With stock levels of available office properties at historic lows and a significant drop-off in new enquiries from occupiers, the office property market in Surrey and north Hampshire will face challenges over the remainder of 2024, according to Curchod & Co’s latest office market review.
According to the Curchod & Co report, the outlook is becoming increasingly difficult for occupiers, as prime rents remain on an upward trajectory and look set to rise significantly, driven by build cost inflation and a shrinking supply pipeline.
“There is an acute shortage of space, particularly of Grade A accommodation across all markets in Surrey and Hampshire. At the same time, there are fewer businesses looking for smaller offices, leading to a challenging environment for the region’s office market in the coming months,” according to Piers Leigh of Curchod & Co.
Despite modest or poor take-up levels in some local markets, rents for Grade A space have continued to climb across Surrey and Hampshire and, as a result, many businesses are being forced to adopt longer-term approaches to their occupational strategies. Curchod & Co’s report highlights a growing trend towards pre-let and forward-letting agreements within the market.
“There is also a noticeable clustering in key commercial centres, with smaller office markets such as Camberley, Farnham, and Chertsey seeing occupiers relocate to larger hubs like Farnborough, Guildford, and Woking,” said Leigh.
According to Curchod & Co’s research, the erosion of stock is primarily due to pressures from the industrial and residential sectors, posing the biggest challenges for the office market. The cost of ESG compliance and future-proofing is also a significant and increasing hurdle for the sector. Combined, these factors have eroded investor confidence, and the sector still remains out of favour for buyers. This in turn is producing some exceptional opportunities for investors who are brave enough and have the expertise to capitalise on this unique set of circumstances.
Basingstoke: a mixed outlook
In Basingstoke, the take-up over the first half of 2024 was 40% of the five-year average, which is an encouraging start for a market that typically sees more activity in the latter half of the year. However, this average is heavily influenced by the COVID-19 years and is down 30% on the 20-year long-term average.
Pipeline deals remain subdued and, with enquiry volumes down, Curchod & Co expects a potentially challenging second half of the year.
Over the first six months of the year in Basingstoke, the majority of take-up has been concentrated in the town centre, largely due to the forward letting of 41,000 sq ft to The AA at The Plant, which accounted for 78% of the take-up so far this year.
Despite this activity, Basingstoke faces a constrained development pipeline, with Grade A supply remaining critically low at under 4%, and total supply at 8.75%.
Blackwater Valley: sluggish performance
The Blackwater Valley has experienced sluggish take-up in the first half of the year, reaching only 35% of the five-year average of 141,000 sq ft at the halfway mark. With a limited under-offer pipeline, it appears that the year will remain quiet for this region. The exception has been the letting to DXC at 110 Pinehurst Square, Farnborough Business Park, accounting for 29,205 sq ft.
Other transactions have been relatively small, mostly under 5,000 sq ft, but overwhelmingly focused on Grade A stock, which accounted for 95% of the take-up.
Prime rents in the Blackwater Valley have continued to rise, with over £30 per sq ft being achieved for the best properties and consolidation is a notable trend, as seen with DXC occupying just over 15% of the space they previously held at the Royal Pavilion in Aldershot.
Repositioning and repurposing is also evident locally, with proposals to convert the Royal Pavilion’s 200,000 sq ft of offices into a private healthcare, diagnostics, and well-being facility.
Guildford, Woking & Weybridge leading the charge
Guildford and Woking have had a strong start to the year, following a record-breaking 2023. Together with Weybridge, these markets achieved 67% of the five-year average take-up halfway through the year. However, limited stock availability is likely to result in a more sluggish second half of the year.
The highlight of the past 12 months has been the rise of prime rents, with the Bottle Works in Guildford setting new benchmarks. Prime rents have pushed to £45 per sq ft, and small suites in the refurbished Kingsbridge building are quoting in excess of £50+ per sq ft.
The Bottle Works’ success has boosted confidence among investors and developers, showcasing the rewards of providing top-quality products in prime town centre locations.
The largest transaction of the year thus far has been the surrender, sale, and leaseback of 66,500 sq ft at Victoria Gate in Woking to Surrey County Council. This transaction, where McLaren was advised by Curchod & Co, highlights the continued demand for best-in-class accommodation and strong ESG credentials.
Despite the recent levels of market activity, the lack of new development and the potential loss of significant employers unable to find suitable buildings the future poses challenges brought on by a lack of quality stock. However, developers and investors willing to commit to new schemes in Woking and Guildford town centres stand to benefit significantly, with the potential for prime rents to exceed £50 per sq ft in the short to medium term.
With low stock levels and rising rents posing significant challenges for occupiers, the office market in Surrey and north Hampshire is a sector under pressure. However, as Curchod & Co’s latest report highlights, there are opportunities for developers and investors willing to commit to quality projects in prime locations.
“The market’s future will depend on the ability to balance the pressures of supply and demand and seize the opportunities presented by evolving demand and market dynamics,” concludes Piers Leigh.