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South East office transactions holding up but prices are rebasing

ACRE Capital says 45% of transactions in Q2 were for alternative uses
Lotus Park, Staines. (CoStar)
Lotus Park, Staines. (CoStar)
CoStar News
August 6, 2025 | 1:34 P.M.

South East office investment volumes totalled £214 million across 24 transactions in the second quarter of the year, the lowest second quarter volume for eight years, but the shift is due to reduced lot size rather than fewer transactions, reports ACRE Capital Real Estate.

In its figures for the quarter, the adviser said the number of transactions was in line with the historic average.

ACRE Capital said investment figures for the year to date are £500 million, down from the £660 million in the first half of 2024 and the five-year half-year average of £1.04 billion.

ACRE Capital is tracking £205 million of sales under offer which does not suggest the market will pick up imminently.

It added that 45% of all transactions were acquired for alternative uses, particularly residential, with the continued loss of office stock across South East markets and towns via permitted development rights legislation. Redevelopment for industrial or re-purposing for self-storage are also proving popular alternative uses for former office assets.

The largest sales in the second quarter were: Lotus Park, Staines, which was bought by STR for £32.5 million; Strata, also in Staines, which was bought by DS Properties for £20.5 million; and One Croydon which was bought by a permitted development buyer for £17.5 million.

Prime South East office yields stand at 7.5%, as demonstrated by the sale of the Brinell Building, Brighton to Iroko Zen in the first quarter 2025, but further data points for prime stock remain few and far between.

The remaining volume was typically smaller purchases with property companies and high-net-worth buyers investing on an opportunistic basis. While the average capital value for the quarter was £163 per square feet, record low South East office capital values of £28 per square foot for Central Croydon and £39 per square foot for Manor Royal, Crawley were also recorded. 

ACRE Capital estimates secondary yields at between 10 and 12%. It records the average time to sell an office in the South East at 10.5 months, an increase. Its inhouse average time to sell has decreased to 5.5 months.

Bank-led and receivership-linked sales are a growing trend, ACRE Capital says, including Eurasia House, Maidenhead and Hertz House, Uxbridge, and Westpoint, Peterborough.

Will Nelson, partner, said: "We are seeing that receivership sales benefit from an elevated level of interest, both due to the perception of being able to capitalise upon the ‘distress’ and also the certainty of the sale being seen through on behalf of creditors."

Fran Debney, associate partner, added that despite the low pricing environment, the adviser is seeing a move away from off-market sales as vendors are gaining confidence in pricing and the market as a whole.

Off-market versus on-market sales have fallen from 50% down to 26% respectively since the start of the year. The average discount between the quote versus achieved price for on-market sales is 24%.

ACRE Capital’s development viability testing has shown that the economic rent required to justify new-build office development (with nil land value) now stands at £59 per square foot, once full build costs, fees and developer profit are accounted for. This demonstrates that without a meaningful uplift in headline rents, speculative development remains unviable, restricting the development pipeline, reducing options for tenants and tightening supply dynamics. 

In terms of debt financing, Art Capital, contributing to the report, said there is increased appetite and favourable terms for well-located South East multilet assets with strong ESG credentials.

Lenders continue to be behind targets and have a strong appetite to deploy capital, Art Capital says demand for offices is greater than it has been over the previous 18 to 24 months. Sustainability is still a key focus.

Lenders are targeting office exposure due to the strong fundamentals in core markets, but also due to wanting to achieve diversification across sectors within their portfolios.

In terms of office occupiers, occupational adviser Corep reports take-up was up 9% year on year in the quarter, with confidence returning, especially in the best-in-class segment of the market.

About 80% of leasing was focused on new or Grade A space and buildings with strong ESG credentials are most in demand and commanding rental premiums.

Flexibility remains key with occupiers wanting shorter leases, more fitted options, and spaces that can adapt as they continue "right-sizing" requirements, with most take-up happening below 20,000 square feet.

    Rents are still "edging up for smaller, fitted spaces, especially in locations like Reading and Basingstoke, which have seen notable year-on-year" improvements.

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