Market snapshot

Office Market Pulse South Coast Q3 2014

Q3 2014 saw a total of 86,450 sq ft office take-up in the South Coast which, despite a fall when compared with last quarter's total (179,249 sq ft), remains above the quarterly average. Supply levels have remained static but with a reduction in grade A space (11% of current supply), we are seeing incentives reducing and prime rents coming under pressure.

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In this issue:

Office take-up remains above quarterly average

Take-up for the South Coast region totalled 86,540 sq ft during Q3 2014; the majority of which was in out of town locations. While this is a fall from last quarter’s high (179,249 sq ft), it is still above the quarterly average.

A number of significant grade A lettings were completed where companies upgraded to better quality accommodation, highlighting growing confidence in the occupational market.

For a breakdown of current office enquiries over 2,500 sq ft, click here.

Significant occupational transactions in Q3 2014

Property  Size (sq ft)  Landlord(s)/vendor  Tenant  Lease info 
The Pavilion, Botleigh Grange, Hedge End 23,560 Helical Bar and City Estates Trethowans 10 year lease at £16.50 per sq ft
Charlotte Place, Southampton 11,734 McAleer and Rushe Your Move 10 year lease at £15.00 per sq ft
1000 Lakeside, Portsmouth 7,833 Highcross Path Intelligence 5 year lease at £17.11 per sq ft
1000 Lakeside, Portsmouth 7,500 Highcross Wiggle 3 year lease. Headline rent £16.00 per sq ft
Manor Court, Fareham 5,615 L&G  Amity World Travel 10 year lease at £10.00 per sq ft

Prime rents maintained

Grade A space has fallen to 11% of the total supply. With occupier demand continuing to improve, prime rents will come under some pressure, although currently they are being maintained at £19.00 per sq ft (city centre) and £18.75 per sq ft (out of town).

Continued shortage of grade A space

Office supply remains static at 1.508m, however, the share of space has moved away from grade A to grade B and C.

Occupiers are taking the opportunity to move into better quality accommodation as the market improves.

There is strong demand for office to residential conversion with prices rising and we have witnessed a number of suitable buildings for conversion coming to the market.

There continues to be severe shortage of prime office buildings available in the region. Only 11% of all current supply is considered grade A, some of which is refurbished older stock.

Grade A supply in city centre locations is now less than 2%, pointing to an opportunity for speculative development.

For a detailed breakdown of supply by centre, click here, or for a breakdown by grade, click here.

South Coast office investment performance constrained

As with the rest of the South-East, the South Coast office market continues to see a good level of activity, but  has not experienced the same level of yield compression as in other areas, such as in the Thames Valley. This indicates that better returns could be received and that there are wider opportunities for acquisition on the South Coast.

It has been widely reported in the press recently that Southampton City Centre is experiencing a lack of good quality office accommodation and we are finding this worsened by a number of buildings being lost to residential use.

Investors still have a degree of caution when it comes to business parks in the region. This was highlighted recently when the Zurich Centre at Solent Business Park was withdrawn from the market when the parties involved were unable to agree terms.

The most notable deals that have occurred for Lambert Smith Hampton in Southampton City Centre were the acquisition of Brunswick Gate, let to NatWest for Fidelity, and the off-market purchase for Forelle Estates of Arcadia House, let to BDO, in Ocean Village.

Key investment deals in Q3 2014

Brunswick Gate, Southampton was sold by AVIVA to Fidelity for circa £11.25m, reflecting a NIY of 7.83%. Brunswick Gate has a floor area of 50,136 sq ft and was fully let to Natwest with unexpired term 6.17 years.

Highfield Court, Tollgate, Chandlers Ford was sold by Perbury Group to a private investor for circa £3.5m, reflecting a NIY of 7.56%. The building amounts to 21,000 sq ft and was fully let to Baker Tilly for a rent of £305,000 pa.

Arcadia House, Ocean Village, Southampton was sold by Latinus Ltd to Forelle Estates for circa £4.9m, reflecting a NIY of 7.5%. Arcadia House has a floor area of 20,823 sq ft and is let to BDO for approximately 6 years to expiry.

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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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