According to the latest M25 office research report from Savills, there has been an increase in demand from corporates looking to take advantage of the considerable incentives that landlords are prepared to offer to secure or retain tenants. The international real estate advisor states that there has already been evidence of increased corporate activity in the M25 office market with 70 deals completed in 2010 up to the end of July.

Jonathan Gardiner, director at Savills, comments: “Whilst demand in the 10,000 to 30,000 sq ft bracket remains subdued we have seen an above average proportion of larger deals with the likes of Quintiles, Coca-Cola Schweppes and Celgene Europe Ltd all committing to new schemes in recent months, which suggests that the corporates have returned to the M25 office market. We expect this trend to continue for the remainder of the year as these larger companies are encouraged by the attractive deals currently available.”

Savills research confirms that take-up for 2010 to the end of July stood just in excess of 1.1 million sq ft (102,190 sq m) and the firm predicts that this will double by the end of the year. The Western corridor of the M25 has continued to dominate demand accounting for two-thirds of the overall take-up figure so far for 2010 indicating that the M4 towns such as Maidenhead and Reading are the preferred location for occupiers.

In terms of specific sectors, pharmaceuticals have dominated larger requirements and Savills notes that there has also been a return from the equity rich technology sector, which has accounted for 17% of take-up and will have positive implications for core office markets to the west of London.

Looking ahead, Savills research notes that the absence of development completions in 2011 and 2012 will generate a decrease in the vacancy rate, particularly in the Western sector, allowing for some supply/demand rebalance in the market. Savills forecasts that upward rental pressure will return in 2012 as a result of a significant lack of good quality space.

When assessing investor requirements Savills found that the majority of investors remain relatively risk averse focussing on acquiring prime, well-secured assets with strong returns potential. However, owing to a substantial shortage of Grade A stock in some towns, some investors are now considering the speculative funding of refurbishments and new development. Robert Godfrey, investment director at Savills, says: “Whilst speculative funding is high risk, if you get it right it should pay dividends once tenant demand returns.”