Strategic real estate advisor Avison Young has released its latest quarterly South East update, which focuses on performance of the 10 key office markets in the south east of the UK.

Occupier market

Piers Leigh, Principal South East Offices, Avison Young, said:
“Despite lockdown restrictions, the year has started off relatively well overall for the South East office market. Reading has been the star performer this quarter with 80% of last year’s take-up being recorded so far. This was largely driven by the 117,000 sq ft Three transaction at Green Park. The market has seen demand polarised between larger enquiries becoming active again and the continued pipeline of sub 10,000 sq ft demand, but overall sentiment is picking up as occupiers focus on a return to the office as restrictions are eased.”

Overall, Q1 take-up totalled 388,300 sq ft, just 2.6% on Q4 2020, which was the second strongest quarter of last year. However, this was 16% down on Q1 2020, which had been largely unaffected by the pandemic.

The out of town market saw the largest take-up bolstered by the Three letting in Reading. With other larger transactions taking place in the wider South East market, such as Unilever committing to an Agreement to Lease on a new 275,000 sq ft HQ in Kingston, confidence is beginning to return to the market.

The Department of Work and Pensions has been the most active occupier across the South East this quarter, having transacted on six deals totalling 147,643 sq ft.

Key South East office occupational transactions in Q1 2021:

• Three: 117,000 sq ft at 450 Longwater Avenue Green Park Reading at £38.50 psf
• Global Banking School: 68,760 sq ft at Greenford Square at a rent of £19.25 psf on a 15-year lease
• PVH Corp: 50,000 sq ft at One Wood Crescent in White City
• Department for Work and Pensions: 32,890 sq ft at Kennet Place Reading at a rent of £29.00 psf for a 5-year lease
• Department for Work and Pensions: 1&3 Hammersmith Broadway on a 5-year lease, at a rent of £39.50 psf
• Yoooserv: 20,000 sq ft at Building 5, The Heights in Weybridge on a 5-year lease
• Department for Work and Pensions: 17,000 sq ft Egale 2, Watford at £32.00 psf

Investment market

James McFeely, Director South East Offices Investment, Avison Young said:
“Unsurprisingly nine months of Covid restrictions impacted on occupiers’ ability to physically occupy their offices, which has dragged heavily on Q1 2021 investment volumes. Just £579m traded in Q1, substantially below the upbeat start to 2020, which totalled £1,083bn. Yet as we begin to see the end of the third national lockdown there is a shift of attitudes. Predominately, occupiers appear to be keen on a partial return to office and the investment market is seeing a greater depth of investment requirements. Assuming the easing of lockdown continues, the second quarter could see a quick rebound.”

Q1 2021 saw £579m of South East office transactions across 25 deals, representing a fall of 41% on Q1 2020 and 26% down on the 5-year average of £783m.

Prime yields remain stable at 5.75%. With investment supply restricted and lockdowns easing we may see yield compression over the year, especially as office occupiers make an anticipated return.

A clear theme has been the resurgence of Out of Town investment which accounted for the majority of transactions during Q1.

Key South East office investment transactions in Q1 2021:

• P&G, The Heights, Brooklands, Weybridge. 100,900 sq ft – Price: £49.55m – 5.22% - Purchaser: Private Overseas – Vendor: L&G
• 214 -240, Cambridge Science Park, Cambridge. 159,897 sq ft – Price: c.£95.00m – c.4.38% – Purchaser: Brockton Everlast – Vendor: L&G
• Object House, Vanwall Business Park, Maidenhead. 53,821 sq ft – Price: £20.90m – 7.17% - Purchaser: Kamco (M7) – Vendor: L&G
• Radius House, 51 Clarendon Road, Watford. 41,226 sq ft – Price: £17.13m – 5.60% – Purchaser: CLS Holdings – Vendor: M&G
• Anchorage, 34 Bridge Street, Reading. 29,998 sq ft – Price: £9.77m – 6.83% – Purchaser: Corum – Vendor: Federated Hermes

Avison Young’s quarterly South East office update focuses on 10 key markets, made up of in town and out of town markets, covering the whole of the south east geographical area (Cambridge; Milton Keynes; Oxford; Basingstoke; Reading; Maidenhead; Slough; Crawley; Guildford, Woking & Weybridge; and Watford).

To read the full research update on South East offices, click here.