2022-11-09-莱坊-M25_Offices_Q3_2022_7页_3mb

M25 Offices Q3 2022 Summary

Core Content

The Q3 2022 report provides an overview of the office market performance in the M25 and surrounding regions, focusing on take-up, vacancy rates, investment activity, and market trends. It highlights the dynamics between occupiers, investors, and developers, as well as the impact of economic and geopolitical factors on the market.

Main Points

Take-up and Vacancy

• Take-up in the South East reached 591,000 sq ft, the highest Q3 total since 2019, though it was below the long-term quarterly average.
• Vacancy rate remained stable at 7.4%, slightly above the long-term trend.
• New and Grade A vacancy rate dropped to 4.6%, the lowest since 2019, indicating a tightening supply of high-quality office space.

Leasing Activity

• Deal numbers increased to 71 in Q3, compared to the long-term average of 52.
• Active demand reached 5.9m sq ft in the South East, showing strong interest in the market.
• Occupier demand is driven by a variety of sectors, with Life Sciences, TMT, and Financial & Business Services being the top sectors.

Investment Market

• Investment volumes in Q3 were 15% above the long-term average, totaling £652m across 23 deals.
• International capital accounted for 60% of investment volumes, with a significant portion (55%) of 2022 investment commitments coming from overseas buyers.
• Cambridge and Oxford were the most active markets, accounting for 56% of investment turnover.
• The largest transaction of the quarter was the £210m acquisition of three Cambridge Science Park assets by Brockton Everlast from TusPark.

Yield and Rent Trends

• Prime office yields in the South East moved out to 5.75%, reflecting the impact of rising swap rates and the narrowing gap between UK Gilts and office yields.
• Prime office rent in Cambridge remains at £55.00 per sq ft in the city centre and £37.50 per sq ft in out-of-town locations.
• Lab-enabled offices and fitted labs command premium rents, often exceeding £40 per sq ft, due to their alignment with post-pandemic workplace strategies and ESG requirements.

Development and Supply

• Speculative development in the South East totaled 1.8m sq ft, with 0.5m sq ft pre-let and 0.6m sq ft speculative.
• Supply of new and Grade A space is declining, creating opportunities in areas with low supply and strong transport links.
• Construction starts are expected to be scarce beyond 24 months, due to rising debt and construction costs.

Key Transactions in Q3 2022

Market Outlook

• Occupiers are prioritizing lease events as the main driver of new enquiries, indicating a cautious but active market.
• Potential for a strong final quarter is noted due to active demand levels at the end of Q3, though a UK recession may temper activity.
• International buyers remain dominant, influenced by the weakening pound and the appeal of high-quality assets in the South East.
• Yield shifts are expected to continue due to the escalating cost of debt, creating opportunities for strategic investors.

Technical Notes

• M25 market includes areas from Hammersmith to Newbury, with Uxbridge, High Wycombe, Staines, Bracknell, and Reading included.
• M3 market encompasses South West London boroughs, including Leatherhead, Guildford, Basingstoke, Farnborough, and Camberley.
• Data is based on net internal area (RICS definition), with a minimum 10,000 sq ft cut-off.
• Second-hand space is categorized into A and B grades based on quality, age, and location.
• Vacancy rates are calculated using a total M25 stock of 121m sq ft, with M3 and M4 sub-markets also included.
• All data is accurate as of 30th September 2022.

Key Contacts

Conclusion

The Q3 2022 office market in the South East shows resilience despite economic uncertainty, with high demand for prime and lab-enabled spaces, and increased investment activity driven by international capital and the strategic importance of Cambridge and Oxford. While lease volumes are down, the number of deals is up, and vacancy rates remain stable, the tightening supply and rising costs are creating opportunities for those with strong market insight and strategic positioning.