South East Occupational Outlook

The last 18 months in the South East office market have been extremely tough. This time last year, with take up for 2019 the lowest it had been for five years, political clarity around Brexit off the back of the General Election result meant that sentiment was positive going into the new year. However, by the time we ended Q1 we were in lockdown for the first time and we had embarked on an experiment in home working that will mark the start of what will undoubtedly be a time of great change for the way we use and think of an office. The big question for 2021 is once the vaccine has allowed restrictions to be lifted will we be going to work in the same way we did before March 2020?

The easy answer is to say no we won’t. Much has been written about the future of the office but we will not know what that looks like properly until we are able to move around with greater freedom. The latest lockdown at the start of 2021 is different in many ways to the first, we know broadly speaking what it entails for business, what can be achieved, and we know only too well how virtual meetings can be run. We also know this time that with the vaccination program up and running in the UK that we will be able to return to the office at some stage during the year.

Until the restrictions lift and some sense of normality returns, nobody can predict with any certainty what if any effect Covid has had on the way we will occupy office property. What we have seen is the increasing demand for fitted space from occupiers particularly in the sub 10,000 sq ft range with fully fitted flex space proving popular in the larger markets in the sub 3,000 sq ft range. We anticipate an increasing demand from occupiers for flex space in its broadest sense as a key part of their portfolios and we expect to see flex space operators and landlords gearing up for this demand once the end to restrictions are in sight.

2021 will continue to see a downward pressure on headline rents particularly in locations where supply is high, and incentives are likely to remain generous for any non-prime properties. However constrained markets with good levels of demand such as Oxford and Cambridge will continue to see prime rents rise and incentives remain low. The widening between prime and secondary rents is likely to continue as tenant space comes to the market and some occupiers take the opportunity to downsize with more of their staff working from home than pre-Covid levels.

By the time Q1 2021 is over occupier surveys will make interesting reading, a year of working from home may well have lost its appeal for some. Lockdown in the depths of winter does not have the same appeal as during the balmy summer months. For others, the thought of returning to the office on a permanent basis will not appeal and employees will have to come up with strategies to allow for a balance between office and home working. Whatever that looks like the office still has a significant role to play and 2021 could see the start of a whole new chapter in the history of the office. More flex, more creative fit outs, more collaboration and most importantly more purpose.

This report has been prepared by Avison Young for general information purposes only. Whilst Avison Young endeavours to ensure that the information in this report is correct it does not warrant completeness or accuracy. You should not rely on it without seeking professional advice. Avison Young assumes no responsibility for errors or omissions in this publication or other documents which are referenced by or linked to this report. To the maximum extent permitted by law and without limitation Avison Young excludes all representations, warranties and conditions relating to this report and the use of this report. All intellectual property rights are reserved and prior written permission is required from Avison Young to reproduce material contained in this report.