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South-East’s office take-up falters north of M25

Words: Laura Edgar

Only 7 per cent of the South-East’s office market transactions happen north of the M25, according to research.

South East Office Market – July 2015, which documents research by BNP Paribas Real Estate, shows that office take-up remained stable during the first half of 2015 compared with the same period in 2014, with 1.48m square feet negotiated in the South-East.

But BNP Paribas says most of this was in the Thames Valley or in the south M25 area, “with just 7 per cent being recorded in the north M25 market”.

The Thames Valley accounted for 58 per cent of the volume transacted while the biggest deal in the first half of the year was in Crawley. Virgin Atlantic took just over 110,000 square feet at The Leonardo Building from Abstract Securities for its new headquarters.

Robert Taylor, associate director of research at BNP Paribas Estates, said it has been a difficult year for the north M25 so far in terms of the low number of office deals. “The sub-market area is suffering from the ongoing lack of Grade A space available in the area, and that has been translated into the take-up.”

However, he said developers and investors south of the M25 that chose to develop in 2011 and 2012 have been “rewarded for their belief in the market”.

“In addition, 71 per cent of the completed deals across the South-East in H1 were for Grade A space, compared with only 58 per cent for 2014, underlining the urgent need for Grade A space to the north of London,” added Taylor.

The value of office space is being driven up, according to BNP Paribas, by investor confidence, while permitted development rights have reduced supply in oversupplied locations “that were typified by vacant but moribund stock - such as Croydon, Slough and Sutton”.

BNP Paribas expect further price increases and lowering yields.

Taylor concluded: “Capital values per sq ft in the South-East are still at a discount to the previous peak during 2007 and are yet to recover. Our research leads us to believe that values will continue to edge up through the remainder of the year.”

The research also looks at the business park sector as “occupiers continue to take space”, attracted by the motorway accessibility.