Pharma sector accounts for quarter of all 2015 South East office deals - Cushman & Wakefield

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Pharma sector accounts for quarter of all 2015 South East office deals

  • Overall take-up rose 26% to 5.8m sq ft with pharmaceutical firms, led by AstraZeneca in Cambridge, taking 1.4m sq ft
  • With supply constrained, prime rents are forecast to rise an average 25% over next five years
  • Transaction volumes reached a record £3.6bn in 2015, pushing yields to lowest level since 2006

Office take-up in the South East rose significantly in 2015, with nearly a quarter of all deal activity taking place in the pharmaceutical sector, according to a research report out today from Cushman & Wakefield.

According to the research, annual take-up totalled 5.8m sq ft in 2015, a 26% rise on the previous 12 months. An increase in pre-letting activity meant that the volume of grade A take-up also rose dramatically with 11 deals over 50,000 sq ft compared to just six in 2014.

Pharmaceutical firms took more space in 2015 than any other business sector with 1.4m sq ft transacted, which represented 24% all deals in the South East. The region’s biggest deal in 2015 was AstraZeneca’s acquisition of 850,000 sq ft at the Cambridge Biomedical Campus.

Overall availability fell 16% last year with the South M25 market experiencing the biggest decline due to a combination of improved take-up activity and a limited development pipeline. Looking ahead, prime headline rents are forecast to rise an average 25% over the next five years in the South East. Reading and Maidenhead are predicted to see the largest increases of 38% and 33% respectively, which will take rents to £47 per sq ft and £44 per sq ft.

Charles Dady, Cushman & Wakefield’s Head of South East Office Agency and UK Landlord Services, said: “Occupier activity will continue to increase across the South East during 2016 due to improving indigenous demand and the escalation of costs in Central London. We expect this will trigger the decentralisation of a greater number of business functions and jobs from the capital to more affordable locations.”

“With the pipeline of grade A office space constrained, headline rents have now reached or exceeded their previous peak in most sub markets. This trend is likely to continue through 2016 with prime levels approaching the £40 per sq ft mark for the first time outside greater London.”

Investment in the South East office market reached a record £3.6bn in 2015, a 31% increase on 2014. Domestic buyers accounted for 62% of all deals although there continued to be strong appetite from overseas, totalling investment of £1.3bn.

Ben Clarke, Cushman & Wakefield’s Head of UK Research, said: “We have seen weight of money continue to put downward pressure on prime yields in the South East office market. The average office yield fell 24 basis points in 2015 to 5.05%, the lowest since 2006.

“Looking ahead to the next 12 months, we expect a less active investment market in the first half of the year as investors pause for breath amid various global and domestic economic uncertainties. However, activity is expected to pick up later in 2016.”

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