Market snapshot

Office Market Pulse South Coast Q2 2015

Although there was a slight increase in supply of office space in Q2 2015, there is no change to the long term downward trend. Add to this an increase in enquiries and a forecast increase in take-up for the second half of 2015 and we can see that the lack of new development schemes is becoming increasingly serious.

Andrew Hodgkinson, director of south coast office agency for Lambert Smith Hampton commented: “Businesses in our market are performing well and expansion is the driving force behind relocation.

“With enquiry levels for the 1st half of 2015 up by 40% on the same period in 2014 and 100% up on 2013 figures and with a number of disposals in the pipeline, we expect strong take-up in the second half of the year.

“Given this long term increasing demand and with no new development in the pipeline, we face the real prospect of losing occupiers to other locations.”

To read or sign up to receive office market pulses from other centres, please click here.

In this issue:

Enquiries up across most size bands

• Q2 enquiry tally of 52 matched high demand seen in Q1

• Enquiry level for the first half of 2015 is up by 40% on the same period in 2014, increasing both in terms of volume and size

Looking at a breakdown of enquiries, a positive sign this quarter has been the increase in larger enquires (above 10,000 sq ft) from Q1, especially in the 10-20,000 sq ft range, where requirements increased from 5 in Q1 to 13 in Q2. This is due largely to business expansion, mostly from local companies and we expect it to result in positive take-up figures by the end of the year.

 

Take-up falters but is expected to rally strongly

• The south coast office market experienced a quieter Q2 than Q1, with take-up figures falling to 80,992 sq ft (below 85,000 sq ft for the first time since Q1 2014)

• Total take-up for H1 2015 is 271,751 sq ft, compared to 216,893 sq ft for the same period in 2014 - showing a 25% increase

We expected to see a quarter on quarter fall in take-up, following the influence of a 70,000 sq ft letting in Q1, however, this fall was larger than expected. At just over 80,000 sq ft, the take-up was well below the average 94,000 sq ft, although Q2 is often quieter than later quarters. Election uncertainty was partly responsible for the inertia seen, and we expect take-up to pick up significantly for the rest of the year.

Looking at the first half of the year in total, although the average transaction size fell to approximately 5,250 sq ft, encouragingly, the number of transactions was maintained and as we expect this to rise in H2 2015, the 2015 total should be robust.

 

Supply increases in the short term but long term contraction is maintained

• Office supply rose by 5.6% to 1.374 million sq ft in Q2 2015

• We expect to see a return to longer term trend of contraction expected by the year end

The increase in supply seen during Q2 was due to a number of buildings returning to the market in the city centre, such as buildings at Nelson Gate where HSBC has moved outside of the city centre and Mountbatten House, which Lloyds Register vacated to move to a purpose built office.

However, with strong take up figures anticipated for the second half of 2015, we expect a fall in office supply, in particular, prime office accommodation.

Looking ahead to the next two to three years, this may well create a problem for businesses in our region, with the anticipation of office supply being squeezed further through strong and increasing year on year take up and no new development in the pipeline. We face the real prospect of losing business to other markets unless new space can be provided.

In the medium term, if the current economic conditions continue, this should mean a rise in prime rents beyond £20 per sq ft where the right supply and demand dynamics prevail, which we anticipate will stimulate the next wave of office development for the region in locations such as Southampton Science Park, Lakeside North Harbour and Royal Pier Waterfront.

 

Significant south coast office transactions

Property

Size (sq ft) 

 

Vendor/landlord  Tenant/purchaser Lease information 
11 Queensway, Southampton

 13,110

Confidential Confidential

Freehold sale 

Oceana House, Southampton

9,495

Bond Dickenson (tenant) PWC (sub tenant) 18 month lease
Spinnaker House, Fareham

8,570 

Horatio Properties Mercator 10 year lease
45 Castle Way, Southampton

7,879 

Forester Private developer  Freehold sale
Second Floor, Port House, Port Solent 5,631  Premier Marinas Liquid Friday Confidential

Investment sector sees flurry of properties bought to market

After a very quiet Q1 due to a hectic end to 2014 and election uncertainty, there has been a flurry of properties bought to market in Q2 on the south coast. This has included multi let Grade A offices - Charlotte Place with a quoting price of £15.5m, Vanbrugh and Jellicoe House in Botleigh Grange Business Park for £8.325m and Four500 Parkway at a quoting price of £8.737m, all of which are under offer. We expect this momentum to continue and pick up, particularly towards the end of Q3.

Rents continue their upward trend

Rents of £19.00 per sq ft have been achieved both in the city centre and out of town markets for the best office space and quoting rents are now ahead of this. 
 

Key investment deals

• Regus House, Southampton, was sold for in excess of £6m, reflecting a NIY of circa 7%. Regus House has a floor area of 24,835 sq ft, with over 11 years unexpired lease to Regus (Southampton Airport) Limited at a rent of £447,000 pa.

• Wingfield House, Portsmouth, was sold by Helix to Hampshire and Regional for £8.7m, reflecting a NIY of 12%. Wingfield House totals 95,442 sq ft and is let to the First Secretary of State at a rent of £1.125m pa, with a lease expiring 28 September 2026 and a tenant break option on 2 April 2021.

• Oceana House, Southampton, was sold to Fidelity for £10.1m, reflecting a NIY of 8.1%. The property totals 41,500 sq ft and is let on an overriding lease to Bond Dickenson Service Company Limited, for a term of 16 years from 21 July 2001, at a current rent of £862,824.50 pa.


 

Want more information about this Snapshot?

Andy Hodgkinson

023 8071 3075

Email me

Regions

Contact us now

Graham Holland
Head of South Coast

023 8071 3074

How can we help?

Submit