Market snapshot

Thames Valley Office Market Pulse Q2 2016

In the midst of the recent decision for the UK to leave the European Union, the Thames Valley office market has experienced a quiet Q2 in terms of transactions. However, enquiry numbers are high, the investment market is still moving and the fundamentals indicate a return to more normal transactional levels by the end of the year.

Nick Coote, head of the Thames Valley for Lambert Smith Hampton, comments: ‘Take-up has remained steady and the prognosis for the year end outcome is very much dependent upon the level of Brexit fallout and resulting delays. The supply side of the market is well set, so the market uncertainties are all on the demand side. The level of new enquiries we’ve received in the first half of the year is encouraging and we hope to see an increase in transactional activity towards the end of the year.”

Charlie Lake, director of capital markets for Lambert Smith Hampton, adds: “Given the UK’s decision to leave the EU and the resulting period of uncertainty, we expect investment activity in Q3 to be more subdued than previous quarters. We would highlight that a number of properties have now been withdrawn from the market, although encouragingly, a significant percentage of the £60m of assets under offer at the end of the quarter are now transacting, with only a few having fallen by the wayside. Furthermore, evidence is coming through of defensive assets performing well and values being upheld.”

In this issue:

Enquiries only 4% below the highest level recorded

• Thames Valley office enquiries (over 5,000 sq ft) totalled 131 in Q2 2016, 39% higher than in the same quarter last year
  

• Only the boom year of 2014 has seen higher Q2 enquiry levels – at just 4% above

This, on the back of record enquiry levels in Q1, suggests that the 'downstream' market should see increased transactional activity.

Take-up falters as market responds to uncertainty

•         Take-up in Q2 2016 was 444,796 sq ft, 15% below the 522,770 sq ft transacted in the previous quarter and 20.5% down in comparison to Q2 2015
  

•         63% of take-up in Q2 2016 was grade A, compared with 52% in Q2 2015
 
At the half way point of the year, total take up stands at  967,746 sq ft. It is likely that Q2 will set the tone for the rest of the year, so indications are that we are expecting 1.5m – 1.8m sq ft of take-up for 2016, significantly below the 2.08m sq ft recorded in 2015.

There have been lower activity levels in so far as agreed new transactions are concerned, so it is likely that the Q3 take-up total will fall further. On the basis of current enquiry levels, we might expect a surge of transactions in latter part of Q3 and Q4.
 
The grade A take-up seen in Reading town centre for the first half of the year (43,000 sq ft) is notably low, given the amount of new stock becoming available. The market is pricing in a step change of demand, propelled by anticipated Crossrail-driven relocations from London, and Thames Valley regional consolidated moves into Reading (such as Thales, Bayer and SSE), however, there is a time lag between expectation and reality and we are hoping to see take-up gather momentum towards the end of the year.

Supply remains steady at 9m sq ft

•         Total office supply in the Thames Valley at the end of Q2 2016 stands at 9.19m sq ft, the same as at the end of Q1 2016, but 4% down against the supply total at end of Q2 2015
  

•         The proportion of grade A supply is 50.6% of the total, compared with 46% in Q2 2015

•         The years’ supply available is 4.31 years’, compared with 4.5 years’ at the end of 2015. Grade A years’ supply has slightly risen from 3.16 years’ to 3.46 years’ from Q1 to Q2 2016

We again highlight Reading town centre, where there is now 1,000,521 sq ft of grade A supply, yet there has been only 43,009 sq ft of grade A take-up to the end of Q2 2016. This may be a blip, but clearly the market expects much more activity and we are watching Q3/4 2016 very closely.

Significant occupational transactions

Property 

Size (sq ft)

Landlord

Tenant

Rent (per sq ft)

Lease 

4 World Business Centre, Heathrow

85,000

Aurora

Amadeus

£28.00

15 years

Oxford Business Park, Oxford

45,000

Goodman

Neilsons

£25.00

15 years

Braywick Gate, Maidenhead

21,000

Ropemaker

Alnylam

£30.50 

10 years

Hunton House, Uxbridge 

16,277

Aviva

Rio Tinto

£26.00

7 years

Technology House, Slough 

15,000

L&G 

Accelerated Education

£1.4m

Freehold sale

Investment review

The value of investments transacted in the Thames Valley during Q2 2016 totalled over £761.83m - a significant increase on the Q1 total of £96.54m, albeit 70% was attributable to the sale of Green Park in Reading. It is also higher than the Q2 2015 volume of £572.04m.  Excluding the Green Park transaction, total volume was £225.80m. 

The investments transacted comprise 11 key deals with an average lot size excluding Green Park of £22.58m.

There are currently 15 properties being actively marketed across the Thames Valley region, totalling over £795.62m, including the £375m sale of Winnersh Triangle in Reading. 

There was a noticeable decrease in the availability of office investments as well as transaction activity in the month preceding the EU Referendum. Given the UK’s decision to leave the EU and the resulting period of uncertainty, we expect investment activity in Q3 to be more subdued than previous quarters. We would highlight that a number of properties have now been withdrawn from the market, although encouragingly, a significant percentage of the £60m of assets under offer at the end of the quarter are now transacting, with only a few having fallen by the wayside. Furthermore, evidence is coming through of defensive assets performing well and values being upheld. 

Key investment deals

Oxford Properties Group completed the sale of Green Park, a premier business park asset in Reading, to the Singaporean based Mapletree Investments for £536m. The park, which has a working population in excess of 6,500 people, has planning consent for a further 850,000 sq ft to be added over time.

Greenridge has purchased the 172,000 sq ft 3M European Headquarters building in Amen Corner Business Park, Bracknell, from  real estate investment firm, Apirose for £77m, equating to a net initial yield of 7%. 

Ashby Capital has completed the £58m funding of 2 Brunel Place, an office-led regeneration project in Slough by U+I Group Plc, equating to a net initial yield of 5.75%. This 99,862 sq ft office building is the first phase of U+I’s Brunel Place project, which will transform a key site adjacent to Slough train and bus station into a new commercial hub for the town. 

AVIVA Investors sold Abbvie House on Vanwall Business Park, Maidenhead, to Rasmala Plc, a Dubai based investment company. The building was purchased for £24.60m, equating to a net initial yield of 5.43%, underlying the global appeal of the Thames Valley. 

AXA REIM sold the G300 building in Cathedral Hill, Guildford, for £16.20m at an initial yield of 6%. The property was purchased in a joint venture between Europa Capital Partners and Ediston Real Estate.

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

0118 960 6912

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