The development landscape
Since the peak of the development cycle in 2017, development activity across the south east in subsequent years has proved thin. In the 40 months from the beginning of 2018 to Q1 2021, 2.3 million sq ft of speculative space has come to market. This total is less than the 2.5 million sq ft completed in 2017 alone. Consequently, the proportion represented by new space to total availability has followed a downward trajectory. At the end of Q1 2021, new space represented 8% of total market availability, the lowest level for 15 years.
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The impact of the office development pipeline on future supply will be important. At the time of writing, vacancy has begun to edge up, primarily due to the release of second hand space. The amount of space under construction across the south east market* stood at 1.6 million sq ft at the end of March 2021. Of this, 0.7 million sq ft (47%) had already been leased.
Analysis of the development pipeline excluding schemes that are already underway, reveals a picture of continued tight supply. Close to 2.4 million sq ft of speculative development has proposed start dates within the next 24 months. Taking into account average build times and assuming no space is let during construction, speculative completions therefore could total a maximum of 3.3 million sq ft over the next four years. A shortage of new best-in class offices is therefore going to be a market factor at least until 2025.
Note: *The South East market is defined as M25, M4, M3 and excludes Cambridge, Oxford and Brighton.
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Will Foster
Partner, National Offices
will.foster@knightfrank.com
Roddy Abram
Partner, National Offices
roddy.abram@knightfrank.com