February 1, 2016
The ‘M25’ office market returned to pre-recessionary levels in 2015 as take-up reached 4.25 million sq ft, which is the highest recorded figure since 2007. Given the higher levels of demand in the regional commercial property market, take-up is predicted to reach 4.5 million sq ft for 2016. The research by Savills claims that the ‘Western Sector’ was the strongest performer in the market within the M25 during 2015, where 1.91 million sq ft was transacted, which accounted for 44 percent of total take-up. Improving economic conditions combined with a reduction in grade B and C office space, due to permitted development rights, meant that 62 percent of space transacted was for grade A space. Total supply currently stands at 18.34 million sq ft, which is a 7 percent decrease from 2014, not helped by the fact that approximately one million sq ft of office space has been converted to residential uses since 2014.
During 2015 there were eight deals over 50,000 sq ft, this increase in the number of larger deals being reflective of headcount growth amongst corporate occupiers, whilst also allowing for planned growth. The largest of these was SSE’s acquisition of 185,940 sq ft at 1 Forbury Place, Reading. Reading was the strongest performer in the South East market, reinforcing its dominance as the leading market in this region. Other notable deals were Virgin Atlantic leasing 110,545 sq ft at Abstract Securities’ speculatively developed Leonardo Building in Crawley.
Grade A supply is currently 3.74 million sq ft, which is a 5% decrease from 2014. Building 7, Chiswick Park is the largest grade A building on the market where 292,604 sq ft is available.
However, the highest rent achieved was not at Chiswick Park; Unibet signed a pre-let agreement at Pinnacle House, Wimbledon for 42,410 sq ft at £54 per sq ft. This is the highest rent achieved in Wimbledon and highlights the rents occupiers are prepared to pay to secure grade A space in tightly supplied markets.
The recent Danone deal at Building 7, Chiswick Park set a new rental tone for the park achieving £52.50 per sq ft. In core markets Savill’s expects rental growth to continue in 2016 most notably in Croydon, Reading and Slough.