Investors pour £2.49bn into South East office market, says Knight Frank

Investors pour £2.49bn into South East office market, says Knight Frank

Investment volumes in the South East office market so far this year have already eclipsed the full year tallies from 2020 and 2019, according to the latest data from global property advisers Knight Frank.

Total year-to-date investment into office assets across the South East region (excluding Central London) stands at £2.49bn, bolstered by a strong Q3 which saw £524m transacted. This also represents the second highest quarterly investment figure since Q1 2020. Despite travel restrictions, international buyers have accounted for 69% of investment volumes this year, to date.

Total office take up in 2021 has reached 1.95m sq ft, 27% up versus the same point in 2020, driven in part by a flurry of large deals. Seven deals of above 50,000 sq ft have completed in the first nine months of the year. This is the highest number of deals of this scale to complete during a Q1-Q3 period since 2016.

Vacancy levels remain low at 6.6%. Even if speculative schemes under construction were to be included vacancy would only rise to 6.8%, still below the 10-year average of 7%. Much of this is secondary space which does not meet minimum ESG requirements and desired amenity provision demonstrating the shortage in new, Grade-A office stock.

TMT occupiers continue to drive demand, with the sector accounting for 33% of leasing activity this year and its average letting of c. 21,750 sq ft is the highest since 2005.

Simon Rickards, Head of South East Capital Markets at Knight Frank, said: “Investors have been drawn to the strong underlying fundamentals and prospects for the South East office market, given that it has experienced strong levels of demand from high growth industries such as the TMT and life sciences sectors. Many of these occupiers are willing to pay above average rents for the right space that meets their ESG requirements and offer the necessary amenities to attract talent in a competitive market. The fact that this profile of office space is limited in supply, due to the development pipeline being squeezed over the past 18 months, means that investors are competing for assets in an undersupplied market where future demand will continue to increase asset values in the higher end of the market.” 

Emma Goodford, Head of National Offices at Knight Frank, added: “The pandemic has driven demand from technology and innovation sector occupiers but rising construction costs and longer lead times for materials has resulted in a very limited number of new, vacant, top-quality space available across prime commercial centres in the South East. Occupiers are increasingly selective of amenities and the overall build quality of their offices, accelerating acquisition strategies to not miss out on the buildings that meet these criteria.  As supply reduces, those assets that have a progressive specification and service offer will attract premium rents.