Demand is mainly being drawn to the best quality product with companies wanting to create working environments that will entice staff back into the office. The good news is that rental levels continue to become less of a consideration with quality of space, ESG credentials and amenity offer, commonly dictating decision making.
ESG remains a key driver with many occupiers often focussing on what they consider to be the future proofed buildings typically with strong EPC, BREEAM and Fitwell accreditations.
Cat A + product is increasingly dominant at the smaller end of the market as occupiers are happy to pay premium rents in exchange for a hassle free relocation which minimizes capital expenditure.
The occupier impasse is reflected in the static supply figures, with vacancy levels staying at around 8%. We haven’t experienced the flood of occupier space some feared coming on to the market although most towns can point to notable examples of businesses shedding space. The flight to quality combined with the strength of the logistics sector has seen a continuation of secondary office locations being sold for redevelopment to sheds. Hook, Woking, and Weybridge have all seen very notable examples of this.
The pipeline of ongoing refurbishments is still very limited, with only 209,000 sq ft currently onsite. This will continue to apply an upward pressure on rental levels as the year plays out.
Despite the tough market, there have been some stand out performers. The gaming industry in Guildford continues to drive high levels of demand. With 62,000 sq ft of take-up and another 36,000 sq ft under offer, 2022 is shaping up to be another strong year for one of the best performing south east locations. Staines also faired well and recorded the largest letting of the year, with ADP’s 47,000 sq ft acquisition of 2 Causeway Park.
We have seen much better levels of viewing activity in recent weeks which will lead to a stronger second half of the year. We will see more Grade B space coming to the market but the major challenge markets face will be a dearth of quality supply which will help fuel the refurbishment pipeline. With build costs continuing to increase, landlords will need to pass the cost on to tenants which will be another catalyst for rental growth.
If you have any questions or require any advice, please contact one of the team.