Prime rents are now at £28.50 per sq ft, but second-hand space is now almost on a par at £27.50 per sq ft. How did we get here?
HD: The post-pandemic focus on quality office space has placed pressure on Grade A rents and with a serious depletion of this type of stock, we’ve seen occupiers pushed towards second-hand space.
The knock-on effect has been good, secondhand stock rising by 44.4%, or 5.4% per annum since 2015. So, when we do see new build space come through, I think we’re going to see an acceleration towards £30+ per sq ft there too.
What has been the impact of the revocation of permitted development rights for office to resi in central MK last year?
While the driver for this decision was concern over the delivery of poor-quality housing in the city, there has been an upside for the overall MK economy.
Now that refurbished rents are where they are, the numbers are starting to stack-up in development appraisals, and a full refurbishment makes good sense.
The surge in applications coming through for conversion from office to residential was a positive thing for a while because that was taking away the obsolete stock from the market.
But we had seen a little bit of a supply and demand imbalance develop, with Grade A office supply now close to historic lows with just 51,079 sq ft on the market - less than 7% of overall stock.
What type of occupiers are driving this move towards quality?
The Milton Keynes office market has been dominated by the financial services and tech sectors during the pandemic and post-pandemic era as the return to the office has continued to gather momentum. These two sectors accounted for almost two thirds of take-up over the past two years.
While demand has returned, the nature of requirements in Milton Keynes has seen a shift to quality - but I don’t simply mean build quality. Occupiers don't simply want to sit in an office block with no facilities, in isolation, and are now seeking more collaborative space.
How are developers and landlords responding?
The pipeline that we're seeing coming through, and MK Gateway is a fantastic example of this, is around the focus on the community that a building provides.
Landlords are starting to think more about buildings as part of a lifestyle.
You can’t simply put a new ceiling in and give it a lick of paint, you need to understand what the star performers of MK, the tech companies, want to see. We're certainly seeing a shift in the market.
What about ESG? Is that playing a part too?
Undoubtedly. Last month we completed on a 22,000 sq ft letting to Allianz - the largest letting of this year. It the only refurbished space in Milton Keynes with a BREEAM rating, which was ‘very good’.
They shortlisted two buildings, but chose the more expensive one because the sustainability credentials of it were more important than the rent.
That decision didn't so much come down to quoting rent - it came down to what wass the most sustainable building that could take in Milton Keynes?
We're seeing that with more and more companies, ESG strategies are now top of the tree in terms of decision making and that's why the landlords with obsolete space are really having to move with the times.
- You can read the latest Arc Market Databook Offices and Labs M1 South - Spring 2022 here.
- Click here to hear Holly speak at our recent Spring Arc Market Databook webinar
