South East office market sees record investment
The South East office market was boosted by record £4.02 billion of investment turnover in 2021.
The total is more than double the 2020 figure of £1.93bn and 45% above the 10-yr annual average for the region. The year also witnessed a record Q4, which saw £1.54 billion of office stock traded.
Overseas capital accounted for 59% of investment volumes in 2021, driven by the UK’s relatively attractive pricing and growth of the domestic life sciences sector fuelling demand for high quality office space.
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Investor confidence in the life sciences sector continuing its growth trajectory saw over £1.5bn invested into offices in the Golden Triangle (Oxford, London and Cambridge) during the year, led mainly by global private equity houses.
UK Funds were the biggest seller of South East offices in 2021, accounting for over a third of all sales as they continued to exit non-core assets and capitalise on increased demand from alternative investors in certain locations.
A growing number of investors targeted office assets for repurposing opportunities into industrial space or data centres, with £600 million allocated in the final quarter with this intention.
Simon Rickards, Head of South East Capital Markets at Knight Frank, commented: “We expect the level of equity primed for investment into South East offices to remain high and potentially increase, as confidence in the sector continues to gather momentum.
"There will undoubtedly be a focus on prime fundamentals, ESG credentials and the ability to provide a best in class offering for occupiers, albeit with greater attention given to escalating refurbishment costs.
"The best multi-let offices will perform well going forward, but this will be to the detriment of secondary stock so further polarisation of the market will be evident in 2022. Interest in assets targeting the life sciences sector will be strong, with substantial levels of equity yet to be deployed. However, the biggest barrier to this sub-sector will continue to be a lack of suitable stock in the Golden Triangle.”
