The Greater London & South East office market saw positive leasing momentum build throughout 2022 with take-up incrementally increasing in each quarter, culminating in Q4 take-up being the second highest quarterly total in the post Covid-19 pandemic era. Below are the key trends we expect for the South East Office market in 2023.
Rental growth continues despite turbulent macro-economic outlook
While there continues to be economic headwinds in the short term, many economists expect macro conditions to improve by Q4 2023. The continued imbalance in supply and demand on ESG compliant office space has resulted in schemes that offer strong environmental credentials and multiple amenities setting new rental tones. Record high rents were achieved in St Albans, Richmond, Putney, Watford, Maidenhead, Croydon, Heathrow and Windsor in 2022. Further rental growth is expected in 2023 notably in Reading and Maidenhead where prime rents are expected to surpass £45.00 per sq ft.
Continued bias to grade A space
The ongoing flight to quality in the market was evident in 2022 with 68 per cent of space transacted being Grade A standard, the highest proportion since 2018. We expect this to continue with occupiers seeking aspirational work environments to attract and retain staff in a competitive labour market and support the return to the office.
This trend will be more evident amongst corporate occupiers where in 2022, 75 per cent of deals recorded over 20,000 sq ft were located in grade A buildings. There were 28 requirements over 20,000 sq ft in Q4 2022, amounting to 1.07 million sq ft. Notable occupiers searching in Greater London & South East for over this threshold include The Wood Group, McDermott, Bechtel, Visa and Nomad Foods.
Additionally, hybrid working is here to stay and a weaker economic environment may lead to a rise in employees returning to the office. LinkedIn reports that solely remote working vacancies were at their lowest level since September 2021. This indicates a shift in working pattern expectations from employers, and the increasing use of the office space, even if requirements on the whole are likely to shrink by 10-20 per cent.
Tech companies to remain resilient
We do not expect ‘Big Tech’ redundancy announcements to significantly impact occupier demand from the sector in the South East region. Demand from technology occupiers is predominantly from the expansion of smaller to medium sized companies rather than increased expansion of large technology occupiers with 81 per cent of deals recorded by the sector in the last five years below 20,000 sq ft.
Take-up from technology companies recovered the fastest when compared to other business sectors, post the Great Financial Crisis 2009 and the 2020 Covid-19 pandemic. Additionally, technology companies accounted for 26 per cent of companies who raised over £30 million in 2022, the highest proportion when compared to other sectors.
The expansion of the education sector
The education sector leased 502,000 sq ft of office space across London and the South East in 2022, which was the highest volume in the last ten years. Demand has originated not only from universities currently based in London but also those regional and international institutions seeking new satellite campuses to capture the significant international and post-graduate student market. This trend has continued in 2023 with the recent announcement of Teesside University opening a new 26,000 sq ft satellite campus at Here East, Stratford.
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