New office up-take rises in the southeast, says Knight Frank

New office take-up in South East England increased in the third quarter, which was better than expected, an estate agent said on Tuesday.

Knight Frank’s research found that office take-up in the southeast rose to 2.6m square feet, which is on trend for the long-term average for the last nine-months, but was the higher than expected.

However, office space supply was low, despite an additional 300,000 square feet of space coming to market during the quarter.

Total available space in the M25, M3 and M4 motorway areas is between 19% and 32% below the 10 year average in particular, the vacancy rate near the M25 dropped to 4.8%, the lowest since 2001.

Emma Goodford, head of national offices at Knight Frank, said third quarter take-up was better than recent investment sentiment would suggest with demand for 20,000 square feet space particularly strong.

The low level of supply was factor in quarter, especially in north and south of the M25 and vacancy rates are unlikely to change for these areas in the next 12 months.

However, there will be an increase in supply in the Thames Valley, with the first wave of new developments due to come on the market in the fourth quarter of the year, but there is is still a limited number of speculative starts.

Goodford said: “In the investment market, the immediate aftermath from Brexit led to a rapid softening of sentiment. However, as the third quarter progressed, confidence gradually returned with deals threatened by Brexit completing, albeit often at a slightly reduced ticket price.”

She said investment volumes were encouraging with £719m of stock transacting, albeit almost half of this was from Spelthorne Council’s acquisition of BP’s headquarter in Sunbury for £340m.

Prime yields now stand at 5.25%, 25 basis points softer than than the second quarter, with total investment for the year reaching £2.2bn, which is the second highest total in the third quarter since 2006.

Tim Smither, head of national offices at Knight Frank, added that as UK funds remain largely neutral, the estate agent has seen a flow of overseas capital, residential developers and council investors to fill the void.

“We anticipate a reasonably active finish to the year, with a significant amount of equity looking to be deployed, albeit deliverable stock remains limited.”