The COVID-19 pandemic has resulted in unique and serious challenges for office occupancy across the South East. With many working from home since the lockdown started, offices have been left near vacant as business continue assess whether to commit to new offices and to put decisions on hold. Whilst re-occupancy of offices will be on a gradual basis depending on the easing of restrictions, high quality physical environments still holds great importance in building a culture and identity for a company.
Unsurprisingly, take-up activity remained subdued in Q3 2020 reaching 395,053 sq ft, an improvement on the previous quarter where take-up reached 260,628 sq ft. This brings annual take-up to end September to 1.1m sq ft, down 42% on the same period last year (1.9m sq ft) and 50% below the five-year average for take-up in Q1 to Q3. Following a lack of larger deals over H1 2020, Surrey County Council’s 110,000 sq ft acquisition at Cockshot Hill in Reigate provided a significant boost to figures in the largest deal of the year to date.
Another notable deal was to Phillips signing 40,000 sq ft at Ascent One Farnborough Aerospace Centre, Farnborough on a 10 year lease. All size bands continue to record a fall activity, however there have been five deals recorded over 20,000 sq ft in Q3 2020, up from just two in the previous quarter. The number of deals agreed in the 5,000 – 20,000 sq ft size band continues to drive demand levels in the South East accounting for an 81% share of 2020 transactions to date.
The Chemical and Pharmaceuticals sector have been the most active sector accounting for 29% of take-up so far this year, up on 6% last year. The Technology sector followed accounting for a 28% share. In Q3 2020 proportion of take-up in out of town locations has seen a rise to 62%, up from 55% in Q3 2019.
Bias remains for the best quality stock with New and Grade A deals making up 81% of annual take-up. This reflects occupier’s flight to quality for which they are having to look further ahead of their lease expiries to secure the best space. This however, is being hindered by below average levels of development activity, which is limiting occupier choice. We expect 336,000 sq ft of speculative schemes to complete this year, well below the 5-year average of 1.0m sq ft of developments delivered per annum.
A slowdown in leasing activity and increased second hand tenant space was reflected in a rise in vacancy rates across the South East reaching 7.6% in Q3, up from 7.4% in Q2.