Market snapshot

South Coast Office Market Pulse Q1 2017

Office demand on the South Coast fell by 30% at the start of 2017, in part due to general market uncertainty and a lack of supply. In addition, market dynamics are changing and demand is being generated by locally grown SME’s. Not only do these smaller companies need less space, but although they are looking to provide inspiring work spaces for their employees, they are thinking smart about the best optimisation of space. This is contributing directly to a significant reduction in transaction sizes.

With supply continuing its long term fall, competition is increasing and this is demonstrated by rental values, particularly in the city centre (£22.00 per sq ft) and at Southampton Science Park (quoting £25.00 per sq ft).

In this issue:

Enquiries rocket, driven by SME's

At 43, the total number of enquiries received in Q1 2017 increased by 79% from the previous quarter and by 7.5% on the same period in 2016. This increase in demand suggests the potential for a recovery in take-up for the 2nd half of 2017. 

53% and 77% of the Q1 enquiries were for space of less than 5,000 sq ft and 10,000 sq ft respectively, suggesting a return of the SMEs to the market, with a clear desire among these businesses to improve the quality of the space they occupy.

Average transaction size falls significantly, impacting demand total

Total take up in Q1 2017 fell to 63,893, 30% down from the previous quarter and 32% below the same period of 2016. 

This take-up is 29% below the 10-year quarterly average (90,434 sq ft) and highlights the uncertainty in the market; a lack of available supply and also a more efficient use of space by occupiers that are relocating. 

All 12 transactions recorded in Q1 were for space of 10,000 sq ft or below. The average deal size reduced to 5,324 sq ft, representing a significant change from the average deal size in Q4 2016 of circa 18,500 sq ft.

The serviced office providers continue to show appetite in particular for city centre offices in recognition of some SME and start up companies valuing flexibility of lease terms over lower rental costs.

Whilst enquiry numbers have recovered, the demand has typically been for smaller space and therefore we are forecasting lower take-up figures for 2017 than seen in recent years.

Significant occupational transactions


Size (sq ft)




3000 Lakeside, Portsmouth

Northwood Investors


10 years

5 Town Quay, Southampton


RO Real Estate

Fast Stream

10 years

Stoneham Gate, Eastleigh 


Mott MacDonald

Business Choice

5 years

Mountbatten House, Southampton 


Prowting Family Trust


10 years

White Building, Southampton 


Linkhouse Investments


10 years

Templars House, Chandlers Ford 




10 years

Supply continues its long-term fall

Supply fell 14% to 1.112m sq ft in Q1 from 1.299m sq ft in Q4 2016, and 7% from 1.202m sq ft in Q1 2016. The majority of available supply (55%) is grade B space, with occupiers choosing to improve the working environment available for their employees and move to better quality accommodation. Only 14% of available office space is grade A.

Almost all of the grade A accommodation available on the South Coast is provided by high quality refurbishments of existing buildings. New office developments remain almost non-existent, save for 5 Benham at Southampton Science Park, which has been facilitated by its own micro-economic climate of high demand and high rent. Based on 2016 take-up, there is only 3.37 years’ available supply in the South Coast office market.

Rents are increasing, particularly in prime locations

There has been a notable increase in headline rents in the past 12 months. The average headline rent across the 12 transactions in Q1 2017 was £18.38 per sq ft, compared to £17.50 per sq ft in Q1 2016. 

Rents for high quality refurbished office space have moved on to £22.00 per sq ft for city centre and £21.00 per sq ft for out of town space. Southampton Science Park has recently completed its development of 5 Benham Campus, which offers brand new grade A offices at £25.00 per sq ft. 

Chilcomb Park, on the outskirts of Winchester, is now also under construction by Cavendish & Gloucester and is quoting £25.00 per sq ft. Refurbished space in Winchester city centre is reported to be quoting £29.00 per sq ft.

Investment market review

There was a good level of demand for office investments in Q1 2017, in particular from local authorities on the South Coast. Investors were typically looking for better value through higher yields in comparison to the industrial sector. Sourcing quality investments in city centre locations is proving challenging where demand out-strips supply.

Key deals of the quarter: 

West Park House, Southampton, was purchased by RO Real Estate for £4.0m, reflecting a net initial yield of 7.6%

International House, Eastleigh, was purchased by a local authority for £6.45m, reflecting a net initial yield 6.5%

Aibel House, Petersfield, was purchased by a private buyer for £2.1m, reflecting a net initial yield of 6.96%

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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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