South East office market take up focused on 'best-in-class' workspace

Take up across the South East office market has been focused on Grade A / ‘best-in-class’ workspace as occupiers seek to give staff the best working environments they can afford, according to SHW’s Q1 2024 South East Office Focus.

Tim Hardwicke, SHW’s Partner and Head of Agency, comments: “Across the South East we have seen a healthy year of take up in 2023, following the dramatic improvement in the market across 2022. In key towns where take-up has been low, this has been linked to lack of Grade A space, rather than lack of demand. In prime towns that have seen newbuilds or comprehensive refurbishments, there are a number of transactions bubbling away in the background, waiting for schemes to be completed.

“Relocations have been mainly driven by lease events over the past year, however, there have also been several notable deals as a result of companies expanding or relocating as their office attendance increases, with many workplaces returning to 3 or 4 days as a minimum in the office and in many cases back to pre-pandemic levels. Occupiers adopting these levels are seeing the productivity benefits.”

In London, St James’s has seen the highest, Grade A rents at £149 per sq ft, with Mayfair hot on its heels reaching £130 per sq ft. The City and Southbank saw Grade A rents reaching £75 per sq ft. Incentives, on a 10-year term, are sitting at an average of 24 months. At Strand Bridge House, London WC2, the 5th Floor was let by SHW in 2023 and the 6th floor is now under offer. The team also acquired 6,700 sq ft at Grain House in Covent Garden.

In Bromley, Grade A rents continue to exceed £30 per sq ft, with take up increasingly dramatically to 108,000 sq ft in 2023, up from 8,000 sq ft in 2022, owing to the acquisition of Churchill Court by London Borough of Bromley as their new headquarters offices and to accommodate the local authority’s civic functions. Availability stands at 99,000 sq ft (4.7% vacancy), however demand is currently relatively low at just 40,000 sq ft logged in 2023. Availability of true Grade A space has been very limited, but more is expected to come to market in 2024.

Croydon saw a bumper year of take up in 2023, with 493,000 sq ft transacted, two times the whole take up achieved over the last five years. The sizeable take up was underpinned by the 345,000 sq ft letting of new build offices at Building 2, Ruskin Square, pre-let to the Home Office and completing in 2023 upon practical completion of works. With 650,000 sq ft of availability and 760,000 sq ft of logged demand, rents stayed level in 2023 reaching £36 per sq ft. Substantial refurbishments completing in 2024 are likely to push Grade A rents close to £40 per sq ft.

In Epsom and Leatherhead take up more than doubled to 87,600 sq ft in 2023. Again, rents remained level at £27.50 per sq ft. Availability has dropped slightly to 214,000 sq ft, with a recorded logged demand totalling 190,000 sq ft.

Redhill and Reigate also saw rental levels remain at £27.50 per sq ft. Take up in 2023 dropped from 33,500 to 27,000 sq ft over the year, with availability rising from 210,000 sq ft in 2022 to 288,000 sq ft in 2023. Logged demand shows at 450,000 sq ft, leaving room for potential rental growth. At Grosvenor House, Redhill, only 5,500 sq ft remains available and in Reigate at London Court, 5,800 sq ft of the refurbished space has been let with just 9,700 sq ft still available.

In Burgess Hill and Haywards Heath, though take up dropped by 31,000 sq ft to 35,000 sq ft transacted in 2023, rents rose from £24 to £25 per sq ft. Availability is up to 47,500 sq ft (4.1%) and the logged demand stands at 80,000 sq ft. Like other similar-sized towns, the market has been in the sub-5,000 sq ft sector.

Crawley and Gatwick saw rental levels jump to £37.50 per sq ft in 2023, from £27.50 per sq ft in 2022. Take up remains relatively high at 170,000 sq ft and availability has dropped to 378,000 sq ft from 406,000 sq ft in 2022 (13.01%). Logged demand remains high, recorded at 630,000 sq ft. In 2023, 63,000 sq ft was let at Park House in Crawley, with 48,000 sq ft remaining available to lease, and at The Create Building, Crawley’s newest town centre office building, four floors, totalling 42,500. are under offer with 35,300 sq ft now available and likely to push rents further.

Horsham saw a significant drop in take up from 58,000 sq ft in 2022 to just 5,000 sq ft in 2023, however rents remained level at £20 per sq ft. Availability is currently 37,000 sq ft (3% vacancy) and the current logged demand stands at 150,000 sq ft. St Mark’s Court in Horsham is coming soon to offer Grade A space to let and is likely to increase take-up due to the town’s severe lack of Grade A accommodation.

In Littlehampton, Bognor & Chichester, take up was level to 2022 at 10,000 sq ft and rents also remaining level at £16 per sq ft. Vacancy rate is low at 2.4%, with 90,000 sq ft available, however 2023 recorded no logged demand over 5,000 sq ft which the SHW statistics record.

Brighton and Hove saw the top rent increase from £36 per sq ft in 2022 to £38.50 per sq ft for traditionally let CAT A space, however, take up dropped to 87,000 sq ft (from 220,000 sq ft in 2022). Availability is currently outweighing demand at 580,000 sq ft to 290,000 sq ft, although Grade A availability is much lower at circa 200,000 sq ft, 130,000 sq ft of which is still under construction or refurbishment.

There are two new build office schemes due to be delivered in 2024. The Portland Building is set to complete in Q1, with 50% of the building already spoken for. 10 Middle Street will then provide a further 30,000 sq ft in Q4 2024. The Portland Building is expected to set a new top rent for the city in excess of £40 per sq ft.

In Eastbourne, Hailsham and Polegate, rents also increased slightly by £0.50 to £16.50 per sq ft, with Ivy House, Eastbourne achieving this level. Just 5,000 sq ft of take up was recorded, however vacancy remain very low at 0.6%, leaving just 5,000 sq ft of availability. Logged demand outweighs this at 20,000 sq ft. The majority of this market is in the sub-5,000 sq ft sector and so unrecorded in the South East Offices Focus.

Worthing and Lancing saw a big increase in rental levels from £13.50 per sq ft to £17.50 per sq ft, but with just 5,500 sq ft transacted at Cannon House in Worthing. 81,500 sq ft is available and logged demand is only 30,000 sq ft.

Tim adds: “Environmental, Social & Governance (ESG) continues to be a serious consideration for both landlords and, increasingly, tenants, who are willing to pay higher rents for quality, but also want to benefit from the lower running costs a modern ‘green building’ will offer.”