Towns in the South East could experience shortfalls in office availability as development activity in the region slows.
Last year, 840,000 sq ft of speculative space was delivered to market, down from 2.4m sq ft in 2017, according to Knight Frank’s latest research, the M25 Report 2019.
Five town centres now have less than two years’ supply – Watford, Croydon, Brighton, Cambridge and Oxford – and they will be most affected by decreased development and lower vacancy rates.
In the M4 corridor, the vacancy rate will fall to 5.3% by 2021, and to 3.8% within the M25, for new and grade A-space, which occupiers are targeting. These rates are well below the long-term trend, according to Knight Frank.
The M25 Report 2019 identifies four sectors in the region that will add 14,000 jobs over the next five years and generate occupational demand. They are life sciences, media, computing and professional services.
These sectors are dominant in the 21 active enquiries currently demanding 1.65m sq ft in buildings of more than 50,000 sq ft. This demand will not be able to be met in the Thames Valley, as only six self-contained buildings of more than 50,000 sq ft remain available.
Emma Goodford, head of national offices at Knight Frank, said: “Deal numbers in the South East have been steadily rising, although we have seen a reduction in deal size, largely due to the increase in efficiency and technology shifting workplace trends.
“We are seeing strong demand in the region, with 5.2m sq ft of active enquiries and we expect to see some big deals. We are also now in a cycle where we are seeing the highest rents ever paid in 15 of the top 18 towns, meaning that the market can justify speculative development. Against this strong demand pipeline we are heading for a supply crunch. We are essentially seeing a perfect storm of falling vacancy rates, decent demand but challenging delivery, so we must address how we navigate the market over the next five years.”
Goodford added that the key threat to supply is a lack of speculative funding, with rising build costs influencing viability. As a result, the market needs to focus on refurbishments, she argued. “Three sources provide this: unimplemented permitted development consents, which amount to 3m sq ft; older buildings with lease events, which provide 11m sq ft in the next three years; and tenanted space which is vacant and could be surrendered, which we estimate at 2m sq ft.”
See also: South East office investment volumes drop by 40%
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