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First signs of occupational recovery in 2010

July 06, 2010

Rental growth to return to 2006/07 levels by 2014

Segensworth Business Park, one of Farehams key out of town office locations

The UK office market took its first steps towards recovery after take-up reached 5.5m sq ft in Q1 2010, already a third of the total amount (17m sq ft) transacted in the whole of 2009. The findings come from national commercial property consultancy, Lambert Smith Hampton’s (LSH’s), National Office Report 2010, the industry’s most comprehensive compilation of office market data, analysing 37 UK locations and capturing two thirds of the UK’s office market stock.

Overall availability across the major UK office markets amounts to 65.8m sq ft, with the average availability rate in key locations being 12.7%, up from 11% at the end of 2008. The highest is in the South East (17.1%) - excluding Central London - and the North and South West follow with an availability rate of 15.9%.

“However the return of the UK institutions has broadened demand and led to a change in activity in Q1 2010,” explained Nick Lloyd, Head of Capital Markets at LSH. “Despite any immediate prospect of rental growth, there is now strong demand for prime product in the major metropolitan cities and established locations such as the Thames Valley.”

Commenting on investment opportunities, Steve Williams, Associate Director within LSH’s South Coast Office Agency team, added: “There is now a significant pricing difference between prime and secondary assets which is unlikely to change until take-up increases, the incentives offered to tenants are reduced and rental growth returns. In the meantime the office market does provide cash rich savvy investors with the chance to purchase good secondary investment deals at historically low levels.

Highlights for the invest in Portsmouth region include:

·         The office market in Fareham is focused towards out of town with almost two thirds of letting activity over the past 15 months in out of town locations. Almost 90% of current availability, 1.3m sq ft, is out of town.

·         Prime rents in Fareham town centre market have fallen by 21.1% to £15.00 per sq ft since the end of 2008, while out of town rents have remained stable at £19.00 per sq ft. Although tenant incentives have increased.

Predicting the UK office market’s ability to continue to progress out of this downturn, Steve Williams concluded: “We anticipate that the market will continue to recover as long as the second hand office stock is maintained and refurbished to meet the requirements of the next generation of occupiers. Otherwise we run the risk of the office market recovery stalling while developers play catch-up in constructing new Grade A space, which is currently in such short supply in the city centres.”

To download the full report, please visit www.lsh.co.uk/research

Source: Lambert Smith Hampton