South East Offices - A supply squeeze ahead?

In 2017, office development in the South East market reached its peak of the current cycle. Development completions exceeded 3.3 million sq ft, of which 2.4 million sq ft was speculative. This represented the highest development total for more than 15 years. Since then, development activity has reduced significantly. In 2018, just 840,000 sq ft of speculative space was delivered to market. 

Set against strong demand, developed space has quickly been absorbed. At the time of writing, vacancy rates in all markets (M25, M3, and M4) were around 20% below their respective ten-year averages. Interestingly, 76% of this space was new or grade A, highlighting the scale of grade B space being repurposed for alternative use. 

Moving forward, active speculative development with a completion date before the end of 2020, is just 830,000 sq ft equivalent to just over three-and-a-half months of take-up. If proposed schemes that have a possible start date within the next 12 months are also considered, only a further 1.2 million sq ft could complete before 2023. A drop in vacancy rates across the region is therefore forecast, with Brexit and a potential interest rate rise fuelling further hesitation to any potential development response. 

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