark during the quarter, the highest level for 3 years.
In the investment market, a lack of opportunity has continued to restrict market activity. Investment volumes at the mid-point have now reached £973 million which is 7.4% above the 10-year average for the period. The considerable weight of capital seeking exposure to South East offices meant that pricing largely held firm, particularly for prime, and importantly continues to offer discount when compared to Central London.
Emma Goodford, Head of National Offices at Knight Frank commented:
“Six of the ten largest requirements under offer in the South East prior to the general election vote have now exchanged – this equates to 160,000 sq ft or 65% of total space under offer. This shows continued occupier confidence despite market uncertainty.”
Tim Smither, Head of National Offices Investment at Knight Frank, commented:
“Those investment opportunities that have come to the market over the past quarter have witnessed fierce competition from a mixture of overseas, UK Funds and Councils as lack of stock continues to be present within the M25. We foresee a busy H2, with more stock expected and continued positive sentiment in our market.”