Office rental growth in the South East hit a six-year high in Q1 this year, but leasing activity slumped, according to LSH’s latest South East office market report.
The number of deals that completed in Q1 2023 was half the eight-year high recorded in Q4 last year, although LSH said that provisional take-up figures of circa 1.6m sq ft for H1 2023 was just 7% below the same period in 2022.
The pharmaceuticals and health sector accounted for the largest share (23%) of total take-up in the region for the first time ever, with Moderna’s 145,000 sq ft pre-let at Harwell (pictured) boosting the figures.
LSH’s data found 18 of the region’s 25 key markets saw prime headline rents tick-up over the past year, averaging 5.9% growth on average across the region. The company expects this trend to continue and is forecasting nine locations will enjoy prime headline rental growth in excess of 10% between now and the end of 2025.
Ryan Dean, head of national office advisory at LSH, said: “Recent activity has been unremarkable but the market is on the cusp of a wave of relocations, as occupiers commit to right-sizing their post pandemic workspaces. Given that many South East markets currently offer few truly best in class options, there is considerable opportunity for landlords to exploit gaps in the market, especially if they can move quickly.”
Investment activity in the region has also been sluggish with provisional figures suggesting circa £1bn of deals completed in H1 2023 – the lowest half-year total since H2 2020 and almost half the long term average.
Charlie Lake, capital markets director at LSH, said: “The extent of correction in the secondary market opening up a wealth of opportunity to reposition tired and increasingly obsolete assets. Alongside firm evidence of rental growth for high quality refurbishments, lower prices are now increasingly helping to compensate for the required cap ex to bring these assets up to standard.
“Those that can move now and deliver product first will have the first mover advantage, and evidence is suggesting that residual values for the best opportunities have already reached the bottom.”
