M25 Office Shortage pushes Rents to Record Levels

Posted on 12 May, 2015 by Cliff Goodwin

Vacancy rates within the office market served by the M25 motorway are at their lowest since 2001 — driving rents to an all-time high.

M25 office shortage pushes rents to record levels

Announced this morning by Knight Frank at its annual M25 breakfast presentation, the number of empty offices in the South East for the first quarter of 2015 now stands 5.9 per cent. The property consultancy claims this figure falls to 4.2 per cent when only new and Grade A space is included.

Following the re-election of a Conservative Government and the financial market rally, economic performance across the region is improving, claims Knight Frank, and there is an expectation of a further boost to demand. Availability through all grades of office stock fell by 13 per cent compared to a year ago, however, swinging the market back towards the landlord’s favour.

“This year started positively supporting our view that take-up in the M25 will be almost 30% ahead of 2014, and above the ten year average,” explained Emma Goodford, head of the national offices leasing team at Knight Frank.

“Vacancy levels are heading towards crunch point and, in combination, the market is seeing rental growth across a growing number of key centres.  In some cases rents are now at an all-time high with occupiers seeking to identify and secure the best space now.” She also warned the election had “removed uncertainty and will drive demand”.

Guests at the breakfast briefing also heard that strong investor demand and a lack of deliverable product is holding back stock volumes in the investment market, which was seeing a hardening of yields across the spectrum, with investors increasingly factoring in likely rental growth during hold periods.

“The investment market continues to strengthen,” said Tim Smither, Knight Frank’s head of South East investment, “with prime yields standing at five per cent and we expect this yield compression to continue for the rest of the year, driven by a combination of a lack of stock, significant levels of equity looking to be deployed and anticipated rental growth in most core markets.”

In a research report published this morning the consultancy says 2015 first quarter turnover across the South East reached £552.38m — 17 per cent ahead of the 10 year quarterly average —  but down by 35 per cent on the final quarter of last year.

Twenty-five commercial property deals were transacted during the first quarter, bringing the average lot size down to £22.1m, compared to £27.6m in the previous quarter. This year’s figure was still 34 per cent above the 10-year average.




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