Lease events drive search for high-quality Thames Valley offices – Lambert Smith Hampton
Lambert Smith Hampton says that the stable levels of offices take-up in the Thames Valley region during 2010 and 2011 may be surprising to some, given the negative macroeconomic environment. But they reflect the main driver of demand – occupier lease events, which are time and date-driven rather than being affected by the business and economic environment. Take-up in 2011 was just under 1.7m sq ft, a similar level to the amount recorded in 2010. The tone to date suggests a similar level of activity this year, LSH says.
Occupiers are typically seeking high-quality office space that is configured over as few floors as possible. The trend is towards more “agile working”, using flexible, open-plan space with meeting rooms and breakout areas instead of individual offices – enabling the same headcount to be based in 20%-45% less office space.
There are only three speculative developments currently under way in the Thames Valley area, across the 11 centres in the region featured in Lambert Smith Hampton’s latest report on the market for Thames Valley office space. Refurbished secondary space must therefore fill the supply of offices in the area, LSH says.
Letting velocity remains relatively slow, but activity is focused on the better-quality stock. As a result the supply of quality office stock in the region is being steadily eroded, so LSH expects market supply issues to become increasingly exposed in some centres where there are shortages of quality stock.
This may lead to increases in rents and possibly frustration for some occupiers seeking high-quality space in specific locations, LSH says. However, with a high proportion of 25-year leases on late 1980s stock ending between 2013 and 2016, there is an opportunity for some of these buildings to be recycled – creating ‘new’ stock for the undersupplied centres as consolidation and churn continues.
“As ever, the challenge for landlords will be to provide the quality product demanded by occupiers, in the right locations, and restoring value to newly vacated stock,” LSH says.
Among the centres examined in the report, LSH notes that office space in Bracknell has effectively priced itself back into the market as Thames Valley occupiers have rightly perceived this centre as offering real value for money – prime headline rents are at £20 per sq ft. Several large occupiers are looking to Bracknell to solve their requirements. A lot of the 1.4m sq ft of office space available in Bracknell is in units above 70,000 sq ft.
The Heathrow office space market has benefited from a jump in activity during the past couple of years, with several major occupiers maintaining or increasing their presence in the area. Take-up last year remained above the 10-year average but the availability of Grade A stock is now down to one year of supply, based on the 10-year average figure. Most office space at Heathrow is on the business parks around the airport, with Stockley Park and Bedfont Lakes the most favoured locations, LSH notes.
Optimism is increasing in the market for offices in Maidenhead, as demand is fuelled by a spike in lease breaks and expiries in 2013-2014. LSH says take-up in 2011 was above the 10-year average and notes that the arrival of Crossrail in 2018 will add to the town’s existing strong transport links.
Looking at the investment market in the Thames Valley region, LSH notes a pattern whereby significant volumes are being spent in out-of-town markets while the highest pricing is on town-centre stock. The firm says UK funds’ desire to buy Grade A property with low risk and good growth prospects has fuelled competition for the right product in town centres, while the high income return and large lot sizes available on out-of-town properties have appealed to opportunity funds seeking to deploy capital ahead of the end of their investment periods.
LSH expects further speculative development in the Thames Valley in coming months, based on current rents and yields, “and with every prospect of Grade A rental growth outperformance”.
