Record rents for South East property

Record rents for South East property

The South East office market has seen record rents achieved across many of its core markets over the last year, according to new research by Savills.

The research shows average prime Grade A rents have risen by 7% from £35 to £37.50 per sq ft (£376 per sq m to  £403.64 per sq m) during the period.

This 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.

Jon Gardiner, head of national offices at Savills, said: “As predicted this time last year, and despite the somewhat uniquely challenging market conditions posed by the outcome of the EU Referendum, prime headline rents have remained solid across core locations.

“Whilst 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 also expects take-up to hit 3.6 million sq ft (334,451 sq m) 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 has seen HMRC sign a 184,000 sq ft (17,094 sq m) pre-let at Stanhope and Schroders’ One Ruskin Square in Croydon, Thales take 80,000 sq ft (7,432 sq m) at Green Park in Reading and Ocado occupying 148,000 sq ft (13,749 sq m) at T-Mobile’s Hatfield Business Park.

Overall, with the exception of the aforementioned larger deals, this year has been characterised by smaller sized transactions. Savills calculates that more than 80% of both current demand and actual take-up was for lettings of less than 20,000 sq ft (1,858 sq m).

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.

Jon added: “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.”