The South East Shw’s South East Focus Q3 2024


Continued high build costs, planning delays and debt finance costs have impacted prices being paid for sites across the South East, according to SHW’s Q3 2024 Development Focus.


Tim Hardwicke, SHW’s Partner and Head of Agency, comments: “Despite


this, there is activity in both the residential and


commercial development markets, although developers are being more selective and focussing on prime locations unless there is a significant upside on considering non-prime locations.”


In London and around the M25, demand for ‘oven ready’ sites continues to remain high for residential development, due to increasing delays in pre-applications and planning applications being processed. House prices in London and the South East appear to have stabilised, however, high build and finance costs have also impacted development activity. Well-priced unconsented sites are generating good demand, particularly in affluent towns.


In Sussex and Surrey, developers’ preference is for housing


schemes with gardens over flats, however volume builders remain cautious. With the anticipated fall in interest rates following the inflationary target of 2% having been met, an increased demand for product and development is expected in the second half of 2024 as the cost of borrowing begins to ease , confidence grows and there is more political support for housing targets to be met.


For commercial property, good demand continues for prime logistics sites at sensible prices. Tim adds: “Planning risk continues to be an issue for development with delays and red tape increasing development costs and frustrating developers. But all news schemes are still aiming for EPC A / BREEAM Very Good or Excellent, due to occupier wishes and ESG requirements.”


Overall Take Up Drops by 56% Across the South East Industrial Market


Take up in the first half of 2024 is down by 56% across the South East industrial market, according to SHW’s H1 2024 Industrial Focus, however the outlook for the next 12 to 18 months is more positive with the political and economic climate now becoming more certain, and 3.5 million sq ft of lease events scheduled across the region, recorded on SHW’s exclusive database.


Tim Hardwicke, SHW’s Partner and Head of Agency, comments: “The first six months of the year have shown overall take up is down, compared with H2 2023. Although the second half of the year usually records a higher level of take up, this significant decrease is reflective of the uncertainty in the market – economically and politically – which has delayed many occupiers’ decisions on property moves. However, there is a more positive outlook going forward. With a new government now in place and interest rates widely expected to decrease imminently, backed by the large number of lease events due over the next 18 months, we are expecting transactions to increase, bringing take up back to an annual average.”


In the core South London market, take up levels dropped 19%, Mid Sussex showed a drop of 85%, with Crawley & Gatwick down by 79%. There were some exceptions across the region for example with Brighton & Hove take up increasing by 212%.


Rents have remained static in most areas across the South East markets, with a couple of exceptions: Eastbourne, Hailsham & Polegate have seen achieved rents increase from £12.50 to £12.75 per sq ft; and in Hastings, St Leonards and Bexhill rents have jumped from £9 per sq ft in 2023 to £10.50 per sq ft this year.


Tim adds: “There are a raft of new Grade A, sustainable developments coming through over the next 12 months. These are in prime locations where supply of Grade A stock is low and subsequent transactions are likely to push rents to a new high.


“The importance of ESG continues to move up the list of significant considerations, both to occupiers and investors alike, and is starting to be a driving force for industrial activity. Increasingly high utility costs are making ‘green buildings’ with lower running costs even more attractive.”


New schemes becoming available include Phase 2 of Prologis Park Beddington (Croydon), which will provide four new units totalling 90,000 sq ft this year, and GLI’s CR1 (on site now) and CR2 totalling 107,770 sq ft in Croydon. Panattoni Park Brighton is also now available to occupy providing multi-let units from 19,5000 sq ft.


Tim concludes: “In terms of investment and development, investment yields remain stable and are likely to remain so until interest rates start to reduce, but there are considerable funds waiting to be deployed whilst developer appetite for sites continues, in preparation for this expected economic boost.”


Brighton Bucks the Trend Across the South East Office Market


This year to date has seen a slow take up across the South East office market after an improved 2023, according to SHW’s Q3 2024 South East Office Focus. However, Brighton has been an exception to this trend.


Tim Hardwicke, SHW’s Partner and Head of Agency, comments: “Although


the office market has slowed, there have been


numerous lettings under 5,000 sq ft in all locations, which are not recorded in these Focus Report statistics.


“With Brighton telling a different story, take up is currently at 56,000 sq ft for the first half of 2024, compared with an overall take up of 87,000 sq ft in 2023. And in Croydon, there are a number of transactions bubbling away which have not yet reached completion. We expect the end of the year will show a significant increase in take up across the board.”


Most of the take up has been linked to Grade A / ‘best in class’ space due to occupiers’ quest to improve the quality of their offices, in order to give staff the best working environments they can afford. Relocations have been mainly driven by lease events and many occupiers are currently ‘considering their next move’, waiting to see what the government will bring.


Office attendance has returned to 3 to 4 days per week, and in many cases back to pre-pandemic levels. Occupiers adopting these levels as a minimum are seeing an increase in productivity and staff wellbeing. As such, ESG continues to be a serious consideration for both landlords and tenants who are willing to pay higher rents for quality, but also want to benefit from the lower running costs a modern, ‘green building’ will offer.


In London, Grade A rents are topping £ 85.00 (per sq ft) in Fitzrovia, £100.00 in Soho, £85.00 in Covent Garden and £59.00 in Midtown. Incentives on a 10-year lease term are averaging 24 months’ rent free.


Rental levels across the South East markets remain fairly level, with Brighton and Hove recording a jump from £38 per sq ft in 2023 to £41 per sq ft so far this year.


COMMERCIAL PROPERTY MONTHLY 2024


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