Take-up volumes were 35% above the 10-year average in Q1 2021 as the positive momentum from the end of 2020 continued to build in the market, with take-up increasing for the third consecutive quarter after the first lockdown
The positive momentum building in the Greater London & South East office market was evident in Q1 2021, with take-up reaching 1.09 million sq ft. This represented an increase of 37% from Q4 2020 and was the third quarterly increase in take-up since the first government lockdown restrictions were imposed on 23rd March 2020. The take-up recorded in Q1 2021 was 20% above Q1 2020 and 35% above the 10-year average, highlighting the good levels of demand present in the market.
Above-average take-up in Q1 2021 was primarily caused by three large deals over 50,000 sq ft. Three, the telecommunications company, leased 117,000 sq ft at 450 Longwater Avenue, Green Park, Reading; the building is currently being speculatively developed by Mapletree Investments and is now fully let. The other two deals were Unilever pre-letting 276,000 sq ft at the Hive and Honey Buildings, Kingston; and PVH Corp also pre-letting 50,000 sq ft at 1 Wood Crescent, White City, further adding to the cluster of retailers who have relocated to White City.
There has been an ongoing flight to quality in the market with Grade A space accounting for 68% of take-up in Q1 2021. It is anticipated this trend will continue, with secondary office space not being as well-suited to accommodate the anticipated new models of office work. This has been reflected in the demand from corporate occupiers, with 74% of deals over 50,000 sq ft since 2016 being located in Grade A buildings.
The public sector was the most active business sector in Q1 2021, accounting for 36% of take-up. This can be attributed to the Department for Work and Pensions expanding the office footprint of the Jobcentre Plus in the region.
The improving occupier sentiment in the market has been evident, with 2.3 million sq ft of requirements recorded in Q1 2021 – which was 25% above Q1 2020. This bodes well for future take-up and highlights the strength of pent-up demand that has been released into the market.
2021 is showing promising signs of resurgence across the South East office markets with, in particular, some noteworthy transactions that underline the important role that offices play for corporate occupiers
Jon Gardiner – Head of National Office Agency
Supply levels remain low, with development pipeline limited
Supply levels in the region remain low with available space totalling 13.4 million sq ft which reflects only a marginal increase of 1% from end Q4 2020 but still 19% below the 10-year average. The supply constraints are notable in Watford, Bracknell and Croydon, which all have below two years of Grade A supply available based upon the five-year average Grade A take-up, which Savills classifies as undersupplied.
The development pipeline in the region remains constrained with 1.8 million sq ft under construction which equates to seven months of take-up in an average year which will result in supply levels in the market remaining low in the short term.
Flight to quality has resulted in continued rental growth
Headline rental levels across the region have remained stable for Grade A space since the first lockdown. The ongoing occupier preference for the best quality space has resulted in rental growth with average Grade A rents increasing by 2% since the end of 2020. The ‘flight to quality’ from occupiers has enabled strong rental growth in the market, with average grade A rents increasing by 17% in the last five years.
Submarkets with limited availablity of Grade A space have experienced rental growth, which was exemplified in Q1 2021 with record headline rents achieved in Kingston, Brentford and Ealing.