Market snapshot

Thames Valley Office Market Pulse Q2 2017

Take-up in the Thames Valley office market held up well in Q2 2017, driven in the main by the pharmaceutical and TMT sectors and primarily focused on Oxford and Reading. However, given that the level of enquiries received has fallen to the lowest seen for six years, caused by Brexit uncertainty and a drive to ‘make-do and mend’, we expect H2 take-up to be somewhat subdued.

In this issue:

Lowest Q2 enquiries total for six years

91 enquiries (over 5,000 sq ft) were received for Thames Valley offices in Q2 2017, a decrease of 28% compared with the 96 received in the previous quarter. This fall was not uniform but mainly seen in the lower 5/10,000 sq ft range (54% reduction Q1 to Q2).
 

For H1 2017, the enquiry level is down by 19% (217 v 267) compared to H1 2016.

Looking at the longer term trend, this is 18.75% below the five year Q2 average of 112 and the lowest Q2 level of enquiries recorded in the last six years.

Demand buoyant, driven by specific sectors and locations

Take-up in Q2 2017 was 524,254 sq ft, an increase of 23 % from the 425,312 sq ft transacted in the previous quarter and 17.8% above Q2 2016’s total of 444,976 sq ft. 

It is also running above the Q2 five-year average take-up of 454,705 sq ft. 

The active business sectors in Q2 2017 were pharmaceuticals (31%) and technology, media and telecommunications (21%).

64% of all office take up in Q2 2017 was centred on just two of the 14 centres - Oxford and Reading.

Significant occupational transactions

Property
 
Size (sq ft)

Landlord

Tenant

Rent (per sq ft)

Lease (years)
 
Dandy Building, Oxford Science Park, Oxford
 
55,000 

Magdalen College

Oxford Nanopore Technologies

Purchased at £270.00

N/A
 
141 Park Drive, Milton Park, Oxfordshire 

43,000

MEPC

Confidential

Confidential

Confidential

9 Greyfriars Road, Reading

39,926 

McKay Securities PLC

Regus Spaces

£31.00

10

One New Square, Heathrow 

36,549

BP

Birds Eye

£30.00

10

The Hive 1, Reading 

33,042

Praxis

Nokia

Confidential

10

Brennan House, Blackwater Valley 

30,879

London & Scottish REIT

Fluor

£24.50

Seven

143 Park Drive, Milton Park, Oxfordshire

27,000

MEPC

Oxford Immunotec

£26.00

Confidential

3 Roundwood Avenue, Heathrow 

21,086

Carval

Verifone

£35.00

10

40 Caversham Road, Reading

20,798
 
Hermes Investment Management
 
Topland Group

Purchased at £248.00

N/A

Winchester House, Oxford Science Park 

18,643

Magdalen College

IVI UK Ltd

Confidential

Confidential


Supply continues its long-term fall

Standing at 8.51m sq ft at the end of Q1 2017, supply has fallen by 2.59% since the previous quarter.  

Compared with the same quarter in 2016, this represents a year-on-year fall of 7.41%. 

The supply chain is heavily reliant on new development. We may see an accelerated fall as investors/developers respond cautiously, to a likely reduced letting velocity and volume, in the short to medium term. Although there may be a short term over supply in some locations, an under-supply will follow as new development is delayed, in reaction to a short term uncertain market.

Grade A supply is now 52% of the total, compared with 48% in Q1 2016. High end grade B supply continues to diminish as buildings are acquired by occupiers but not replaced in the supply chain.

Investment market review

The value of office investments transacted in the Thames Valley during Q2 2017 totalled £171.6m (Q1: £102.72m). Whilst up on Q1, this has been a significantly subdued quarter for transactional activity, with the election causing deals to stall. The total is comprised of just eight transactions, with an average lot size of £21.45m. One of the principal deals of the quarter was Spelthorne Borough Council’s latest acquisition, a multi-let property outside their jurisdiction; 3 Roundwood on Stockley Park, purchased at a level in excess of £21m. The largest single deal was Kildare Partners’ £68.5m purchase of Marlow International, which was the last office asset held by London Metric.

There are currently 17 properties being actively marketed across the Thames Valley region, totalling over £419.75m. This includes IQ Farnborough, which has now gone through two rounds of bids with an asking price of £175m and will likely be under imminently. There is a further £726.3m of office assets currently under offer, which includes £325m for IQ Winnersh, which is understood to be under offer to BMO.

Key investment deals

Columbia Threadneedle paid £9,848,000 for Hays House in Guildford, reflecting a net initial yield of 4.85%, which is a record yield for this cycle. The building was multi-let with a WAULT of 4.5 years.

AXA REIM sold Abbott House on Vanwall Business Park to overseas investor, Kaymar Group, for £35m, reflecting a 5.62% net initial yield, in a clear sign that pricing for long income has not fallen. The building was single-let to Abbott Laboratories Ltd with an unexpired term of 8.5 years.

L’Avenir in Bracknell was sold for conversion to residential use by Picton Capital for £8m, reflecting £158.00 per sq ft. The property sits outside the Article 4 Direction put in place by the local authority.

Want more information about this Snapshot?

Charlie Lake | Director - Capital Markets | London
Charlie Lake

020 7198 2227

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Nicholas Coote
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