Demand for office space is still high in the usually quiet first quarter of 2016

20th June 2016

A new report and industry analysis by global real estate advisor CBRE show that demand for office space is still high in the first quarter of 2016. In fact, 3.1 million square feet of office space was leased by commercial organisations despite the possibility of the UK leaving the European Union.

The largest deal in that period saw Thomson Reuters acquiring 315,400 square feet in Canada Square in the Docklands.

Data from the report shows the current amount of office space under offer remains unchanged from the previous quarter at 3 million square feet. This figure is above the ten-year average of 2.8 million square feet since the beginning of 2014.

Other findings concluded;

  • Development has so far tracked with demand
  • Supply has increased by 2% over the quarter to3 million square feet. 17% below the 10-year average

Emma Craw, head of Central London Leasing at CBRE said: 

 ‘Between a weak outlook for global economic growth and an upcoming vote on EU membership, businesses have had to contend with a heightened level of uncertainty.  

‘That demand for office space has remained so resilient speaks volumes for London’s ongoing attractiveness as a global hub for those companies hoping to lay down roots or expand their footprint in the capital.’

Although the high level of space under offer is particularly encouraging, we anticipate a more subdued second quarter as the referendum vote gets closer. We will be on course for a rebound in leasing activity in the second half of the year provided the UK votes to remain in the EU.’

UK’s South East office market also makes strong start to 2016

When looking at the UK’s South East office market, there’s been a strong start to 2016 since 2008.

Latest research the latest M25 Offices report from Knight Frank since 2008 the report found the following;

  • Overall take-up in the South East Office market increased by 30% in the first quarter of 2016
  • 973,000 square feet of space was let or acquired during the quarter, 10% above the ten-year The high level of take-up ensured that overall supply remains historically low with availability across the South East markets 25% to 30% below the long-term trend.
  • Following record investment in 2015, the first quarter of this year has recorded £494 million of investment, which is consistent with the ten-year
  • The £325 million acquisition of SEGRO’s 972,000 square foot office portfolio in Slough by AEW was significant, not only the largest transaction in the South East market for two years, but also evidence of overseas purchasers becoming more active and widening their UK focus beyond Central London.

With stock levels improving in the second quarter of 2016 Knight Frank predict an increase in transaction volumes from the middle of the year and expect investment volumes to be close to £2 billion by the end of the year.

Emma Goodford, head of National Offices at Knight Frank, said that overall take-up in the first quarter has been encouraging, particularly set against increased market anxiety relating to the forthcoming referendum on the future of the UK in the European Union.

‘Although, some decision making will clearly be deferred until after the vote, we continue to see interest rise from a diverse array of occupiers with active named demand topping 6.6 million square feet. With this in mind, we are predicting strong rental growth in key locations, particularly where new development is accompanied by infrastructure and amenity improvements,’ she explained.

According to Tim Smither, head of National Offices Investment at Knight Frank, the weight of capital targeting opportunities in the South East remains robust.

‘While some investors pause to await the outcome of the EU referendum, others are seeing opportunity. In particular, high yielding, asset management opportunities remain keenly sought after, supported by a strong rental growth outlook for the region,’ he said.

 

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