Tight supply forces developers to embark on office refurbishments

The central south coast region is undergoing a major transformation, with significant public and private sector investment in new amenities and mixed-use commercial development.

Much of the activity is happening in Southampton. Hammerson has completed the development of its dedicated leisure scheme Westquay Watermark; a new £400m retail and residential scheme is proposed at Mayflower Park; and Allied Properties has developed a major residential-led, mixed-use scheme, Ocean Village, where a five-star Harbour Hotel is due to open in September.

However, while leisure, retail and residential supply has increased, it is a very different story when it comes to offices. There are plans for three new grade-A offices in Bournemouth, the first of which, One Lansdowne Plaza, will be available in spring 2018, but this is very much the exception that proves the rule.

As Nella Pang, associate director at JLL in Southampton, explains, the recent rise in demand coupled with the lack of good-quality offices has become a real issue in the region.

“There is still little prospect of developers undertaking speculative office development and therefore the demand for refurbished space will continue to increase and be competitive,” Pang says, adding: “The reduction in stock due to demand and alternative uses has pushed up headline rents, and in turn rents across the board, with the Southampton office market quoting a record headline rent of £22/sq ft.”

This increase in headline rents has encouraged landlords to refurbish current stock, providing the local market with much-needed quality office accommodation.

A prime example of this is the White Building, located in Southampton city centre. Ashville Group undertook a full refurbishment of the premises in 2016, which led to a rental uplift of £5.50/sq ft from a pre-refurbishment quoting rent of £13.50/sq ft to the £19/sq ft achieved afterwards.

The success of the White Building has prompted other landlords to follow suit and both 2 Grosvenor Square and Overline House are set to undergo substantial refurbishments in 2017.

Exceeding expectations

Pang has witnessed a number of properties exceeding rental expectations in recent months. She cites the example of the grade-A Gateway House in Eastleigh, where One Insurance is paying a headline rent of £21/sq ft.

A number of recent deals, meanwhile, have achieved rents around the £19/sq ft mark.

Daisy Wholesale is to take space at NatWest House at Chandler’s Ford in Eastleigh on a 10-year lease at a rent of £19.75/sq ft, while PwC achieved a rent of £19.25/sq ft at Savannah House in Southampton’s Ocean Village.

And at Cumberland House, also in Southampton, Smith & Williamson achieved a rent of £19.50/sq ft. In 2015, the quoting rent for the building was £17.50/sq ft.

The best space in Winchester, meanwhile, commands rents of £24/sq ft, exceeding prime rents in Southampton.

As for refurbished grade-B space, Radcliffe & Co are paying £18/sq ft at Southampton’s Meridians House.

Prime rents at Chandler’s Ford have reached £21/sq ft; Solent Business Park is at £19.50/sq ft; Lakeside, Portsmouth, is at £19/sq ft; and Bournemouth is at £18.50/sq ft.

“We expect to see further increases in headline rents as further refurbished stock comes to the market over the next 12 months,” says Pang.

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