The South East Office market has significantly been impacted by the COVID-19 pandemic and lockdown restrictions, reducing the level of occupier activity which dominated the majority of 2020. The ability for much of the workforce to work from home has forced the adoption of new ways of working. Occupiers are reassessing the utilisation of offices placing a greater emphasis on building specifications and healthy workplace features as they focus on employee health to preserve long-term productivity.
Despite entering a second lockdown in mid-November, South East office take-up in the final quarter of 2020 reached 541,107 sq ft, marking it the largest quarterly take-up level of the year. This brings annual take-up levels to 1.6m sq ft, down 36% on the previous year (2.6m sq ft) and well below (-44%) the 10 year average of 2.9m sq ft. UCB completed the largest deal of the quarter acquiring 245,000 sq ft at the R&D Campus in Bagshot Surrey.
Subdued take-up levels meant that all size bands recorded a fall in activity. Only two deals above 100,000 sq ft were recorded this year. Although these larger deals provided a significant boost to take-up, the main volume of deals still took place in the 5,000-20,000 sq ft size bracket, accounting for 78% of transactions in 2020.
Following the trend in the previous quarters, the Chemical/Pharmaceuticals sector dominated demand accounting for a 36% share of take-up in 2020, up from just 7% last year. The Computer/Electronics sector followed taking a 13% share and then Telecoms (12%). The proportion of take-up in out of town locations rose to 56% in 2020, up from 51% in 2019.
Demand for the best quality space continued in 2020 with 71% of transactions being Grade A and above. Although this has been hindered by low development activity with 540,396 sq ft of speculative schemes completing in 2020, below the long term average for deliveries of 1.0m sq ft.
Weaker demand has resulted in a rise in supply levels in the form of tenant controlled space across the region. Supply reached 8.3m sq ft, equating to a vacancy rate of 8.9% in Q4 2020, up on the 2019 at 7.6%.