Market snapshot

Thames Valley Office Market Pulse Q1 2016

Thames Valley office enquiries in Q1 2016 were at the highest level ever recorded in a Q1 and record rents were achieved in several locations, such as Maidenhead, Guildford and Slough. On the surface, the market is looking very healthy, however, although take-up in Q1 2016 was buoyant at 522,770 sq ft, this was skewed by two large transactions and the underlying total is less positive. Q2 will set the tone for the year and early indications are that the increase in enquiries seen is not translating into a significant volume of take-up.

The limited grade A take-up in Reading town centre in Q1 is notable, given the amount of new stock becoming available. The market is pricing in a step change of demand, propelled by an anticipated Crossrail-driven decentralisation from London, however, there is a time lag between expectation and reality and we are likely to see this gather momentum towards the end of the year.  

Nick Coote, head of the Thames Valley for Lambert Smith Hampton, comments: “The level of new enquiries is encouraging and we look to next quarters for these to move forward into take-up to consolidate the positive overall trend.”
 
Charlie Lake, director of capital markets for Lambert Smith Hampton, adds: "Whilst transaction volumes are down, this has yet to be reflected in pricing. Investment demand remains strong for properties with good fundamentals, with several opportunities going to best bids and exceeding expectations in recent weeks." 


In this issue:

Enquiries the highest ever for a Q1

•        There were 136 new office enquiries (over 5,000 sq ft) in Q1 2016 – 10% up on the last quarter and 11% up on the same quarter last year
 
We would hope that this robust level of enquiries will translate into take-up over the next quarter, however, there is no real sign of a high volume of transactions going under offer. 
 
Interestingly, we are seeing an increase in enquiries from American technology companies looking to base their UK operations in the Thames Valley, a trend that looks set to continue.

Take-up buoyed by two major transactions

•         Take-up in Q1 2016 was 522,770 sq ft, compared with 321,783 sq ft the previous quarter

•         This increase of 44.7% on Q1 2015 was largely due to two lettings totalling 190,000 sq ft at Green Park, Reading 

•         66% of take-up was grade A, compared with 53% in 2015
 
Although the take-up figure for Q1 appears buoyant, excluding the two larger Green Park transactions, we have actually seen an underlying slow down over the last two quarters. Q2 2016 will set the tone for the rest of the year, and indications are that we are expecting 1.5m – 1.7m of take-up for 2016, compared with 2.08m in 2015.
 
The proportion of take-up that is grade A continues to climb due to the removal of the quality end of the grade B supply chain, leaving occupiers, who all desire quality, to focus increasingly on the newly built options.


Supply across the Thames Valley continues to fall

•         Total office supply in the Thames Valley market at the end of Q1 2016 stands at 9.188m sq ft, down from 9.39m sq ft at the end of Q4 2015 - a fall of 2.15%
  

•         The proportion of grade A supply remains steady at 48% of the total

•         The years’ supply available is 4.39 years’, compared with 4.5 years’ at the end of 2015. Grade A supply has fallen from 3.83 years’ to 3.16 years’
 
These figures clearly show a tightening market dynamic that will continue to apply upward pressure on rents IF occupational take-up continues at current levels.
 
Highlighting Reading town centre, there is now 918,559 sq ft of grade A supply, yet there was only 7,008 sq ft of grade A take up in Q1. This may be a blip, but clearly the market expects much more activity and we are watching Q2 very closely.


Significant occupational transactions

Property

Size (sq ft)
 
Landlord

Occupier 

Lease length

Rent (per sq ft) 

350 Longwater Avenue, Green Park, Reading
 
111,064
 
Oxford Properties
 
Thales
 
20 years
 
Undisclosed

400 South Oak Way, Green Park, Reading
 
79,382
 
Oxford Properties
 
Bayer
 
15 years

Undisclosed
 
Strata, Staines
 
58,207
 
LaSalle/Bellhammer
 
Service Now
 
10 years
 
£34.00
 
5 Roundwood Avenue, Stockley Park
 
46,445
 
Carval & Chester Properties
 
MSC Cruise Management
 
Freehold sale
 
Undisclosed

203 London Road, Staines
 
33,251
 
Baltic Investments
 
Enterprise Cars
 
10 years
 
£23.00
 
3 Roundwood Avenue, Stockley Park
 
21,582
 
Carval & Chester Properties
 
Volga Dnepr
 
10 years
 
£33.50
 
Meridian House, Marlow
 
17,067
 
Pruta Property
 
Whistl
 
10 years
 
£26.70
 
One York Road, Uxbridge
 
16,868
 
Aviva

London Square
 
10 years 

£32.00
 

Investment market robust despite Brexit uncertainty

•         The value of office investments transacted in the Thames Valley during Q1 2016 totalled £102,718,000 a significant decrease on Q1 2015 (£462.85m), however, 74% of that value (£342.75m) was attributable to just four transactions

•         The investments transacted in Q1 2016 comprised 17 key deals with an average lot size of £6,042,000

There are currently 16 properties being actively marketed across Thames Valley region, totalling over £286,000,000. With £43,610,000 currently under offer, Q2 looks set to deliver a robust performance despite continuing uncertainty surrounding Brexit.
 
There are a couple of notable lots currently available within the Thames Valley. These include Buildings 2&3 Arlington Square in Bracknell, on the market at £46,000,000, and The Parkway in Marlow, a 230,822sq ft headquarter office on the market at £74,260,000.  

Key investment deals

Investra Capital has bought a 0.64 acre development site in Mary Road, Guildford for £3.45m from The Wilky Group as a speculative office development opportunity. This Pembroke House site has planning consent for an office development of 29,927 sq ft (NIA) on three floors.
 
Palm Capital purchased the 72,000 sq ft Building 420 in Thames Valley Business Park. The building is let to two tenants with an AWULT of 10 years to expiry and 5 years to breaks. The building sold in January 2016 for £25,450,000 at an initial yield of 6.55% and a price per sq ft of £353. 

Seven Capital purchased the 135,366 sq ft Churchill Plaza building in Basingstoke, let in its entirety to Barclays Bank Plc, with an AWULT of 2.5 years. The building sold for £12,000,000, equating to an initial yield of 10.60% and a low capital value per sq ft of £88.60.

Aberdeen Asset Management sold the Beta Building in Reading, let to the Prudential Assurance Company Ltd for a further 10.3 years. Mayfair Capital purchased the building for £9,725,000, equating to an initial yield of 5.90% and a capital value per sq ft of £358.


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Nick Coote, Thames Valley, Reading, Office agency
Nicholas Coote

0118 960 6912

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