Market snapshot

Office Market Pulse South Coast Q4 2017

Total Take-up for the South Coast office market in Q4 2017 was 101,063 sq ft. Total take-up for 2017 finished at 295,577 sq ft, which was 14% below the 10 year average take-up figure.

The out of town market (M27/A27 corridor) saw the greatest take-up. The most active sectors were Technology, Media & Telecoms (47%) and Finance, Banking & Insurance (37%).

Enquiry levels were 36% higher than those received in Q3 2017. 83% of all Q4 enquiries were for space less than 10,000 sq ft. Supply continued its downward trend and fell below 1,000,000 sq ft (988,344 sq ft) for the first time in over a decade.

Investment activity saw around £25m of office assets transacted on the South Coast in Q4 2017, with continued activity from Local Authorities. The sector (and particularly ‘out of town’), is being viewed more cautiously and carefully than others sectors, although there remains robust interest for assets providing long and secure income.

In this issue:

2017 continued the trend of demand for smaller office space.

Enquiry levels (>2,500 sq ft) increased by 36% from Q3 and were in line with average enquiry numbers for the past 3 years. Overall enquiries for 2017 were 21% higher than recorded in 2016.

2017 continued the trend of demand for smaller office space. In Q4, 83% of all enquiries were for space less than 10,000 sq ft and this was replicated throughout 2017 where 79% of all enquiries were for this lower size bracket. This compares to 67% in 2015 and 73% in 2016.

Take-up recovers following positive figures in Q4

Overall 2017 take-up for the South Coast office market recovered following positive figures for Q4, in which 101,063 sq ft was transacted across 16 deals. This represented a 42% increase from Q3 2017 and an increase of 11% from Q4 2016.

The out of town market (M27/A27 corridor) saw the greatest take-up (67%) with the main hotspot being around J9 M27 accounting for six out of the sixteen transactions in Q4. The most active sectors were Technology, Media & Telecoms (47%) and Finance, Banking & Insurance (37%).

Total take-up for 2017 finished at 295,577 sq ft. Despite the strong finish to the year, this represented a 14% fall below the 10 year average take-up figure (2008-2017) of 337,801 sq ft and was down 10% on the 329,389 sq ft transacted in 2016.

Significant occupational transactions

Property

Size

(sq ft)

Vendor / Landlord

Tenant /
Purchaser

Rent

(£ / sq ft)

Term

New Court,

Segensworth, Fareham

21,061

Watchstone Group

Aerial Direct

N/A

LLH

64 London Road, Southampton

11,192

Palace Capital

Tetcom

£10.00

5

Elan House,

Segensworth, Fareham

9,498

JDI

The Protection Specialist

£12.50

5

St Andrews House,

Solent Business Park

9,006

Private individuals

Leadstream

£15.00

5

Woollen Hall,

Castle Way, Southampton

8,830

Nat West Bank

Hilton-Baird Group

N/A

FH

1st floor, The Quay, Ocean Village, Southampton

5,932

Kilmina Properties Ltd

Allianz

£19.50

10

Building 6000, Langstone Technology Park, Havant

5,160

Trinity IM

Reassured Ltd

£15.00

5

Supply continues its downward trend

Supply continued its downward trend and fell below 1,000,000 sq ft (988,344 sq ft) for the first time in over a decade. Overall availability at the end of 2017 was 24% down when compared to the end of 2016. The greatest decline in availability is in the city centre which has seen a 30% fall with out of town stock falling 19% by comparison. Grade A supply at the end of 2017 stands at 275,545 sq ft (28%). This compares to 181,090 sq ft (14%) at the end of 2016. This increase is exclusively as a result of refurbishments of existing office stock. There were no new offices built throughout the whole of 2017 (there will be 20,850 sq ft completed at Chilcomb Park, Winchester in 2018).

New headline rents achieved

New headline rents were achieved in a number of markets across the South Coast region during 2017. The highest achieved rent in Southampton city centre was £22 per sq ft at White Building. 

For the out of town office market 1000 Lakeside, Portsmouth achieved £21.50 per sq ft. Southampton Science Park achieved £25 per sq ft at its new build office on the Benham Campus. Trafalgar House in Winchester city centre set a new headline rent for the city achieving £29.25 per sq ft, subject to a comprehensive refurbishment including Cat B works.

City centre opportunities attracting investor interest

Around £25m of office assets were transacted in the fourth quarter of the year, bringing the 2017 total to approximately £38m. Local Authorities were particularly active investing £26.5m into the sector; notably all LA acquisitions were of out of town assets, the largest being the purchase of Hutwood Court, Eastleigh for £14.65m (6.28% NIY).

The final quarter of the year saw three notable transactions. The one City Centre building that successfully traded was 1 Dorset Street purchased by RO Real Estate for £5.2m. The building, totaling 24,563sq ft, offers an opportunity to upgrade and refurbish and highlights the appetite for more value add opportunities within the city centre.

On Solent Business Park, 1400 & 1500 Parkway was acquired by a Local Authority for £5.425m (7.26% NIY). The buildings were let to Matchtech Group (UK) Ltd for a term certain of 5.30 year at a passing rent of £18.25 per sq ft.

A handful of opportunities commenced marketing towards the back end of 2017. One London Road located within Southampton City Centre is let to Paris Smith LLP with 10 years term certain at a rent of £17.87 per sq ft. The private vendor is quoting £5.3m (6.25% NIY)and despite ambitious timescales, the asset went to two rounds of competitive bidding.

In contrast to the Industrial sector, offices, particularly ‘out of town’,along the South Coast are viewed more cautiously and carefully by investors. Our recent experience has highlighted that robust interest exists for long and secure income type product. Demand does exist for those ‘value add’ opportunities within the City Centre and Out of Town,however interest here tends to be from investors that have strong knowledge and experience of the local market dynamics.

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Andy Hodgkinson

023 8071 3075

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Andy Hodgkinson
Director - Office Advisory

023 8071 3075

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