UK | Research &
Forecast Report
SOUTH EAST OFFICES
Q1 2017
Market Highlights
Q1 TOTAL TAKE-UP
>> Overall SE take-up in Q1 is 741,295 sq ft. Leasing activity is down 4.0% q-o-q
and 5.4% y-o-y. The largest letting this quarter was to ASOS at Leavesdon
Park, Watford at 75,000 sq ft.
>> 51% of take-up this quarter was for space between 20,000 sq ft - 50,000 sq ft,
comprising of 12 deals in total.
>> In comparison, 28% of take-up in Q1 2016 was for office space in this size
band, comprising of seven transactions. First quarter leasing activity in both
years saw circa 40% of deals between 5,000 sq ft - 20,000 sq ft (see Figure 1).
>> Watford witnessed an unprecedented level of take up this quarter (105,000
sq ft), which is 61% of total 2016 annual take-up. This includes two deals –
ASOS at Leavesdon Park and Salmon Ltd who took a 30,000 sq ft pre-let at
Clarendon Works.
>> Combined take-up in West London reached 175,855 sq ft, this is 46% of the
2016 year-end leasing total for the region. The majority of deals (97%) was for
space in the 20,000 sq ft - 50,000 sq ft sizeband.
>> 376,000 sq ft of space is currently under offer and we expect strong levels of
demand to continue into the second half of 2017.
>> There continues to be an occupier trend for best quality space with availability
levels down across the entire region. We have seen supply reach its lowest
levels, down 7% on Q4 16. Vacant stock has nearly halved since 2010 (45%),
equating to a difference of 8.9 million sq ft. As a result, vacancy rates are also
at their lowest levels – North M25 (5.7%), Thames Valley (11.4%), London
(5.9%) and South M25 (9.4%).
>> In terms of pipeline, there is very limited product coming to the market over the
next two years in both the Thames Valley and the wider South East.
>> Prime rents have remained firm as a whole across the entire market but in
several key North M25 towns we have seen significant annual rental increases
– St Albans (44%), Watford (31%) and Hemel Hempstead (6%). Rental
incentives and lease flexibility still remain the main focus for most occupiers.
Fig 1. SE Office Take-up by Size Band
q-o-q
741,295 sq ft
4.0%
21
10%
3%
NORTH M25
SOUTH M25
23%
26%
% TAKE-UP
BY MARKET
W LONDON
SW LONDON
NW LONDON
W LONDON
NORTH M25
1%
8% 2%
11%
% AVAILABILITY
BY MARKET
SOUTH M25
Q1 2017 %
of take-up
12
21%
11
51%
20K-50K
21
17%
3
32%
28%
Source: Colliers International
50K+
Deals
20%
Q1 2016 %
of take-up
7
10K-20K
23% 12
TV
53%
25%
ANNUAL RENTAL GROWTH BY TOWN
44% £34.50
St Albans
35% £33.75
31% £31.50
Harrow
5K-10K
TV
25%
24%
Watford
18%
11.1%
NW LONDON
Croydon
1
5yr qtrly avg
10% £27.50
7.4% £36.50
Reading TC
Reading OOT
6%
£34.00
Hemel Hempstead
6%
£18.50
Hammersmith
Maidenhead
5%
3%
£59.00
£38.00
VACANCY % AND TRENDS
TV
11.4%
NW LONDON
3.1%
NORTH M25
5.7%
WEST LONDON
7.4%
SOUTH M25
9.4%
SW LONDON
7.1%
TOWN SNAPSHOT READING
Reading is the commercial centre of the Thames Valley, considered as the
heart of Britain’s Silicon Valley, and named the UK’S No.1 in PWC’s ‘Growth
for Cities’ report of the 36 largest economic areas. Whilst it already benefits
from excellent road and rail transport links, the long awaited arrival of
Crossrail in 2019 will further enhance the town, reinforcing it as one of the
Thames Valley’s leading office locations.
Headline rents across the Reading market look set to remain strong, due to a
number of new Grade A town centre developments setting the rental tone and
the general lack of quality out-of-town product (see Figure 3).
Reading’s key Business Parks are home to some of the world’s largest hightech firms including Microsoft, Oracle, Cisco, Symantec, Logica CMG, Huawei,
Veritas and more recently, major corporates such as Bayer and Thales. In
the town centre, there is a diverse cross section of occupiers, which include
market leaders in the Professional and Business Services sectors; such as
PwC, Deloitte and Ernst & Young.
Q1 2017 saw just under 60,000 sq ft of take up, of which 62% was in the
town centre (see Figure 1). The early signs for 2017 are promising with an
estimated 105,000 sq ft currently under offer in the town centre alone.
In a positive sign for Reading, Macquarie Bank recently moved some office
functions from their City HQ taking 12,500 sq ft, setting the rental tone at
£36.50 psf at M&G’s R+ (see Figure 2). We expect to see more Central
London occupiers continuing this trend due to excellent connectivity, which
will be further enhanced with the arrival of Crossrail in 2019.
Landid & Brockton’s latest development Thames Tower, directly opposite
Reading train station, has already achieved some early success precompleting a 14,000 sq ft letting to Austin Fraser. With a host of other deals
also rumoured to be under offer, this could see over 100,000 sq ft of take-up
within this impressive new scheme over the next few months.
Thames Tower, Reading
FIG 1: READING ANNUAL TAKE-UP
READING IS THE MAJOR COMMERCIAL
CENTRE OF THE THAMES VALLEY
In town
Under offer
500,000
sq ft
BRITAIN’S SILICON VALLEY
Out of town
600,000
5 yr average
387,840
400,000
300,000
200,000
100,000
HOME TO SOME OF THE WORLD’S LARGEST HIGH-TECH FIRMS
0
2011
2010
2012
2013
2014
2015
2016
Q1 2017
TOWN CENTRE
12,500 SQ
AT
R+
2013
2014
2015
£36.50
IN TOWN
RENTS
OOT RENTS
£34.00
£32.00
£34.00
£34.00
£31.00
£33.50
£31.00
2012
£31.00
£27.50
2011
£29.00
£27.50
£30.00
£28.50
£25.00
2007 2008 2009 2010
2016 Q1 2017
FIG 3: READING ANNUAL AVAILABILITY
2.5m
Out of town
2.0m
In town
5 yr average
1,481,664
1.5m
1.0m
0.5m
0.0m
2
£30.50
£28.50
£28.50
£27.00
£25.00
£26.00
Q1 17
OF
TAKE-UP WAS IN THE
£26.50
62%
sq ft
TAKE-UP
FIG 2: READING PRIME RENTS
2010
2011
2012
Research & Forecast Report | Q1 2017 | South East Offices | Colliers International
2013
2014
2015
2016 Q1 2017
Source: Colliers International
INVESTMENT COMMENTARY
Investment Volumes by Investor Type
As expected, the 2017 investment market for South East offices got off to a
slow start with approximately £440 million transacted in the sector over 26
deals. More encouraging is that there is a further £210 million under offer
going into Q2.
Overseas, 2%
Office to
Residential
Buyers, 15%
Private
Investors,
15%
This is; however, not dissimilar to Q1 2016 albeit that saw 39 transactions.
The most notable trends of the quarter were:
>>The lack of assets being offered to the market for sale.
>>The continued appetite from Local Authorities to buy well let secure
investments both inside and outside their Boroughs.
Councils,
19%
>>The absence from the market of the majority of Financial Institutions as
either buyers or sellers.
The graph shows the split of buyers during Q1. The Fund figure is slightly
skewed by Legal and General’s acquisition of their campus at Kingswood for
£65.25 million.
The office-to-residential conversion market continues to be strong with some
South East markets, such as Bracknell, seeing residual residential values
outstripping those for offices resulting in a significant loss of office stock in
the town. In some cases, Local Authorities are responding by making Article
4 Directions meaning they can refuse Permitted Development applications
and protect their office stock.
Generally, the appetite for South East offices remains strong with a depth
of well-funded buyers for both the prime well-let assets and secondary
assets which require asset management. Consequently, we have not seen
any softening of prices with prime yields holding up at around 5.25%. The
exception to this is secondary assets on the Business Parks, which are
proving less popular to investors as rental growth prospects are limited and
tenant demand generally thin.
Funds,
28%
Property
Companies,
15%
Source: Colliers International
There continues to be “hot” spots favoured by investors, which are generally
the more densely populated towns with strong infrastructure and transport
links. These towns have limited supply and present real opportunities for
rental growth. Examples include, Croydon, Guildford, Cambridge, Watford,
Brighton, St Albans plus the majority of Greater London sub markets.
Q1 2017 Investment Highlights
PROPERTY
SIZE (SQ FT)
AWULT TO BREAK/EXPIRY
PRICE
NET INITIAL YIELD
Legal & General
Campus,
Kingswood
253,486
9
£65,250,000
6.01%
Legal & General
Chiswick Green,
Chiswick
82,307
10.9
£65,100,000
5.25%
Runnymede
Borough Council
Reading Bridge
House
114,853
7.4
(6.2)
£35,000,000
6.42%
(net of top ups)
Topland Group
Westpoint,
Peterborough
177,621
12.15
£25,100,000
7.28%
Atlantic Leaf
First Point,
Gatwick
62,028
7.2
(XX)
£18,300,000
7.28%
Gatwick Airport
Collingham House,
Wimbledon
36,024
11.9
(9.2)
£14,920,000
4.08%
Knight Frank IM
Source: Colliers International
3
Research & Forecast Report | Q1 2017 | South East Offices | Colliers International
PURCHASER
METHODOLOGY AND CHANGES TO STATISTICAL ANALYSIS
Colliers International South East Offices has changed our geographic boundaries to separate out NW London, West London and
SW London. The mapA43below provides a detailed representation of the towns and cities included in these groupings.
A43
NATIONAL OFFICES
Milton Keynes
Mark Taylor
+44 20 7344 6575
[email protected]
A43
Mark Emburey
+44 20 7344 6906
[email protected]
Stevenage
M40
NORTH M25
Toby Lumsden
+44 20 7344 6706
[email protected]
Welwyn Garden City
Hemel Hempstead
Oxford
St Albans
Hatfield
Harrow
NW LONDONM11
High Wycombe
Ealing
WEST LONDON
Marlow
Maidenhead
THAMES VALLEY
South Ruislip
Uxbridge
Stockley Park
Slough
Newbury
Twickenham
Croydon
Weybridge
Hook
M20
M26
Leatherhead
Fleet
SOUTH M25
Basingstoke
A2
Epsom
Woking
Farnborough
Wimbledon
New Malden
Chertsey
BLACKWATER VALLEY
INVESTMENT
SW LONDON
Kingston upon Thames
Staines
Camberley
Hammersmith
Richmond
Hayes & Heathrow
Brentford
Bracknell
White City
Chiswick
Windsor
Reading
Alys Holland
+44 20 7344 6794
[email protected]
Wembley
Watford Borehamwood
Guildford
Reigate
Redhill
Rob Cregeen
+44 20 7344 6579
[email protected]
Alex Titheridge
+44 20 7487 1617
[email protected]
Tom Farkas
+44 20 7487 1609
[email protected]
M23
RESEARCH AND
FORECASTING
A3
Crawley
Lisa Dean
+44 20 7487 1961
[email protected]
This report gives information based primarily on Colliers International data, which may be helpful in anticipating
trends in the property sector. However, no warranty is given as to the accuracy of, and no liability for negligence
is accepted in relation to, the forecasts, figures or conclusions contained in this report and they must not be relied
on for investment or any other purposes. This report does not constitute and must not be treated as investment or
valuation advice or an offer to buy or sell property. (April 2017) © 2017 Colliers International.
Colliers International is the licensed trading name of Colliers International Property Advisers UK LLP which is a
limited liability partnership registered in England and Wales with registered number OC385143. Our registered office
is at 50 George Street, London W1U 7GA. 16481
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