Take-up has increased for the third consecutive quarter amidst an increase in activity from smaller occupiers. New rental tones continue to be set with the supply of prime Grade A space limited
Market churn returns with take-up increasing for the third consecutive quarter
Positive momentum has been building in the occupational market despite the ongoing political and economic headwinds with take-up rising for three consecutive quarters. Take-up for the third quarter of the year reached 730,000 sq ft which was the highest quarterly total this year and only 9% below the five year average. This resulted in take-up for the first three quarters of the year totalling 1.9 million sq ft which was 19% below the five year average.
The lower levels of take-up activity in 2022 can be primarily explained by the limited take-up recorded in Q1 2022 where working from home guidance was implemented for most of January in response to the Omicron Covid-19 variant, resulting in take-up being 45% below the five year average for the first quarter of the year.
The Western sector geographic region of the market continues to be the most active accounting for 54% of take-up in 2022. Notable centres which have experienced good levels of transactional activity in 2022 are Maidenhead and Crawley which have recorded their highest levels of take-up in the last five years.
The churn of smaller occupiers leasing space in the market has returned with 80 deals recorded between 5,000 and 10,000 sq ft at the end of Q3 2022 which was the highest total at this stage since 2019. There has also been an increase in demand from occupiers leasing 10,000–19,999 sq ft with 18 deals recorded in Q3 2022, this was the highest quarterly total since the start of 2020. The uptick in activity from smaller occupiers bodes well for deal volumes, over the last five years, 83% of deals have been recorded below 20,000 sq ft. There has, however, been a reduction in activity from medium-sized occupiers with deals recorded between 20,000–49,999 sq ft 38% below the five year average for the first three quarters of the year.
Technology companies have been the most active business sector across the wider market accounting for 27% of take-up recorded
Steven Lang, Director, Commercial Research
A key trend in the market is the ongoing flight to quality with occupiers seeking aspirational workplaces that provide highly specified, amenity rich and sustainable office space as they seek to attract and retain staff in a competitive labour market. This trend has been evident in 2022 with Grade A space accounting for 64% of space transacted across the wider market area. This proportion rises to 70% when focussing solely on leasehold transactions (excluding owner-occupier purchases).
Technology companies have been the most active business sector across the wider market accounting for 27% of take-up recorded. The sector has acquired the highest quantum of space in the four of the last five years. There has been notable activity from ADP, Ultra Electronics, Tech Data and Huawei who have all leased over 30,000 sq ft in 2022. Oxford Economics forecasts employment in the professional, scientific and technology sectors to increase by 9% across the South East in the next five years.
Supply levels remain below average with the development pipeline limited
Supply levels across the market area have increased by 5% since the end of 2021 but are 5% below the ten year average with 14.8 million sq ft available. The increase in supply has been mainly caused by an increase in poor quality secondary space being returned to the market with available grade B space increasing by 31% since the end of 2019. The majority of available grade A space across the market is concentrated in the Western sector with 65% of grade A supply located in this region.
The development pipeline across the market area is limited with 1.7 million sq ft either under construction or comprehensive refurbishment which equates to seven months of take-up in an average year.
Prime Grade A stock continues to set new rental tones with seven submarkets achieving record rents
The ongoing flight to quality in the market has resulted in record rents being achieved across the market area. There were 13 submarkets which achieved record rents in 2021 and this trend has continued in 2022. St Albans, Putney, Maidenhead, Weybridge, Watford, Stockley Park and Heathrow have all set new rental highs in 2022.
Prime rental growth is forecast to continue despite the economic headwinds. Only 9% of the available supply is located in prime Grade A buildings which offer multiple amenities and strong sustainability credentials.