JLL’s latest report predicts refurbishment space to outpace delivery of new space in South East office market
Clustering in the region's office market has increased
JLL’s latest South East office market report revealed that in the region, trends are pointing towards a decrease in the supply of new space leading to increased take up for refurbished spaces. In 2021, the vacancy rate for the South East office market decreased reaching a historic low, of 3.3% in West London and just 2% in Thames Valley. This trend is likely to continue with the pace of redevelopment expected to slow within the next year.
Completions of new developments will also tail off, with just 1.2 million sq ft speculatively underway for delivery by 2023, the equivalent of less than six months of take-up. JLL highlighted that the return to the office post pandemic, has led to a bigger focus from occupiers on high-quality space with stand-out sustainability credentials. As a result of this trend, along with low new build vacancy limiting occupier choice, pre-letting is likely to be a feature of the market over the medium-term.
The report also cited an increase in clustering within the South East office market. This is particularly reflected in the research and development and life sciences Golden Triangle of London, Oxford and Cambridge, the advanced engineering of Motorsport Alley between Oxfordshire, Buckinghamshire and Surrey, and the software development and video gaming hub of Guildford. These clusters have emerged as occupiers are attracted by the area’s skilled workforce, which in turn drives a broad range of start-up and SMEs in the region.
Stuart Austin, head of South East office markets at JLL said: “Clustering offers a range of benefits that occupiers are keen to utilise. It allows them to share local infrastructure and amenities, supply chains and client base;
· provides access to the largest pool of skilled workers in a wide range of subdisciplines and recruit among the graduates of local universities and
· exchange information with companies and employees in the same location- ‘knowledge spillovers’ - that makes them all more effective. These could be at planned events or just as likely overheard conversations or accidental meetings”
As occupier demand for new grade A space and thoughtful refurbishments continues to rise in line with robust levels of leasing activity, JLL predicted a divergence in performance between prime and secondary space. The research also pointed to locations where businesses cluster together and where developers are catering for the changes in requirements which are likely to outperform over the short to medium term.
JLL stated that the reality for secondary, dated office buildings is that they are likely to be less effective in securing tenants so rents are anticipated to come under greater downward pressure which this could lead to an uptick in change of use for some of these assets.
Stuart Austin added, ‘The general tone of the market remains one of cautious optimism. As we emerge from the pandemic, the office is resuming its function as a collaborative hub, utilised to drive business performance. The basic need for office space remains, however, we are likely to witness an increasingly bifurcated market with best-in-class assets performing well whilst poor quality buildings will suffer.”
To read the full report, click here.
JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. JLL shapes the future of real estate for a better world by using the most advanced technology to create rewarding opportunities, amazing spaces and sustainable real estate solutions for our clients, our people and our communities. JLL is a Fortune 500 company with annual revenue of $19.4 billion, operations in over 80 countries and a global workforce of more than 98,000 as of December 31, 2021. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit jll.com.