Avison Young releases quarterly South East Offices update

Strategic real estate advisor Avison Young has released its quarterly South East update for Q3 2020, which focuses on 10 key office markets in the south east of the UK.

Take up in Q3 totalled 282,100 sq ft, down by 54.6% compared to Q3 2019, but 32.9% higher than in Q2 2020. Town centre take up was particularly affected, totalling 129,300 sq ft, yet Cambridge and Oxford continued to perform robustly despite the difficulties posed by the pandemic. This can be largely attributed to the resilience of the BioTech and Technology sectors in both towns.

Headline rents have held up, averaging £36.25 per sq ft, with new record prime rents seen in Cambridge this quarter. Key activity included Fora taking 65,000 sq ft at 20 Station Road, Cambridge on a 15-year lease and setting a new prime headline rent of £48.50 per sq ft; Mantle Business Centre taking 29,745 sq ft at 9 Hills Road, Cambridge; and Sure Petcare taking 15,845 sq ft at 2030 Cambourne Business Park on a 10-year lease.

Investment activity in Q3 was perhaps surprisingly strong, with a number of key major transactions taking place, including the purchase of Reading International for £120m, Bourne Business Park for £76.7m and Aviva’s Project Symphony at £59.71m. While these deals had started pre-pandemic, they show continued investor confidence in the South East office market. Transaction volumes are now close to those seen at the end of 2019 and Q1 2020.

Overseas investors, Local Authorities and property companies have remained the most active purchasers. Most institutions have stayed out of the market and have struggled to underwrite a business plan for the sector, whilst at the same time many funds remain gated. There have been a number of sale and leaseback initiatives from occupiers such as Next, Weston Homes, Ted Baker and it is likely that more corporate occupiers will consider this a route to raise capital.

Piers Leigh, Principal, South East Offices at Avison Young, said:
“It is encouraging to see continued confidence in the South East office market. The investment market picked up in Q3, led by the completion of two major business park sales.

The occupier market continued to struggle with low levels of demand, the exception to this was Cambridge which accounted for 48% of take up across our 10 key South East markets. The Varsity Corridor has proved increasingly resilient this year, with Oxford also having a healthy level of take up and resultant rental growth.”

Q3 failed to bring the anticipated return to work for office-based workers, following government advice to work from home if possible. This had the effect of putting large parts of the market on pause. With the increasing uncertainty around further restrictions, Q4 2020 looks to be another challenging quarter for take up. Nevertheless, the last quarter of the year should continue to see a respectable level of transactions, despite the lack of activity from funds, with a healthy level of stock coming to market.”

Avison Young’s quarterly South East office update focuses on 10 key markets, made up of in town and out of town markets, covering the whole of the south east geographical area (Cambridge; Milton Keynes; Oxford; Basingstoke; Reading; Maidenhead; Slough; Crawley; Guildford, Woking & Weybridge; and Watford).

To read the full research update on South East offices, click here.