UK buyers have returned to the office property market in the South East of the UK and accounted for 87% of investment turnover in the first quarter of 2017, new research shows.
This is in stark contrast with 2016 when overseas buyers accounted for the majority of investment turnover at 51%, according to the latest analysis from real estate firm Knight Frank.
Overall the start to 2017 has seen investment volumes reached £540 million, some 7.5% above the 10 year quarterly average for the region and Knight Frank says that with limited new stock on the market, much of this has been made up of hangover deals from the fourth quarter of 2016 and off market transactions.
The report also shows that the first three months of 2017 has seen three UK investor pools account for the majority of volumes in the market. UK councils continue to be among the most active for income deals, in a lot of cases pricing out the overseas market due to their comparatively low cost of capital.
Permitted Development buyers have continued their dominance in certain markets and UK Funds have made a return with a focus on prime multi-let assets with reversionary potential in established markets such as Brighton, Watford and Maidenhead.
Overseas buyers are expected to remain active across the South East office market through the year. Private Equity buyers continue to seek attractive returns, however remain frustrated with limited opportunities in the market.
‘Last year ultimately surpassed expectations in terms of volumes traded. We expected 2017 to start slowly, however once again volumes exceeded forecasts. Moving forward, the biggest concern for sellers this year will be where to re-invest money with significant levels of capital chasing limited stock,’ said Tim Smither, head of South East investment at Knight Frank.
The research also shows that in the occupier market, letting activity in the first quarter of this year was steady, with overall office take-up in the South East just short of the 10 year average for a first quarter.
Meanwhile, there has been a revival in mid-range deals across the South East market, the likes of which has not been seen since 2014, accounting for 44% of the take-up in the M4 region.
The retail, distribution and transport sector has become particularly prominent in the first quarter of 2017 with the sector accounting for 24% of all office take up in the South East, supported by a large letting of 73,600 square foot to ASOS at Leavesden Park.
Retail occupiers have only started to become more prominent within the South East office market since 2015, and this trend looks set to continue with active office demand in the South East at 5.3 million square feet of which 24% is from retailers.
‘Although smaller requirements predominate in the South East, an interesting feature of the first quarter was that 11 mid-range deals of 20,000 to 50,000 square feet completed. This is the highest quarterly total within this size band since 2014,’ said Emma Goodford, head of national offices at Knight Frank.
‘Development completions in the M25 will peak in 2017 increasing the vacancy rate. Despite this, vacancy levels are not anticipated to reach the long term average and will begin to decrease by the turn of the year,’ she added.
