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Take-up was above the long-term average in Q1 2020, and the supply constraints in the market persist with availability 9% below the five-year average
Occupier demand in Q1 2020 above the long-term average
There were good levels of occupier demand in the Greater London & South East office market in Q1 2020, which was reflected in take-up volumes reaching 873,000 sq ft. This was 36% above take-up recorded in Q1 2019 and 14% above the 10-year average. The Southern sector accounted for 56% of take-up in Q1 2020 most notable of which was the GPA’s pre-let of 329,500 sq ft at Ruskin Square, East Croydon.
There was still a good level of corporate activity in the market in Q1 2020 with six deals recorded above 30,000 sq ft, which was on par with the long-term average. Notable transactions included Asahi leasing 39,000 sq ft at Brook House in Woking and life science company DNAe pre-letting 30,000 sq ft at Scale Space, White City. There were eight other life science and healthcare occupiers who leased office space in Q1 2020.
This continued a theme that was present in 2019 of life science occupiers being active in the market. 2019 and 2018 were the two highest consecutive years of take-up recorded for the life science sector in the last 10 years. The Manufacturing and Industry (which contains life science occupiers) sector was the most active business sector in regards to the number of deals recorded. There were 13 occupiers from the sector who leased office space in Q1 2020. This was 63% above the long-term average for the first quarter.
There was limited evidence in Q1 2020 of the impact of Covid-19 on the market, as the initial social distancing measures and subsequent lockdown were only enforced in the second half of March. The initial hiatus in activity has been more apparent in smaller occupiers. However, our analysis has shown that in the first month since lockdown deals have continued to be signed or terms agreed, and there is still new occupational demand.
Covid-19 only really impacted the UK towards the end of Q1, and until that point had a very limited impact on office markets. Q1 saw an impressive upturn in occupier take-up, beating the same period as 2019 and above the 10-year average
Jon Gardiner - Head of National Office Agency
SUPPLY CONSTRAINTS PERSIST WITH DEVELOPMENT PIPELINE LIMITED
There is currently 12.7 million sq ft available which is a marginal increase on supply at the end of 2019. However, the supply constraints in the market have persisted, and current availability is 9% below the five-year average. The submarket which contains the highest quantum of Grade A space is Reading, there is just over 1 million sq ft available, which accounts for 18% of total Grade A supply in the wider market.
There is only 543,000 sq ft of new office space scheduled to complete in the remainder of 2020. When combined with the completions in Q1 2020, this equates to less than three months of take-up in an average year.
RENTAL GROWTH CONTINUES IN THE MARKET
The new developments in the market are commanding premium rents which has resulted in consistent rental growth. Record headline rents have been achieved in Slough and Woking in Q1 2020 where £38.00 per sq ft and £36.00 per sq ft were achieved, respectively. Average Grade A rents across the market have increased by 4% since the end of 2019 and stand at £36.25 per sq ft.