Market snapshot

Office Market Pulse South Coast Q3 2015

There is a lack of office stock in the South Coast market, in particular, of grade A accommodation. A number of development sites that were allocated for offices have now either converted to alternative uses or are subject to planning applications for change of use and this looks set to continue.

Andrew Hodgkinson, Director of South Coast Office Agency for Lambert Smith Hampton comments: “We now have less than three years supply of office space along the South Coast. With availability continuing to fall and with limited new development in the pipeline, the choice for businesses is narrowing. As a result, rents are on the rise and incentives offered to tenants are reducing."

These factors are leading towards a situation where speculative development is being stimulated in prime locations such as Southampton Science Park. This is a speculative building of 30,600 sq ft which has been driven by high occupancy on the site and excellent fundamentals of location, amenity, parking and connectivity.

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In this issue:

Take-up increases to 58% above the 10 year quarterly average

• Take-up for Q3 was 149,800 sq ft - 58% higher than the 10 year average (94,704 sq ft)
• The combined take-up for the first three quarters of 2015 has already surpassed the take-up for the whole of 2014 and we anticipate the 2015 total to pass 500,000 sq ft for the first time since 2008

There was a fairly even split of take-up between city centre and out of town and notably, the average transaction size rose to approximately 6,800 sq ft from 5,250 sq ft in H1 of 2015. Perhaps highlighting the lack of supply and improving demand, office buildings along the M27 corridor that have been vacant for some time are now fully let.

Enquiry levels fall across the board

Following a consistent level of enquiries in H1, there has been a decline in Q3, not just in one specific size range but across all.

Q1 saw 52 new enquiries, Q2 saw an increase at 86 and then there has been a fall in Q3 to 43. Despite this, Q3 enquiries remain above the average quarterly enquiry levels of the past two years. 

Supply falls to below three years worth

• Office supply has fallen to 1.219 million sq ft in Q3 2015
• This equates to less than three years supply of offices along the South Coast 

With continued strong take up figures, we expect a further fall in office supply and, in particular, in the supply of prime office accommodation.

Significant transactions

Property  Size (sq ft)  Vendor/landlord  Tenant/purchaser  Deal information 
Solvay Premises, Southampton  30,691  Confidential  Confidential  Freehold sale for development 
63 St Mary's Street, Southampton  13,890  Confidential  Confidential  Freehold sale for development 
Spectrum, 1600 Parkway  13,246  Craigard  BMT  10 year lease 
Spinnaker House, Fareham  13,239  Horatio Properties  Wartsila  10 year lease 
Charlotte Place, Southampton  11,723  McAleer & Rushe Group  Berryman Lace Mawer  10 year lease 

Prime rents remain static but show the potential to increase

• Rents of £19.00 per sq ft have been achieved in both the city centre and out of town markets
• Quoting rents now ahead of this and as high as £21.50 per sq ft at Gunwharf Quays, Portsmouth

 The last time that rents in the city were £21.50 per sq ft was in 2007/8. Looking back over the past ten years, out of town rents peaked at just £20 per sq ft. It is expected that rents will continue to see growth at around 3% per annum in city centre markets and around 1.5% per annum in the out of town markets.  

Investment market maintains momentum

Q3 has maintained momentum with a number of office investment sales completing and further new opportunities being brought to market, including…

• Link 1 , Link 2 and Link 414, Eastleigh, with a quoting price of £12.85m, reflecting a net initial yield of 8.22%
• 7-12 Manor Court, Segensworth, with an exchange price of £1.41m, reflecting a net initial yield of 7.21% 
• Ivy House, East Sussex, seeking offers in excess of £3.57m, reflecting a net initial yield of 8%
• Rosalind House, Basingstoke, quoting £3m, reflecting a net initial yield of 12.48%

Key investment transactions

Charlotte Place, Southampton, was sold by McAleer & Rushe to Columbia Threadneedle for £15.5m, reflecting a net initial yield of circa 7.75%. The 80,857 sq ft property is multi-let with over 4.1 years term certain at a passing rent of £1,269,097 per annum.
4500 Parkway, Solent Business Park, Southampton was sold by Draco Property to Columbia Threadneedle for £9.7m, reflecting a net initial yield of 7.5%. The property is multi-let with an unexpired term of 5.8 years at a rent of £785,787 per annum.
Vanbrugh and Jellico House, Botleigh Grange Business Park, were sold by Aberdeen Asset Management to Northwood for £9m, reflecting a net initial yield of 9.02. The two properties total 53,512 sq ft and are fully let to eight occupiers at a combined rent of £858,795 per annum, for a term of 1.82 years to breaks and 2.38 years to expiries. 
Ailsa, 3 Turnberry House, Solent Business Park, Fareham, was sold by Craigard Investments to a private investor for £1.19m, reflecting a net initial yield of 9.58%. The property is multi-let at a net rent of £120,598 per annum.
Units 3000A and 3000B Parkway, Solent Business Park, Whiteley, were sold by Herbert to Palm Capital reflecting a net initial yield of circa 7%. The tenant is Zurich Insurance Company (UK) Limited on 20 year full repairing and insuring leases from 5 September 1997 at a total current rent passing is £1,853,349 per annum.

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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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