Knight Frank forecasts continued rental growth in SE offices
Date: 8 January 2008 | 
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London, UK – Rental growth has been achieved throughout each of the M25 quadrants (which excludes Central London) during 2007, according to Knight Frank’s M25 Q4 2007 research announced today.
Knight Frank forecasts that further rental growth is expected to continue in 2008 with rental levels within prime locations in key western markets expected to rise by a further 15% including Hammersmith and Reading where prime rents in both centres are forecast to break £40.00 per sq ft and £30.00 per sq ft respectively having already achieved rental growth in excess of 10% over the last 12 months. This is particularly notable given that yields in these centres have moved out by 75-100 basis points over the same period.
Further highlights include:
• Take-up in 2007 totalled 3,624,965 sq ft well above the long-term average. The final take-up for Q4 revealed that despite the negative performance of the investment sector the occupational market in the commercial property market has recorded another steady year
• Active named demand increased during Q4 2007 by 6% to total 7.1m sq ft. Latent demand is currently not being driven by any one sector. Market fundamentals of lease breaks and expiries, consolidation and the upgrading of existing accommodation remain key drivers. This trend is expected to continue in 2008
• The majority of take-up during Q4 involved new and Grade A accommodation which accounted for 87% of total take-up. Grade A accommodation represented the greatest proportion of quarterly take-up accounting for 74% (607,427 sq ft). In 2007 the acquisition of new and Grade A accommodation accounted for 82% of all lettings (New; 19% and Grade A; 63%)
• Out-of town lettings accounted for 66% of Q4 take-up, with average transactions sizes almost 50% higher than those recorded in the town centre markets (27,137 sq ft OOT compared to 14,481 sq ft in TC). For the whole of 2007 OOT take-up accounted for 65% (2,374,277 sq ft), almost double the amount of accommodation acquired in the TC markets (1,250,688 sq ft)
• Supply of large new units of accommodation within the market remains limited with only one unit currently available in excess of 80,000 sq ft. Choice for substantial requirements will remain limited supporting rental growth projections
• Overall in the market there remains a limited amount of new accommodation which currently accounts for just 15% of total availability
• Refurbishment completions are expected to have an impact on availability during the first half of 2008 with a total of 461,316 sq ft scheduled to return to the market in 10 separate schemes. The most notable refurbishment scheduled to complete in Q1 2008 is the Ark, Hammersmith totalling 150,949 sq ft
The graph above illustrates the strength of the current market compared to the last downturn in 2000. A key point is that with the vacancy rate at 7.3% and with a limited amount of good quality accommodation there remains scope for development and rental growth. Furthermore take-up levels within the market have been steady and constant, albeit without any major surges in demand for over 24 months. In addition latent demand has also remained healthy throughout the year despite the changing economic conditions and sentiment in the broader UK economy.
Sub Markets M4 Corridors
The M4 vacancy rate fell from 9.7% to 9.4% in Q4, its lowest level in over four years. Take-up in the M4 has remained strong throughout 2007 with take-up in Q4 totalling 714,672 sq ft a 22% increase on the previous quarter (584,210 sq ft) and well above the long-term average of 424,303 sq ft.
Strong take-up, falling vacancy rates, significant pre-lets and further rental growth underline the current strength in the M4 market which is expected to continue in 2008.
For further information, please contact:
Emma Goodford, head of national offices, Knight Frank, +44 (0)20 7861 1144
Andrew Hawkeswood, commercial research, Knight Frank, +44 (0)20 7861 1248
Olivia Gallimore, commercial pr manager, Knight Frank, +44 (0)20 7861 1035
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