Market Insight

Momentum builds in South Coast office market, but more supply needed

If our wave of recent surveyor appointments is anything to go by, activity in the office market continues to go from strength to strength across the South Coast, with take up returning to pre-pandemic levels.
July 11, 2022
In 2021 we saw the bounce back of the office markets in the region’s major cities, including Portsmouth and Southampton, as the desire to be in and amongst city centre facilities and have a sense of place, returned.

Now, seven months into 2022 our South Coast agency team, the region’s leading commercial office agent, Russell Mogridge, discusses what we are seeing on the ground across the South Coast office market.

As businesses have begun to think about what their post-pandemic workplace strategies look like, workforces have been encouraged back into the office, and the professional services sector has led the way.

Having enjoyed the benefits that working from home provided for some (but not all), most businesses have opted for a hybrid office model for the medium term at least.

This is giving their teams the benefit of both worlds – the flexibility of homeworking, together with the social, mental health, career and innovation benefits that the office environment delivers – not to mention the recruitment lure.

This is translating into a continued ‘flight to office quality, as occupiers seek a higher standard of office building boasting a good range of amenities, collaboration spaces and green energy efficient credentials, to enable them to attract and retain talent.

The flight to quality, together with an historic lack of office development around the South Coast is pushing rents up, as there is so little supply of high-quality Grade A space available currently.

Despite rising rents, businesses are willing to pay for such quality, balancing the outlay against their ability to take a smaller footprint – thanks in part to the hybrid working model.

We have also seen the trend for Category A+ office space, which originated in the US and has now trickled out of London, reach our shores.

This fully-fitted ‘plug and play’ space has become increasingly popular, as occupiers want the ease of moving into a ready-made space, without the burden of the capital expenditure of office fit out on their shoulders.

We’ve seen great success in this approach at Charlotte Place in Southampton, Solent Business Park and Twenty3, where astute landlords have invested in the complete refurbishment of their assets.

They have rentalised the spaces in between, to provide a high-quality fitout and energy efficient credentials for businesses who increasingly seek to live and breathe their ESG values in the real estate they occupy.

Kingsbridge Estates’ £1.2 million refurbishment and extension at Charlotte Place in Southampton boasts the addition of a first floor business lounge, new breakout and collaborative space as well as secure cycle parking and showers – all of which are now deemed essential for investors / developers wanting to attract quality occupiers.

Twenty3 Brunswick Place, which we are marketing on behalf of Fidelity International, is a building which, under different circumstances could have gone for residential development.

Instead, the landlord chose to refurbish the 65,000 sq ft building to create Southampton’s most energy efficient, BREEAM Excellent building. Global engineering, architecture and consultancy company Ramboll was quick to capitalise on this, taking a 10-year lease of at the start of the year.

Meanwhile, at the other end of the spectrum, those offices that have not seen investment, have and will continue to languish. Eventually, we expect these will become obsolete and will either go for residential development under permitted development rights, or for other uses.

Out of town pace growing

The demand we initially expected to see at out of town business parks at the end of 2020 and into 2021 didn’t materialise.

Instead, employers favoured the leisure and social benefits that town centre locations could offer their teams.

We have seen this change during the first six months of 2022, with out-of-town office demand picking up at locations such as Solent Business Park, Botleigh Grange at Hedge End, Cams Hall Estate in Fareham, the University of Southampton Science Park and Lakeside North Harbour.

The latter, Lakeside, was quick to bounce back from the pandemic, not just because of the quality of office space on offer, but also because of the leisure and community offer it provided for tenants and their people.

What can you expect to pay?

The cost of a business’ commercial premises is the single most significant cost after staff, and so it comes as no surprise that, after the pandemic, there is more a lot more attention on this business cost.

Office rents in our South Coast towns and cities are rising, and you can expect to pay £28 psf in Southampton and £25 psf in Portsmouth and £25 psf in Bournemouth for Grade A space.

As you move out of town, the cost starts to go down, with £21 psf in locations such as Fareham at places like Cams Hall Estate.

With signs that office take up continues to grow, astute landlords of existing or ageing assets might consider significant refurbishment programmes, to deliver much needed office stock to feed the continuing rise in demand for Grade A space across the region.

If you are looking to lease or to let office space on the South Coast, or you are interested in acquiring or disposing of an office building, speak to a member of our award-winning South Coast office agency team for more information.