Home » Commercial » Growth opportunities forecast in the M25 office market

Growth opportunities forecast in the M25 office market

– The potential for indecision following a hung parliament has implications for Britain’s credit rating, currency and markets, which is compounded by wider concerns about the European economy

– The economic outlook remains very uncertain in the near term, but there is a consensus that the worst has passed – if only in the sense that we’re unlikely to see another year of contraction approaching -5%. Medium term projections are positive

– Although unemployment as a whole has a direct relationship with rental performance, the public sector is of little significance to the South East office market, representing an average of only 6% of take-up during the last three years

– Meanwhile those sectors which underpin take-up, such as Financial & Business Services and Communications, have and will continue to grow rapidly. In 20 years time, these two sectors alone will account for nearly half of the South East economy

– The UK pricing recovery which started last year has not happened at the same pace in the South East offices as it has for the rest of the market. Although improved, values remain 40% below their peak, implying that the South East market may still be under-valued

– Last year, Knight Frank forecast that 2009 would be the first year in which South East offices would be hit by both negative rental and negative capital value change on the IPD measure. This was proven correct, although capital growth was only marginally negative

– Knight Frank forecast that there would be three consecutive years of average rental falls and we stand by that today. One of those three years has now passed, and the third year (in 2011) will be relatively benign

“Knight Frank’s forecast for 2010 is for a total return on South East offices of 9.1%" she went on to say.

"Overall performance is set to be fairly steady, with South East office total returns averaging circa 8.5% in the period to 2014. But the enormous caveat to these forecasts is that our economic recovery is not derailed either by global events or, indeed, by our own Government. In reality, near term performance may be entirely out of our hands, but there is real potential for medium term recovery to be steady.”

Emma Goodford, head of south east offices, Knight Frank commented: “For the next 12 months in the South East office market, the drivers of activity will be lease activity and cost neutrality or savings. Those that can move will, only if it’s cost neutral. If not they will delay until 2011 onwards. Rental growth will return across the board by the end of 2011 and during the next 12 months will only be seen in selected areas across the region including Uxbridge and Staines. Development is justified, if financing can be secured, in towns that demonstrate the right criteria such as Uxbridge, Hammersmith, Staines and Watford.”

Tim Smither, partner, investment, Knight Frank said: “Comparing the South East with other UK market areas shows it remains at a notable discount; the South East fell further and has recovered slower than the other markets. However, we believe that it is now returning to its long term average and when considered relatively, looks good value.”

Have your say on this story using the comment section below