Q3 2019 South East Office Investment Market Snapshot

By October 2019 Insight
  • The Q3 2019 south east investment volumes were 17% greater than the previous quarter, totalling £770 million, albeit they were significantly boosted by the Watford and Portsmouth deals. Excluding these, the Q3 total is significantly lower at £232 million. This compares to the 5-year average of £914 million for Q3 transaction volumes.
  • The average lot size for Q3 2019 was very low at only £12.20 million (excluding Portsmouth and Watford) and there were just 21 transactions in total compared to the 5-year average lot size of £26 million and 32 deals for Q3.
  • Goldman Sach’s purchase of Croxley Park, Watford, represented the largest deal at £400 million and Portsmouth Council’s purchase of Lakeside North Harbour Office Park, Portsmouth, was the second largest at £138 million. Whilst the overall Q3 figures show a preference for out of town stock, excluding these large office park deals reveals that town centre office deals represent 91% of total transaction volumes.
  • A continued stand-off between buyers / sellers and the arrival of new entrants (predominantly Overseas) is leading to longer transaction times. Q3 deals took over 7 months on average from launch to exchange.
  • There has been a continued trend into Q3 for a lack of new stock openly coming to the market with a number of new opportunities being offered on an off-market or selective basis. Furthermore, circa 30% of offices traded in Q3 were launched to the market during 2018. This is as a result of buyers searching for historic opportunities to place capital and deals generally taking longer .
  • The off-market trend mostly reflects continued challenges in the economic and political environment with caution among vendors. This reflects a combination of vendors seeking to avoid being seen as ‘ distressed sellers’; trying to secure pricing premium; and judicious marketing with there being fewer, active competitive buyers. The lack of new opportunities is also a result of off ices and industrial being held, offering defensive returns compared to retail.
  • Deal volumes for the period were propped up by Local Authorities despite a general reduction in activity and a continued ‘In Borough’ focus.
  • Excluding the two largest deals for the quarter, Croxley and Portsmouth, Funds were the most active investor representing 33% of total transaction deals. Local Authorities, Property Companies and Overseas were the next largest buyer groups representing 19%, 17% and 18% respectively.
  • At the end of Q3 there is over £431 million of ‘known’ stock currently under offer which will be a positive for Q4 transactions.
  • There has been a notable lack of south east offices which have been launched in September.  This reflects the uncertainty that continues to impact buyer and vendor investment decisions and as the BREXIT date of 31 October approaches, volumes will continue to be impacted as sales and investment decisions are delayed.