Prime time for the M25 offices market – Knight Frank
Knight Frank predicted today that the market for office space within the M25 region will be driven over the next four years by companies upgrading to Grade A stock.
At its annual M25 office market presentation at the Dorchester Hotel earlier today, the firm noted that office occupiers wanting to upgrade their space will remain the key market factor, and those companies with strong balance sheets can afford to pay the rising rents being seen for the best offices to let. Knight Frank says headline rental growth will now spread into markets with tight supply and buoyant demand such as office space in Maidenhead, offices in Uxbridge and Staines office space.
Take-up in the M25 region since the start of 2011 has been almost entirely focused on new, Grade A office space, the firm notes, which has encouraged speculative development. A total of nine schemes are currently underway, which will deliver 740,000 sq ft of new offices, with 400,000 sq ft of this due to complete this year. But a subsequent pause is expected in such developments, with no more expected to be delivered until 2014. Knight Frank thinks that developers are likely to consider towns with a high level of lease events in Grade B buildings that also have low Grade A supply – it says Richmond, Croydon, Woking, St Albans, Crawley and Gatwick meet these criteria and so offer the best development prospects.
Investors in the market for office space within the M25 have been active during the past year, with the two largest ever deals seen in the South East – the sales of Green Park in Reading for £408m and Chiswick Park for £480m, Knight Frank notes. Overseas investors were the most active, accounting for 55% of turnover. “The South East is becoming an increasingly international market, with investors seeking large lot sizes (£30m+) and attractive yields,” the firm notes. Secondary and tertiary stock holds limited interest except for a few cash-rich funds, local property companies and private individuals “seeking very keenly priced opportunities”, it adds.
International investors “require large lot-sizes and a compelling story to generate sufficient returns”, commented Tim Smither, head of South East investment at Knight Frank. “For investors considering the disposal of poorer-quality stock, our message is to sell now, as pricing is unlikely to recover for some time. However, vendors need to be realistic on pricing.”
