M25 Offices Q4 2020 Investment, Development, Investment, Development & Occupational Markets & Occupational Markets - Knight Frank
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Investment, Development,
Investment, Development
& Occupational Markets
& Occupational Markets
M25
M25 Offices
Offices
knightfrank.com/research
knightfrank.co.uk/research
Q4
Q42021
2020
M25 OFFICES, Q4 2021
EXECUTIVE
SUMMARY
Occupier activity picks up f t lea sed dur ing t he yea r despite for the region and is 45% above the
despite Plan B. a backd rop of re duci ng vaca nc y. 10-year annual average. Heightened
The market imbalance in these two activity in the final quarter bolstered
The final quarter of 2021 registered a
cit ies is ex pected to st imu late the annual performance. Asset sales in
late flurry of occupier activity with 48
speculative development inclusive of Q4 totalled £1.5bn. This total is 123%
deals completing, the highest quarterly
lab ready stock. above the 10-year quarterly average
total for two years. During the quarter,
638,000 sq ft was leased, a total that Vacancy remaining low. for the region.
represents a quarterly uplift of 10%.
Despite fears of rising supply, vacancy International buyers
Consequently, take-up across the
in the South East was 6.9 % at the end of dominate in 2021.
South East for the year increased to
2021, unchanged when compared to the
2.6m sq ft, 24% ahead of total take- Foreign investors were the dominant
close of 2020 and still below the 10-yr
up recorded in 2020 but 18% short of source of interest in the South East
average of 7.0%. In fact, 23 of 42 South
the 10-year annual average. Notably, offices market in 2021. Overseas capital
East markets recorded a reduction in
large-scale deals have been a factor
accounted for 59% of investment
vacancy or have stayed at the same
in supporting the year-on-year rise.
level over the past 12 months. volumes during the year, driven by
In 2021, nine deals of 50,000 sq ft and
the UK’s relatively attractive pricing
over completed. This is the highest Sig nif ica nt ly, t he level of vaca nt
1 2 3
and growth of the domestic life sciences
total since 2018. ‘New space’ recorded a further fall
sector fuelling demand for high quality
TMT proves resilient. in Q4, representing just 7.0% of total
office space. Significantly, foreign
availability at year-end. This is the
The strength of the TMT sector proved investors accounted for six of seven
Take-up in 2021 was TMT occupiers accounted South East office vacancy lowest percentage recorded.
transactions that exceeded £100m
decisive to the fortunes of the South
2.6m sq ft, an increase for 29% of office take-up was 6.9 % at year-end, East office market in 2021. While the A development response has begun, but in 2021, a tally bolstered by GIC’s
Covid crisis has negatively affected realisation will not be until 2024/5. The acquisition of a 40% stake in Oxford
of 24% ahead when during the year, the highest unchanged when compared amount of speculative space recorded
many industries, for the TMT sector, Science Park in Q4.
compared to 2020. representation on record. to the close of 2020. the economic impact has been largely as under construction at year-end was
1.7m sq ft, polarised in just a handful of Golden triangle take centre
neutral, or even positive for some
industry segments. TMT occupiers market centres. Even so, closer analysis stage.
accounted for 29% of office take- shows that only 650,000 sq ft of this
I nve s tor app e t ite towa rd a s s e t s
up du r i ng t he yea r, t he h ig he st total will complete within the next two
a ssociated w it h t he g row ing life
representation on record. Notably, years. This means that tight supply of
sciences sector continued to solidify
4 5 three transactions over 100,000 sq
ft completed across the South East
best quality office space will persist
for at least the next 24 months and
in 2021. Office investment within the
Golden Triangle totalled over £1.5bn
during 2021. All were to TMT firms. therefore, vacancy will remain below
during the year, with interest led
The M4 corridor was the principal the long-term trend.
Investment in South East Overseas capital mainly by global private equity houses.
location of interest. Take-up by TMT
Record year for South East
offices reached £4.02bn, a accounted for 59% of occupiers in 2021 in the M4 market
investment.
Cambridge was the principal target,
was 572,000 sq ft. This total is 34% recording £677m of office stock sold
record level for the region. investment volumes. across 14 transactions. This represents
ahead of the long-term average. Life South East office investment volumes
sciences dominated again in Oxford more than doubled in 2021 to reach the highest annual total on record for
and Cambridge, with 520,000 sq £4.02bn by year-end. This is a record the city.
2
3
M25 OFFICES, Q4 2021 M25 OFFICES, Q4 2021
OCCUPIER MARKET M25 take-up
Sq ft
600k
500k
Emma Goodford
0.48m
400k
With supply low and development
Despite significant headwinds, occupier activity registered an improvement 300k
sq ft under offer
delayed, occupiers are evaluating office
200k
of 24% year-on year. The technology sector dominated transaction requirements and turning to pre-letting.
100k
Life sciences workplace requirements
schedules and new enquiries, accounting for 29% of take-up in 2021 0k are expected to grow in particular, with
0
Q4 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021
offices offering laboratory capability as
Source: Knight Frank Research well as incubation facilities increasingly
being sought.
M25 supply
Sq ft
SOUTH EAST
8m
Q4 TAKE-UP 7m
6m
2% Roddy Abram
638k sq ft 5m
4m above the
10-year average in
The ESG and Sustainability agenda will
3m continue to drive office relocations in
Q4 2021
2022, as major corporates seek to meet
Union, Stockley Park
2m
10% 1m
0m
ESG commitments to both employees
and shareholders. At the same time,
% difference compared Q4 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021
rising build costs and the lack of supply
to Q4 2021.
Source: Knight Frank Research for new grade-A space will be key
drivers of rental growth.
Take-up and supply Key leasing transactions
Q4 2021 Q4 2021
TAKE-UP TAKE-UP SUPPLY SUPPLY VACANCY
ADDRESS SIZE SQ FT OCCUPIER RENT £ PER SQ FT
(SQ FT) (VS Q3 2021) (SQ FT) (VS Q4 2021) RATE
8% 6.6% Old Town Hall, Bromley 73,000 Clockwise N/A
M25 487,846 -11% 8.0m New and Grade A New and Grade A
space: 68% space: 4.5%
The Avenue, Leavesden Park 67,451 Skanska £26.50
-11% 5.2%
M3 183,905 88% 2.0m New and Grade A New and Grade A
Portway Building, Granta Park 51,000 Altos £48.50
space: 75% space: 3.9%
Portway Building, Granta Park 45,433 Bicycle Therapeutics £46.50
12% 9.7%
M4 269,306 -22% 6.4m New and Grade A New and Grade A
Richmond The American International
space: 79% space: 7.6% Building 12, Chiswick Park (grd & prt 1st flrs) 36,061 University In London Inc N/A
Source: Knight Frank Research Source: Knight Frank Research
4 5
M25 OFFICES, Q4 2021 M25 OFFICES, Q4 2021
PRIME RENTS
ACTIVE DEMAND: 5.8M SQ FT £ PER SQ FT
Named demand in the South East
KEY
Cambridge
Active named demand by sector
49.50
Q4 2021 Q4 2021 Growth 48.50 2%
33% TMT Q4 2020 (pa)
29% Pharmaceutical/Healthcare/Medical Technology
M1
A1 (M)
14% Financial & Business Services
Watford
St Albans
37.00
6% Construction & Engineering 38.50
36.00 3%
38.50 0%
6% Energy & Utilities
Oxford 22 M11
21
20
4% Retail, Distribution & Transport
48.50 23 24 Brentwood
19 25 26
46.75 4% 27
4% Manufacturing & FMCG's
29.00
4% Public Sector M40 18 29.00 0%
0% Other Maidenhead M25
Slough 17 Hammersmith
39.50 Uxbridge
Source: Knight Frank Research
37.50 5% 36.00 35.50 58.00 28
35.00 3% 33.50 1% 57.50 1%
29
16
Reading
D E V E L O P M E N T: 2 .1 M S Q F T
38.50
38.50 0% 30
Space under construction in the South East 15
Chiswick 31
*This includes pre-let (0.5m sq ft) and speculative space (0.6m sq ft) 14
M4 Staines 13
52.50 1
53.50 -2% 2
35.00
Speculative development 34.50 1%
Sq ft due to complete before 2023 Bracknell Dartford
12 Heathrow/
30.00 3
Stockley Park 23.00
29.00 3% 11 23.00 0%
M3 36.50
M25
0.3m sq ft 36.00 4% 4
10
9
5 M20
Basingstoke 8 6
7
M4 27.00 Guildford
1.4m sq ft 27.00 0% Croydon
36.50
36.50 0% 37.50
37.50 0%
M23 West Malling
M3 Crawley/
0.1m sq ft Gatwick 25.00
25.00 0%
27.50
Headline rent assumes a new building let on a 10-year lease. 27.50 0%
Source: Knight Frank Research Headline rent assumes a transaction over 10,000 sq ft new office space.
Rents are stated per sq ft per annum NIA.
Source: Knight Frank Research
6 7M25 OFFICES, Q4 2021 M25 OFFICES, Q4 2021
Investment volumes
Stock Transacted (£m), LHS No. of deals, RHS
1,600 80
1,400 70
1,200 60
1,000 50
800 40
Simon Rickards
600 30
The level of equity primed for
400 20
investment into South East offices is
200 10 high and could increase, as confidence
0 0 in the sector grows. Activity will focus
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 on prime fundamentals, ESG and
a best in class offering, albeit with
Source: Knight Frank Research greater attention given to escalating
Bath Road, Slough
refurbishment costs.
Prime net initial yield and finance
Prime net yield (%), LHS Five-year SWAP (%), RHS
7 3.0
2.5
INVESTMENT MARKET 6 2.0
1.5
Tim Smither
5 1.0
The market will see polarisation in
0.5 2022, with the best multi-let offices
performing well to the detriment of
Investor confidence continues to grow, with a record level of investment 4 0.0 secondary stock. Interest in assets
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 associated with the life sciences sector
recorded over the year. Overseas capital was significant, accounting for Source: Knight Frank Research will be strong, with substantial levels
almost two thirds of total investment in 2021. of equity yet to be deployed.
Key transactions
Q4 2021
ADDRESS PRICE (£M) VENDOR PURCHASER
Bath Road Frontage, Slough £425.00 AEW Segro
Oxford Science Park (40% stake) £160.00 Magdalen College, Oxford GIC
£1.54bn £40.7m 5.25% 59% Compass Centre, Heathrow £100.60 Arora Group Prologis
Building 2600, Oxford Business Park £61.45 Mayfair Capital Royal London Asset Management
South East Average Prime net Buyers from Forum, Solent Business Park, Fareham £63.35 Tristan Capital Kennedy Wilson
transaction volumes lot size initial yield the UK
Source: Knight Frank Research
Footnote: Headline statistics are representative of Q4 2021.
8 9M25 OFFICES, Q4 2021 M25 OFFICES, Q4 2021
N AT I O N A L O F F I C E S
R E C E N T MA R K E T- L E A D I N G
R E S E A R C H P U B L I C AT I O N S
Emma Will Roddy
Goodford Foster Abram
Partner Partner Partner
Head of National Offices National Offices National Offices
+44 20 7861 1144 +44 20 7861 1293 +44 20 7861 1280
+44 7831 581 258 +44 7789 878 007 +44 7899 001 028
emma.goodford@knightfrank.com will.foster@knightfrank.com roddy.abram@knightfrank.com
M25 KEY MARKETS, 2020
The M25 & South East
Office Market Report
Ashley Andrew Jack
knightfrank.com/M25-offices
M25 The Next Chapter
knightfrank.co.uk/research
Drewett Wood Riley Key Markets 2021
2020
Partner Partner Partner
National Offices, Lease Advisory National Offices, Tenant Representation National Offices
+44 20 7861 1156 +44 20 7861 0662 +44 20 7861 5375
+44 7799 478 834 +44 7800 500 752 +44 7867 002 484
ashley.drewett@knightfrank.com andrew.wood@knightfrank.com jack.riley@knightfrank.com
1
M25 Key Markets M25 - The Next Chapter The London Report 2022
C A P I TA L M A R K E T S
Simon Tim Richard
Rickards Smither Claxton UK
CITIES
THEMES FOR 2022
Partner Partner Partner TRENDS IN GLOBAL
REAL ESTATE INVESTMENT
Head of National Offices Investment Capital Markets Head of UK Capital Markets (Y)OURSPACE
DISCOVER YOUR NEW WORLD OF WORK
+44 20 7861 1158 +44 20 7861 1277 +44 20 7861 1221
+44 7787 844 384 +44 7876 145 909 +44 7774 826 558
simon.rickards@knightfrank.com tim.smither@knightfrank.com richard.claxton@knightfrank.com
RESEARCH Active Capital UK Cities Themes for 2022 (Y)OUR SPACE
William Darren
Matthews Mansfield
Partner Partner
Head of Commercial Research Commercial Research
+44 20 3909 6842 +44 20 7861 1246
+44 7973 621 692 +44 7469 667 194
william.matthews@knightfrank.com darren.mansfield@knightfrank.com
10 11TECHNICAL NOTE
• Knight
Frank defines the M4 market as extending from Hammersmith, west to Newbury,
incorporating Uxbridge and High Wycombe to the north and Staines and Bracknell to the south.
Reading is also included.
• The
M3 market incorporates the main South West London boroughs and encompasses
Leatherhead, Guildford and Basingstoke extending north to the M4 boundary described above.
Farnborough and Camberley are also included.
• T
he
figures in this report relate to the availability of built, up-and-ready office/B1
accommodation within the M25 market. Vacant premises and leased space which is being
actively marketed are included.
• All
floorspace figures are given on a net internal area basis (as defined by the RICS).
•A
minimum 10,000 sq ft (net) cut-off has been employed throughout. Major and minor
refurbishment have been treated as new and second-hand respectively. Data is presented on
a centre and quadrant basis. Classification by centre relates to the locational details contained
within the marketing material for available properties. Classification in this manner is clearly
somewhat arbitrary.
• V
acancyrate data is based on a total M25 stock measure of 121m sq ft (net), an M4 market
stock of 66m sq ft (net) and an M3 market stock of 39m sq ft (net). Please note that a revision
to total market office stock figures was applied in Q1 2017 to reflect ‘change of use’ permitted
through the Town and Country Planning Order 2015.
• Second-hand
floorspace has been sub-divided into A and B grade accommodation, reflecting
high and low quality respectively. Whilst subjective, this categorisation is based on an
assessment of each property’s age, specification, location and overall attractiveness.
• The
South East is defined as the market area shown in the map on pages 6/7. The market
statistics quoted as 'South East' or 'South East Study Area' are however, exclusive of
Cambridge, Oxford and Brighton.
• P
re-let
= The letting of proposed schemes not yet under construction and those let during
the construction process.
• All
data presented is correct as at 30th December 2021.
Knight Frank Commercial Research provides strategic advice, consultancy services and forecasting to a wide range of
clients worldwide including developers, investors, funding organisations, corporate institutions and the public sector.
All our clients recognise the need for expert independent advice customised to their specific needs. Important Notice:
This general document is provided strictly on the basis that you cannot rely on its contents and Knight Frank LLP (and our
affiliates, members and employees) will have no responsibility or liability whatsoever in relation to the accuracy, reliability,
currency, completeness or otherwise of its contents or as to any assumption made or as to any errors or for any loss or
damage resulting from any use of or reference to the contents. You must take specific independent advice in each case.
It is for general outline interest only and will contain selective information. It does not purport to be definitive or complete.
Its contents will not necessarily be within the knowledge or represent the opinion of Knight Frank LLP. Knight Frank LLP is a
property consultant regulated by the Royal Institution of Chartered Surveyors and only provides services relating to real estate,
not financial services. It was prepared during the period of June 2020. It uses certain data available then, and reflects views of
market sentiment at that time. Details or anticipated details may be provisional or have been estimated or otherwise provided
by others without verification and may not be up to date when you read them. Computer-generated and other sample images
or plans may only be broadly indicative and their subject matter may change. Images and photographs may show only certain
parts of any property as they appeared at the time they were taken or as they were projected. Any forecasts or projections of
future performance are inherently uncertain and liable to different outcomes or changes caused by circumstances whether of
a political, economic, social or property market nature. Prices indicated in any currencies are usually based on a local figure
provided to us and/or on a rate of exchange quoted on a selected date and may be rounded up or down. Any price indicated
cannot be relied upon because the source or any relevant rate of exchange may not be accurate or up to date. VAT and other
taxes may be payable in addition to any price in respect of any property according to the law applicable. © Knight Frank LLP
2022. All rights reserved. No part of this presentation may be copied, disclosed or transmitted in any form or by any means,
Knight Frank Research electronic or otherwise, without prior written permission from Knight Frank LLP for the specific form and content within which it
appears. Each of the provisions set out in this notice shall only apply to the extent that any applicable laws permit. Knight Frank
Reports are available at LLP is a limited liability partnership registered in England with registered number OC305934 and trades as Knight Frank. Our
registered office is 55 Baker Street, London W1U 8AN, where you may look at a list of members’ names. Any person described
knightfrank.co.uk/research as a partner is a member, consultant or employee of Knight Frank LLP, not a partner in a partnership.You can also read
