Better outlook for Thames Valley offices
JLL says confidence appears to be returning to the Thames Valley offices market. During the first half of 2010, 661,000 sq ft of office space in the region was taken up, which is a 42% increase on H1 2009. “On this basis, it is likely that 2009 was the low point for take-up in the current cycle,” the group says.
King Sturge notes that demand remains strong for the right product for investors in the Thames Valley area, and thinks the unprecedented shift in yields seen in the final quarter of 2009 is unlikely to continue to the same extent this year. During Q2 this year, yields for prime office assets remained steady, while secondary yields moved out, it adds in its Thames Valley Offices Q2 2010 report.
With regard to rent levels in the region, King Sturge says it feels that headline rents are now starting to level off after a period of decline. “A two-tier market is emerging where well-located, Grade A space will begin to see growth in net effective rents, but incentive levels will remain generous for more secondary stock,” it says.
Meanwhile, the office agency team for the Thames Valley at Lambert Smith Hampton has also been busy compiling its annual report into the market for office space in the area. It says that overall take up for 2009 was just 1.1m sq ft compared with 2.7m sq ft for 2008.
Nick Coote, head of LSH’s Thames Valley offices team, says that there are now signs of increased activity going forward. “We anticipate, so long as a double-dip is avoided, that the second half of the year will see increased levels of take-up. As forecasted last year, the supply side of the office market has remained relatively stable. As increased levels of take-up materialise, we can expect to see the market supply issues (shortages of quality stock) become exposed in some locations.”
LSH says that although some current transactions are very low-value, this may in fact indicate a better market dynamic going forward, as they reflect the fact that deals are actually being done. “Fatigued vendors are chasing down the early occupiers and, if they are followed by others, the market will start to regain its confidence and equilibrium,” the group says. “This will be reflected by a tightening of incentive terms and rental growth, particularly where low supply levels of quality offices are quickly exposed. However, this will be a longer process for some centres [in the region].”
