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Office space shortage in the south east

Published on Monday, 01 July 2019

Major towns and cities in the South East including areas around Kingston upon Thames are facing a shortage in office space supply.

 

The situation in the region is stark with development activity in the office market just 840,000 square feet of speculative space delivered to market in 2018, down from 2.4 million in 2017.

 

Analysis by global property adviser Knight Frank found strong demand from tenants but a lack of supply. The report identified five town centres which now have less than two years’ supply - Watford, Croydon, Brighton, Cambridge and Oxford.

 

As businesses stay put the lower vacancy rate is also impacting the situation. The report found vacancy rates in the M4 corridor will fall to just 5.3% by 2021 whilst it’s even worse in the M25 at 3.8% for new and grade A offices, the premises most in demand. 

 

Office space will be placed under even greater strain as forecast growth in the region will create 14,000 new jobs in the next five years, according to Knight Frank’s M25 Report 2019. It identifies life sciences, media, computing and professional services as strong areas of growth in the area which currently dominate active enquiries seeking 1.65 million square feet in buildings over 50,000 square feet. However, this demand cannot be met in the Thames Valley as only six self-contained buildings over 50,000 square feet remain available.

 

Knight Frank identifies the main issues being lack of speculative funding availability and rising build costs. In order to meet demand, refurbishments need to take place thereby improving current stock and bringing it up to a higher standard.

 

Another trend in the area is the growth of flexible office space which accounted for 16% of the South East in total in 2018, up 4% from 2016.

 


Investment volumes in the region are declining and are down 25% on 2017 to £2.7 billion, but 16% above the long-term average in 2018 with the most active investors being funds and councils. 

 

However, the lack of supply in key towns and cities in the region could have a knock on effect for surrounding areas or ‘secondary markets’ which Knight Frank has identified as  including St Albans, Woking, Redhill and Brentwood. Whilst these towns are experiencing similar issues with regards to supply, costs are lower.

 

The findings are borne out by research from Savills which found take-up of office space reaching 4.09 million sq ft in 2018, 17% above the long term average and a 27% increase on 2017. Demand has been highest in the western part of the region with Reading, White City and Slough being the top performing markets in 2018. Reading and Slough saw their highest levels of take-up since 2000 and 2005, respectively.

 

The report highlighted 13 deals recorded above 50,000 sq ft, the joint highest since 2007. Companies leasing over 100,000 sq ft included Publicis Media, Virgin Media and Asos whilst Slough Borough Council bought 25 Windsor Road, Slough comprising 110,000 sq ft for their own use.

 

It was the technology sector which was the most active last year responsible for 24% of office space transactions, according to Savills. The demand for flexible office space is also reflected in Savill’s report with serviced office operators leasing over 513,000 sq ft, the highest amount since 1999 and accounting for 13% of take-up, the highest proportion on record. It is expected that the demand for flexible office space will continue throughout this year.

 

With office supply in demand and not enough availability together with limited development, not surprisingly it is expected that rental growth will continue throughout 2019.

 

From a more local perspective, the findings of both Knight Frank and Savills sit with our experience. Demand for office space is particularly high in SW postcodes, particularly Wimbledon and Wandsworth with Richmond and Twickenham also extremely popular. 

 

Whilst still high in demand, businesses willing to consider Kingston upon Thames just a few miles south from both areas with its rail links to Waterloo and close proximity to the M25 will find more stock available. Currently, there are three major developments underway in the town which is set to attract even more people to live and work in the area. These are St George PLC which is creating 300 apartments in the Royal Quarter; the Eden Walk Shopping Centre regeneration which is being undertaken by British land, proposals incorporate new homes, retail units and leisure activities including an independent boutique cinema; and Salmon Harvester’s Surrey House development which will again incorporate new homes and retail space.

 


For details of property available in all these areas visit www.bonsors.com or to discuss your requirements in more detail call 0208 546 0022.

 

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Bonsors are Chartered Surveyors and commercial property agents dealing with all aspects of commercial property in South West and West London, Surrey and Middlesex

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