New data from BNP Paribas Real Estate has shown that South East office take-up for 2018 totalled 3.38m sq ft, surpassing the total of 3.03m sq ft witnessed in 2017 and c. 18% ahead of the 10-year average. This also represents the greatest take-up level in 10 years overtaking 2013, which previously held the record at 3.33m sq ft.
This was primarily driven by an especially strong second half of the year, which accounted for 62% of total take-up. In Q4 totals reached 1.1m sq ft, just slightly ahead of Q3 at 980,497 sq ft which had previously been the best performing quarter for five years.
This high performing year was driven by the return of larger transactions during H2, which had been absent from the market over the first half of the year and uncommon in 2017. BNPPRE recorded 12 transactions over 50,000 sq ft in H2, of which four were in excess of 100,000 sq ft. In comparison, 2017 saw only four lettings in excess of 50,000 sq ft and none over 100,000 sq ft. The final quarter of 2018 alone witnessed eight lettings in excess of 50,000 sq ft, with the largest deal of the quarter at 500 Brook Drive Green Park where Virgin Media agreed terms for 127,000 sq ft.
Meanwhile in Q4, in a deal brokered by BNP Paribas Real Estate on behalf of Aviva Investors, McLaren agreed the lease of 64,210 sq ft at Victoria Gate, Woking. Other notable deals in the quarter included the 54,000 sq ft letting to Starbucks at Building 7 Chiswick Park, and the 56,000 sq ft letting to healthcare analytics company IQVIA, at No. 3 Forbury Place, Reading.
That said, although these larger deals provided a significant boost to take-up, the main volume of deals still took place in the 5,000-20,000 sq ft bracket, accounting for 70% of transactions in 2018.
The serviced office sector, which accounted for 9% of take-up in 2017, was increasingly active during 2018 with 18 new centres acquired. These sites totalled 480,000 sq ft and represented 14% of all take-up, with Spaces/Regus, Orega and Central Working among the most active operators.
Looking ahead to 2019, there are only two significant developments due to complete in the first half of 2019; Royal London and Lamron Estates’ 80,000 sq ft Space in central Woking and Legal & General and Mitsubishi Estates’ 242,000 sq ft development, 245 Hammersmith. This follows Q4 2018 which saw no speculative development completions.
With vacancy rates across the region now at 9% and pipeline development extremely limited, this, coupled with a reduced number of 50,000 sq ft+ active requirements, will mean it is unlikely that 2018’s take-up levels will be exceeded this year, with take-up anticipated to be more in-line with the 10-year average.
Ed Smith, Head of Office Agency at BNP Paribas Real Estate, commented: “The year has undoubtedly finished on a real high with the completion of some major lettings, resulting in a significantly improved level of take-up for the year. At 3.38 m sq ft this is the best result for 5 years, 10% ahead of last year and c. 18% ahead of the 10-year average.
“That said, take-up has not been evenly spread across the region, with the Thames Valley and west London markets dominating and accounting for 70% of all take-up. This was to be expected as we saw the majority of speculative development delivered here over the last three years.
“These two sub-markets have also witnessed a significant number of occupiers moving from other sub-markets as occupiers look to recruit and retain the best talent, continuing to be more important than property costs. Recent examples include Novartis moving from Frimley to White City, Virgin Media from Hook to Reading and Sanofi and Ericsson from Guildford to Reading. It is clear from this that the Elizabeth Line is now starting to really influence occupiers’ property decisions.”