New research from Colliers International reveals a mixed picture in the South East office market in Q3 as take-up falls in the face of limited expansion-led demand in the last two quarters, but investment more than doubles following large portfolio transactions. The global real estate advisor also forecasts a strong but cautious outlook for Q4, as the sector readies for sizeable end of year fund allocations in the face of an on-going shortage in supply.

Whilst total take-up in the South East office market reached 467,456 sq ft in Q3 2017, this shows a fall of 108,000 sq ft on the previous quarter. On a positive note over 450,000 sq ft is currently under offer in the South East, therefore Colliers anticipate take-up levels to significantly increase in the last quarter of 2017 and into 2018.

In the same report, Colliers reveals that Q3 2017 South East office transactions totalled £1.75 billion in over 52 deals. This is more than double the £700 million transacted in Q2 and over four times the £440 million transacted in Q1. A major contributory factor to this was down to two large portfolios that traded in the quarter.

Agency

A significant number of current occupier requirements are being driven by lease events with fairly limited evidence of true expansion-led demand in the last two quarters reports Colliers. However, headline rents generally remain strong across the South East, with some towns still witnessing sustained growth such as Slough, which has reached £34.00 per sq ft this quarter. This is an impressive 19 per cent annual increase bringing it in line with other prime Thames Valley towns such as Maidenhead and Reading.

Hammersmith and Slough had the greatest level of leasing activity this quarter at 95,000 sq ft and 61,000 sq ft respectively. The level of demand in Hammersmith, along with solid take-up in Ealing and White City, helped West London see take-up levels increase by more than 50 per cent quarter-on-quarter and year-on-year.

“A lack of choice in Grade A space and a lull in the future pipeline supply in some towns such as Bracknell, has resulted in a recent increase in occupier activity, with a strong focus for ‘best in class’ product. We have noticed that floor-plates are having to work harder in order to either retain and attract new occupiers with building presentation and image also growing in importance. Reception areas, for example, are now being perceived and used as more than just a point of arrival and improved building amenity continues to be a key focus for many occupiers,” said Mark Emburey, director, national offices at Colliers International.

Investment

The South East office market continues to be popular with overseas investors looking to take advantage of the weakened pound and the attractive returns available.

Financial Institutions represented only 18 per cent of all transactions for the quarter.

“Values in South East offices show no sign of softening for good-quality, well-let, multi-tenanted town centre offices. However short/medium-term income opportunities are proving less attractive.

“We have a cautious optimism for a strong H2 and we anticipate a busy Q4 as investors look to allocate funds before year end. However, the shadow of Brexit and the lack of available stock on the market may mean that Q4 2017 may not be as strong as we have seen in previous years,” said Rob Cregeen, director, national capital markets at Colliers International.