South East office market witnesses highest level of average transaction size since Q2 2021

The average transaction size within the South East office market rose to the highest level recorded since Q2 2021 in Q1 of 2024, hitting 17,597 sq ft, demonstrating healthy demand for units in excess of 10,000 sq ft, according to Colliers’ South East Offices snapshot.

The report highlights that as a result of these larger transaction sizes, rents have grown by more than five per cent year-on-year and the average prime rent across of the South East now stands at over £36, compared to £34.50 per sq ft in Q1 2023.

The snapshot states that the healthcare & pharmaceutical industry made up 30 per cent of take-up in Q1 2024. The largest transaction was the pre-letting of 97,488 sq ft to Johnson & Johnson at the Tempo development in Maidenhead and the scheme, which is due to complete soon, has been fully committed to.

Furthermore, pre-letting activity grew in Q1, with 23 per cent of the quarterly take-up (179,000 sq ft) made up of these types of transactions. Alongside Tempo, other large deals involved The AA, BDO and Epson, which took place in Basingstoke (41,500 sq ft) Guildford (66,415 sq ft) and Watford (30,530 sq ft) respectively.

Colliers notes that M25 prime rents grew by 1.2 per cent in Q1 2024 with Central Maidenhead setting a new high of £52.50 per sq ft, achieved at L&G’s Tempo scheme. Record rents were also achieved in Wembley (£46.40 per sq ft), Reading in-town (£40 per sq ft) and Guildford (£43 per sq ft).

Guy Grantham, director in the Research team at Colliers, commented: “The take-up rate was six per cent above the 10-year quarterly average during the first quarter of 2024, hitting 791,860 sq ft, underlining an improving overall level of demand year-on-year.

“Activity in this quarter demonstrated occupier appetite for premium product and transactions that have raised the rental ceiling in several locations.”

Willem Janssen, Head of South East Offices at Colliers, added: “Despite take up being down on the previous quarter, Q1’s total was in excess of the long-term average which shows that there is still healthy activity across the region. Encouragingly, well over half of all centres showed a decline in vacant office space year-on-year.”

Looking at the investment market, the firm’s research states that Q1 was relatively subdued as there was reluctance from vendors to accept investor pricing in the current climate unless there was clear rationale on having to transact such as redemptions or involvement from administrators/receivers.

Private Investors completed on 13 transactions (43 per cent) totalling £101 million, whilst property companies and residential developers each completed on five transactions (17 per cent) accounting for £40 million and £24 million respectively. Although overseas investors only completed on two transactions (seven per cent), they accounted for £49 million of total transaction volumes. The quarter also saw a small number of transactions concluded by owner occupiers, UK funds and private equity buyers.

UK funds remained by far the most active vendor in the quarter accounting for 16 out of 30 disposals (53 per cent) with investment volumes totalling £142 million (50 per cent).

Chris Lewis, Head of Office Investment at Colliers said: “With the Bank of England holding the base rate at 5.25 per cent for the fifth consecutive interest rate review, opportunistic and nimble investors, predominantly private investors, have remained active in Q1 as they looked to take advantage of the favourable market dynamics with weakened pricing and a thinner pool. With the prospect of an interest rate cut and a more competitive construction market later in the year, the optimum window for brave investors to deploy capital and leverage on the positive occupational story appears to be now.

“With a steady stream of office investment opportunities coming to the market, we expect the next couple of quarters to show the positive trend of increased transactional volumes, numbers and lot sizes.”