Take-up falls and supply rises but signs of late year optimism with rising requirements
Savills has observed signs of improvement, with the requirements index for units over 100,000 sq ft rising by 108% quarter-on-quarter within the Inner M25, and 41.7% for the wider South East area. This suggests a stronger outlook for transactional activity throughout 2025
Toby Green, Director, Head of London and South East
Supply
Over the past twelve months, supply levels in London and the South East have risen by 18%, now standing at 11.39 million sq ft across 66 units. This increase is due to speculative development completions, alongside the return second-hand units to the market. The combined vacancy rate currently stands at 7.81%, with the South East vacancy rate at 8.46%, and the Inner M25 vacancy rate at 6.48%.
When analysing current supply by grade, 40% of the available space is grade A speculative development, 22% is grade A second-hand space, 19% is grade B, and 19% is grade C.
By unit count, there are 49 units available in the 100,000–200,000 sq ft size range representing a 17% increase in the last twelve months, 13 in the 200,000–300,000 sq ft range representing a 63% increase, three in the 300,000–400,000 sq ft range representing a 40% fall, and one unit over 500,000 sq ft which is on par with the level seen twelve months ago.
The rise in supply can be attributed to 3.24 million sq ft of second-hand space being added to the market over the past twelve months, with over 1.06 million sq ft in the North West (M40-A1) Corridor and approximately 870,000 sq ft in the Eastern Corridor. Additionally, c.900,000 sq ft of speculative development completions have contributed to the vacant supply. Nearly 400,000 sq ft has been added in North East London, 370,000 sq ft in the North West (M40-A1) Corridor, and 200,000 sq ft in the Eastern Corridor.
The analysis indicates that most of the Inner M25 region is facing a constrained market, with less than two years of supply across most size bands. North East and North West London stand out as the most attractive areas for speculative development, with less than two years' worth of supply across all size ranges. The South East presents a more varied picture, with certain size bands, particularly the 100,000–200,000 sq ft range in the Eastern (A13/A12) and North East (A10/M11) and North West (M40-A1) corridors, showing less than two years worth of supply based on average take-up. Overall, the South East and Inner M25 require more targeted strategies based on specific size band demand.
Take-up
In 2024, take-up reached 2.67 million sq ft across 14 transactions, representing a 26% decline compared to the levels seen in 2023. All transactional activity this year has occurred within the South East, with no 100,000 sq ft plus deals inside the M25. However, positive sentiment is emerging, as our in-house Savills requirements index has seen a 41% increase on the long-term quarterly average, suggesting a rise in activity in 2025.
In 2024, 24% of the space transacted was built-to-suit compared to 33% nationally, 15% was newly speculatively developed compared to 25% nationally, and 61% was second-hand space compared to 42% nationally. Despite the majority of transactions involving second-hand space, there is still a clear preference for best-in-class quality buildings, with 86% of the second-hand units transacted being grade A quality. In total, 95% of the space transacted in 2024 was grade A, with just 5% being second-hand grade B or C space.
In terms of size bands, there were ten transactions within the 100,000–200,000 sq ft range which represents a 41% fall on the long-term average, a single transaction within the 200,000–300,000 sq ft size range representing a 75% fall below the long-term average, two within the 300,000–400,000 sq ft range, and one within the 400,000–500,000 sq ft range, both of which are in line with the long-term average.
According to the long-term annual averages, we typically see 17 units transacted in the 100,000–200,000 sq ft range, four in the 200,000–300,000 sq ft range, two in the 300,000–400,000 sq ft range, one in the 400,000–500,000 sq ft range, and one over 500,000 sq ft.
In 2024, the breakdown of transactional activity by sector was as follows: 26% from third-party logistics (3PLs), 19% from online retailers, 17% from wholesalers, 17% from manufacturing-related companies, 9% from food producers, and 11% from the ‘other’ sector which consists of film studios, data centres and other alternative occupiers.
Development pipeline
Currently, there are eleven units under construction across the two regions, totalling 2.4 million sq ft. Of these, six are within the 100,000–200,000 sq ft size range, two within the 200,000–300,000 sq ft range, one within the 300,000–400,000 sq ft range, and two within the 400,000–500,000 sq ft range.