10 April 2015
South Bank reaches tipping point as lack of supply stalls office Take-up growth

The exponential growth of the South Bank office market, where more than 3.25 million sq ft has been let over the last two years, looks to have stalled, as Union Street Partners reports that 228,415 sq ft of space was let in the first quarter of 2015, a -16%  shortfall on the five-year quarterly average (273,457 sq ft).
 
Our analysis covering SE1, SE11, SE17 and SW8, reveals the second lowest quarterly Take-up since January 2012 .
 
The top three lettings of the quarter were all by occupiers from the serviced and managed offices sector. Workspace Group took 65,606 sq ft at Edinburgh House (154-182 Kennington Lane, SE11), and One Avenue Group and Instant Offices both leasing 31,000 sq ft at 25 Lavington Street, SE1 and 230 Blackfriars Road, SE1, respectively.  
 
Total availability has plummeted to under 700,000 sq ft for the first time since records on the South Bank office market began. There is only 672,300 sq ft currently available, with vacant space at The Shard and 240 Blackfriars, SE1, accounting for 52% of that total.
 
Jules Hind, Partner at Union Street Partners, said: “We forecast last year that 2015 would prove to be the tipping point in South Bank with demand outstripping supply, and this is certainly proving to be the case. There will certainly be a significant regression in annual Take-up this, and likely next year, conceivably 50% lower than what we have seen in 2013-2014. Looking ahead to the next quarter, there is currently less than 74,000 sq ft under offer.”
 
“There is undoubtedly a terrific buzz around the South Bank; we expect the leasing activity to be driven by a high volume of small transactions, as SMEs increasingly cluster around the mature corporates that have either expanded in, or moved to, the South Bank. The three top lettings this quarter to serviced office operators – who can provide workspace for small start-ups and SMEs – is a further testimony to this trend.
 
Mark Fisher, Partner at Union Street Partners, said:  “With the exception of South Bank Central, SE1, which will deliver 225,000 sq ft office space next year, the next wave of major development isn’t due until 2017 and 2018 when the Shell Centre and Elizabeth House could be delivered respectively.”   
 
Investment in South Bank office stock totalled £169 million in the first quarter 2015, slightly down on the previous quarter’s figure of £174 million.  Union Street Partners report that Investor appetite remains extremely strong in the South Bank, however the volume of transactions this year will once again be dictated by availability of opportunity.  Following the recent exchange for the sale of Ludgate House and Sampson House, SE1, every site on the Blackfriars Road and Southwark Street cross-section is now accounted for, and is primed for major development.
 
Alastair Hilton, Investment Partner at Union Street Partners, said:  “We continue to receive more and more Investor interest in South Bank. The area now offers significant latent value as a result of being underdeveloped which is a legacy of where rents once stood. The rental growth we are now seeing supports wholesale development/ refurbishment and value add initiatives. It is therefore very much on Investors agendas. The single biggest challenge remains, which is finding and securing suitable opportunities, particularly in such a competitive environment.”

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