Future supply falls short in Southbank as demand for new office space strengthens
Following a strong second quarter, demand in Southbank has been ahead of the market with take-up nearly double the long-term average.
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Performance in this submarket remains buoyant despite market uncertainty following the announcement of Brexit, with the level of take-up recorded in 2017 surging to its second highest level in 10-years for the equivalent period. The largest deal of the quarter, WeWork’s acquisition of 277,000 sq ft at Two Southbank Place, has contributed significantly to these figures.
The Southbank market sits outside the traditional Core markets; it has seen considerable redevelopment and regeneration in recent years. New developments in both retail and offices, coupled with improved infrastructure, has attracted an array of global occupiers. Future performance will be strengthened by Southbank’s diverse tenant base. Despite this, prime rents in Southbank are 9% below the City Core and the second lowest of all other City submarkets. As submarkets become less sector specific and occupiers focus on pricing as well as product and other amenities, the Southbank has become a prime target for tenant requirements.
With steady levels of demand and a constrained development pipeline, unsurprisingly we see significant pressure falling on supply. Levels are currently 25% below the long-term average and there are only two buildings that could satisfy a requirement of over 50,000 sq ft. Following the recent deal at Two Southbank Place, 93% of space under construction is already pre-let. There is just one building due to be refurbished, which is yet to get underway, which could complete in 2018. A further four schemes totalling 292,000 sq ft have been outlined with an earliest completion of 2019, although these may be pushed into 2020 due to Brexit concerns.
City developments under construction – committed v speculative
Looking at the graph above it is clear supply of new and refurbished stock is heavily constrained in the next couple of years, with annual take-up at an average of nearly 1.0 m sq ft, there is a clear shortfall in supply. Southbank and other Central London markets are yet to witness the full effects surrounding Brexit, but steady demand and falling supply, should be a positive indication that London remains a Global City open for business.