The acute lack of supply of quality office space in South Bank is stalling what has been central London’s fastest growing market for the last two years.
Availability of office space has now fallen below 600,000 sq ft (599,079 sq ft) for the first time on record, representing a 3% drop on the previous quarter and a decrease of almost a million sq ft on the corresponding figure 12 months ago, when Availability was 1,476,430 sq ft.
Office Take-up for the 3rd Quarter was 345,792 sq ft, (representing the highest quarterly figure in 2015), including Bouygues UK’s 146,152 sq ft letting at Becket House, 1 Lambeth Palace Road, SE1. The total office Take-up figures in 2013 and 2014 comfortably exceeded 1.6 million sq ft for each year, however, the end of year figure for 2015 is unlikely to break 900,000 sq ft, marking a return to the similar levels of Take-up seen in 2011 and 2012.
The lack of Availability aligned with a seemingly relentless demand from occupiers is driving continued rental growth across the market. The Shard set a new letting record after securing more than £90 per sq ft with financial IT company Leonteq Securities for level 26, which topped a string of lettings this quarter in the 72-storey building.
Jules Hind, Partner at Union Street Partners, said: “It comes as no surprise to us that lack of supply has put the brakes on South Bank Take-up. In the last couple of years the market has been dominated by transactions of large scale buildings, such as The Place, Sea Containers and Bankside 2 & 3, which have accounted for the lion’s share of Take-up.
“With The Shard now approaching full occupancy, we’re about to see the South Bank returning to a more normalised, granular market. We can expect to see a raft of small to medium new build and refurbished stock arrive on the market. Given the major uplift of the area in the last couple of years, including the vast improvements to infrastructure and provision of retail and leisure amenities, the quality of that new office space will be much improved and in-keeping with the new South Bank.”
"South Bank has always represented the extreme end of the feast or famine cycle of the central London property market. Whilst the 377,000 sq ft of speculative development due in 2016 will in no way plug any significant gap in supply, the type of buildings being developed will be of a very high standard and will epitomise the South Bank market in the short-medium term. The Shard has clearly been the game-changer for the market, and its true effect on the market will now be realised as over the next year we see a new wave of stock in the mid-size bracket, such as 3 Valentine Place and 1 Long Lane, responding to the new look and feel of South Bank and meeting continuing occupier demand.”
At £169 million, investment in South Bank office stock was down 6% on the previous quarter (£181 million), with the running total standing at £519 million for the year-to-date, meaning 2015 will fall some way short of the £2.151 billion invested in the South Bank in 2014. Union Street Partners report that Investor appetite from both the UK and overseas remains very strong, the volume of transactions is being stymied by the limited opportunities to invest.
Alastair Hilton, Head of Investment at Union Street Partners, said: “South Bank’s appeal, when set against the other key Central London markets, is its ability to provide assets with strong growth potential. As asset values have risen in line with the rest of London, growth is now more dependent on rents. We are now entering a period of very low availability, which will support rental growth going forwards.
"The recurring challenge for the Investment market is liquidity. While the appetite is certainly there, the number of available deals is not, which is reflected by the 3rd Quarter investment turnover being 36% down on the five-year quarterly average. It is no coincidence that two of the key deals, 42 Southwark Bridge Road, SE1, and 135 Park Street, SE1, are large assets with development/refurbishment potential.”
BACK TO NEWS