Viewpoint - 04/04/2024

What Does the ‘New Normal’ Look Like in the Milton Keynes Office Market?

Under the constant macroeconomic challenges and geopolitical uncertainty, the Milton Keynes office market continues to thrive.

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Whilst the UK economy still stutters amongst wider macroeconomic challenges and geopolitical uncertainty, Milton Keynes as an office location continues to perform well against competing locations and on a number of metrics.

Our viewpoint on why MK is an attractive city for businesses to locate to remains the same; excellent connectivity, a large depth of talent and a growing cluster of knowledge intensive businesses. Whilst the Oxford-Cambridge Arc or ‘Growth Corridor’ is bringing about major infrastructure investment which will boost MK’s growth prospectives in the medium to long term, MK remains a successful city in its own right.

Office occupancy has been shown to be on the rise in numerous studies, including Remit Consulting’s Return Report, which is a barometer for office occupancy trends post-pandemic. It is generally suggested that office occupancy rates ranged between 60% and 80% pre-pandemic. Based on Remit’s data, occupancy levels are now up to around 35% nationally on Tuesday, Wednesdays and Thursdays with lower occupancy on Mondays and Fridays, which continue to be the quietest days of the week.

Despite increased occupier caution around the economy, prime headline rents have not only proven resilient but grown significantly in many cases. The best rents achieved are on prime space that goes much further with regard to amenity, wellbeing and ESG credentials. Meanwhile, an increasing flight to quality among occupiers presents a bleak picture for second-hand space, which may ultimately be better suited for alternative use.

Creating more flexible workspace solutions will also provide an important means of attracting demand. The South East is still yet to see a concerted increase in fitted space being offered to the market, with Cat B and Cat A+ making up only 8% of total landlord-based supply. With many occupiers remaining averse to cap ex and still unsure of their long-term plans, allowing for both quality and flexibility could be key to letting success.

Take up in 2023 for MK bounced back despite a challenging macroeconomic backdrop. Total take up reached 255,711 square feet up from 226,444 square feet from 2022. This figure is around 19% below the 10-year average, however, this average is skewed by the development of Santander’s 400,000 or so square foot Unity Place. If this transaction is disregarded, the 2023 take-up figure is only 5% below the long-term average.

Encouragingly, there was a return of the volume of smaller transactions from 2,000 to 10,000 square feet, accounting for 20 out of 27 transactions, demonstrating a healthy depth of demand from small and medium-sized businesses. Occupiers continue to show commitment during the first months of 2024 with an estimated 70,000 square feet under offer in MK across 10 transactions.

Availability of office space in Milton Keynes is still relatively static, despite consistent take up, as surplus space continues to be released to the market as occupiers downsize. The key consideration here, however, is the majority of this space continues to be poor quality, unrefurbished space, for which there is waning demand. The government’s recent announcements to widen Permitted Development Rights for the conversion of office space to residential, could see some of this obsolete office space removed from the market.

A continued concern for the MK office market and local economy is the lack of Grade A supply with a paucity of ‘best in class’ that occupiers want. Only 17% of the current availability is Grade A, with some 30,000 square feet under off er, which will further reduce this figure down to around 12%. This is in stark comparison to other South East markets, and particularly the Thames Valley, where average Grade A availability is in the region of 50%.

MK remains a low-cost office location, in comparison to staff costs and real estate costs in other South East locations. Viability of new-build offices or major refurbishments could remain challenging with a backdrop of high construction costs, the increased cost of debt and investor sentiment. We anticipate further rental growth in 2024 as investors seek to balance out these factors with occupiers continuing to gravitate towards best-in-class office space.

We advised on a number of major office transactions in 2023 across the M1 Corridor & North M25 markets, transacting in excess of 175,000 square feet. Lambert Smith Hampton are well placed to advise both landlords and occupiers on the challenges they face with core service offerings from the MK office including Office Advisory, Industrial & Logistics, Building Consultancy, Lease Advisory, Valuation and Property Management.

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