Source: Savills Research
Rental growth continues as supply decreases by 8% from 2015
■ Take-up in Q1 reached 803,664 sq ft which represents a healthy start to 2016. Although take-up has fallen by approximately 13% from Q4 15, this is to be expected as Q4 traditionally witnesses the highest amount of transactional activity. The Western Sector continues to be the dominant region in the M25 office market, accounting for 62% of take-up in Q1. Reading has maintained its position as the dominant market in the South East. It has accounted for 27% of take-up in 2016 reflecting the strong offering of grade A buildings to occupiers.
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GRAPH 1Take-up by grade
■ A theme that has continued from 2015 is the flight to quality as there has been strong demand for Grade A space, 59% of all space transacted this quarter has been Grade A. Improving economic sentiment along with a reduction in available Grade B and C space has meant that occupiers are increasingly more focused on leasing Grade A space.
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GRAPH 2Availability by grade
Source: Savills Research
■ Despite a slight ease in transactional activity, there has still been several sizeable lettings in Q1. Most notably at Green Park in Reading where Bayer and Thales acquired 80,000 sq ft and 111,064 sq ft respectively. Watford was another market that performed well in Q1 as it witnessed its largest letting in 15 years to Smith & Nephew who leased 60,000 sq ft at Croxley Green Business Park. This was then followed by the first speculative development in the town for over 10 years highlighting the confidence in the market.
■ Total supply currently stands at 17.5 million sq ft, which is a 8% decrease from 2015, and the lowest figure since 2008. Grade A supply is currently 4.5 million sq ft, this supply is mainly clustered in core locations such as Reading, Bracknell and Maidenhead. This has left many markets under supplied. Markets such as Croydon, Guildford, Crawley and Farnborough have under one year of supply highlighting potential new opportunities for developers. There is approximately 2.1 million sq ft expected to achieve practical completion in 2016 across 23 separate schemes. Development activity is strongest in Reading where 459,200 sq ft of new stock is set to be added to the market in 2016, which is the highest amount in the South East.
■ Constrained supply in some core markets in the short term will continue to provide opportunities for rental growth. A new rental tone was set for Maidenhead at the Pearce Building where £37.50 per sq ft was achieved which was the highest rent achieved in Maidenhead for the current cycle. New rental tones are expected to be achieved in Reading, Slough and Croydon this year as new Grade A stock achieves practical completion.
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GRAPH 3Average top rental forecasts
Source: Savills Research
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TABLE 1Savills M25 market area
Source: Savills Research