Surrey offices and industrial: interview with Piers Leigh of Curchod & Co

The Surrey office and industrial markets are facing an uncertain backdrop, but quality space continues to attract occupiers and investors. We spoke with Piers Leigh of Curchod & Co following a recent presentation to Surrey-based business leaders, to hear his views on the trends shaping both sectors.

Offices: quality above all else

“Office occupiers continue to focus on the best space,” Piers said. “We are still seeing a flight to quality, with companies leaving older buildings and moving to more efficient, modern offices. That trend has been very consistent, even in a tougher economic environment.

“What makes life harder for landlords and developers is that demand is not universal. It is patchy. The good buildings let, the rest are left behind. And with build costs at the levels they are, new development has to push rents north of £50 per sq ft. That’s a challenge, especially in towns where take-up has slowed. In Guildford and Woking, for example, activity has been well down in the first half of the year, and the second half looks even slower. The largest letting we’ve seen is only 36,000 sq ft, and it is the only letting over 20,000 sq ft, which puts things in perspective.”

He added that the investor market has been equally selective. “Prime yields remain high, mainly because there just aren’t enough core purchasers. In fact, 60 per cent of the office buildings sold in Surrey over the past year have gone to buyers looking to repurpose them for alternative uses. That tells you a lot about where confidence lies. Vacancy has dropped to just over 9 per cent, though, so the question is whether fortune might favour the brave.”

Office rents and the pipeline

Rents are moving differently across the county, Piers explained. “Guildford has pushed through £50 per sq ft. Staines and Leatherhead have edged up to £36.50, and Reigate is at £38. Woking has slipped back slightly to £38. Elsewhere, things are steady. These differences show just how localised the office market can be.”

Piers pointed to refurbishment schemes as the main source of future supply. “In Guildford, we have Ranger House, 15,400 sq ft, guiding £50 per sq ft plus. Chertsey Street, 31,000 sq ft, is due in 2026 and will be in the £50s per sq ft. London Square is 41,000 sq ft, guiding at £45 per sq ft, coming in next year. In Woking, Goldsworth Place refurbishment is underway, 34,000 sq ft, guiding £49.50 per sq ft, which will drag Woking rents back up. These are all refurbishments rather than new speculative builds, which says something about developer caution and has been a problem for some years. But these major refurbishments will set the tone for prime rents over the next couple of years.”

Industrial: subdued demand, resilient values

Turning to the industrial market, Piers noted the contrast with previous years. “Demand has been lacklustre. Take-up is at the lowest level we’ve seen since 2009, and there have only been seven deals above 20,000 sq ft. The largest was just over 43,000 sq ft. The big box and larger mid box markets have been quiet right across the South East for a second year.

“Yet vacancy rates remain low because development is constrained. Land is expensive, construction costs are high, and that means the pipeline is limited. Where new space does come forward, we are still seeing rental growth. Goya’s new scheme at Guildford Business Park is a good example, three units totalling nearly 69,000 sq ft, quoting £23.50 per sq ft. Gordon Murray Automotive’s 130,000 sq ft factory is also under construction. On the investment side, yields are steady at 5.5 per cent, which shows there is still appetite for well-let industrial assets.”

Industrial rents: steady increases

Rents across Surrey’s industrial markets have continued to edge upwards. “Guildford has risen to £23.50 per sq ft. Camberley and Redhill are both at £19. Farnham and Cranleigh have moved to £16. Those are significant levels for these towns,” Piers said.

“The demand is strongest at the smaller end of the market and in last-mile locations. Local occupiers need the space and are prepared to pay for it. We are also seeing secondary assets benefit from the momentum in prime stock. That has been a consistent theme and should reassure investors who might be nervous about volumes.”

Outlook: steady rather than spectacular

Asked about the outlook for the next twelve months, Piers struck a cautious tone. “I think we are looking at more of the same. In the office sector, we’ll see very little speculative development and more sales of stock for alternative uses. Rental growth is likely to slow, simply because there isn’t much new supply coming through.

“For industrial, again, the lack of new stock will hold the market back, but where schemes are delivered, rents will continue to grow. The small owner-occupier and last-mile markets will remain strong. Overall, it won’t be spectacular, but it will be steady. For many investors and occupiers, that’s exactly what they want in the current climate,” he concluded.

You can see all of the available commercial property listed by Curchod & Co on NovaLoca here.

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