The continued major investment in converting offices to alternative uses in the South East, plus demand, means take-up is "nailed on" to be the highest in three years in 2025 and many towns have new record rents.
BNP Paribas Real Estate reports that there were £285 million of offices traded in the third quarter, a 35% increase against the second quarter of 2025.
Much of this is being driven by alternative investors attracted by the very low capital value per square foot for some acquisitions.
BNPPRE reports permitted development residential developers continue to take advantage of changes to the Class use regime to remove not-fit-for-purpose office stock from the market.
Hugh White, head of national investment and a senior director, said that the themes for the first three quarters of the year had been that 41% of stock traded was going to alternative uses in what he called the "great clear-out".
"That is the reality we are in. But there is a huge disparity between the prime end and the rest. The alternative uses that are being turned to are everything – that is all levels of resi, and all forms of industrial. In one example it was a supermarket."
In addition, in the third quarter, owner-occupiers made up 18% of the market.
Overseas money
"And there is a big chunk of overseas money coming in," said White, with French SCPI funds particularly targeting more attractive yields than in other jurisdictions.
"The average net initial yield so far this year is 10.49% across 50 transactions," says White. "There has been little in the way of prime core sales to track. The Brinell Building in Brighton is the closest to that at a yield of 7.5%."
BNPPRE reports that office take-up in the third quarter totalled 534,000 square feet on units of more than 5,000 square feet, a 10.2% decline on the second quarter outcome, as larger deals remained scarce, with no arms-length deal recorded over 50,000 square feet.
But that masks a much better year overall, which Will Foster, senior director, says means 2025 is "nailed on" to be the best for take-up in three years.
New record rents were set in Richmond, St Albans and Chelmsford, as rental growth continues, for the best stock in established locations, where scarcity endures, BNPPRE reports.
As with Q2, more than half (51%) of take-up and four of the largest five deals were accounted for by business parks such as Weybridge, Winnersh and Stockley Park, "contrary to common perception".
Opportunistic owner-occupier activity has returned, particularly on "challenged" business parks such as Stockley Park and Cowley where vacant freehold pricing reflects close to site value.
Occupier demand drivers
South East occupier demand continues to be driven by upcoming lease events and consolidation. Average deal size in the third quarter grew slightly from the second quarter, being 14,400 square feet, with 10 deals over 20,000 square feet.
Speculative commitments remain extremely limited, often hampered by development viability and soft exit yields. Only Trehus and Mill Yard, Railpen's Cambridge development, are genuinely new buildings under construction, BNPPRE said.
Foster says: "It will undoubtedly be the best year's take up since 2021 – and it may even do better than that and go back to pre-COVID levels. We are of course in a smaller market. There has been a huge change, cleaning the grunge out of the bottom end of the market. The year should be up at the 2.6 million square feet level. There is a correlation-causation element with office attendance creeping up month on month. If you are going to move it will be to best in class. We have seen three new record rents – at St Albans with Skechers moving, Inforcer moving in Richmond, and the recent letting at Praxis's Regent House in Chelmsford.
"We have seen the same quantum of in-town and out-of-town by square footage. The demand side is stable. We are not in a position where the back to office move is crystallising as very visible on a space by unit but occupiers do now want to occupy at lower densities."