Market trends in Surrey’s commercial property sector indicate a critical turning point, with office rents expected to almost double to address the severe shortage of Grade A office stock, according to Piers Leigh of Curchod & Co in a presentation to the Surrey Chamber of Commerce at the recent South East Construction Expo.
As part of his market update, Leigh highlighted the growing pressures from economic shifts and regulatory standards that have stymied new commercial developments in the region.
“The demand for prime office space remains robust, with over 70% of last year’s transactions in Surrey and Hampshire involving Grade A properties. However, the availability of such spaces is dwindling, largely due to recent legislative changes allowing the conversion of office buildings to residential use, alongside rising construction costs and strict energy efficiency requirements,” he said.
Leigh confirmed that the past twelve months have seen prime office rents in areas like Guildford escalate dramatically, with deals surpassing the £45 per square foot barrier. The market is even seeing guiding rents of £50 per square foot for smaller units, highlighting the burgeoning demand in top-tier locations.
He went on to explain that, conversely, the industrial sector is experiencing sustained high demand, with historically low vacancy rates below 7% across the region. This is prompting a surge in the redevelopment of outdated larger office buildings into industrial spaces, a trend fuelled by environmental, social, and governance (ESG) criteria among large corporations.
“The office sector’s revitalisation hinges on significant rent increases. Without this economic adjustment, the feasibility of new office developments remains untenable,” explained Leigh, who anticipates that if office rents can align closer to the inflation-adjusted benchmark of £60-£70 per square foot, speculative development and refurbishments might once again become viable propositions.
He went on to suggest that investor confidence could see a resurgence, if interest rates decline and construction costs stabilise, paving the way for an upturn in office development activities, stressing that without such changes, the future supply of premium office space could be severely constrained, potentially forcing occupiers to relocate or plan significantly in advance to meet their future needs.
For insights into the Surrey and Southeast commercial property markets or further information on current and projected rental rates, contact Piers Leigh.
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