Market snapshot

Office Market Pulse Thames Valley Q4 2014

Following a steadying of the volatility of the office market in Q3 of 2014, Q4 built on this with significant growth in demand in both the occupier and investment markets. A shortage of supply, particularly high end grade B space, has become apparent and we expect a resulting increase in competition and rental values in 2015.

Nick Coote, Head of the Thames Valley for Lambert Smith Hampton, comments: “The surge in office take up during Q3 and Q4 of 2014 has re-energised the Thames Valley occupational market. As a result, we enter 2015 with renewed confidence, forecasting a robust market with continued upward pressure on office rental values.”

In this issue:

Record level of enquiries in Q4 and increase of 5% over the year

  • The Thames Valley enquiries total for 2014 was 459, an increase of 5% on 2013
  • Q4 2014 saw a record level of enquiries – 137, compared with 107 in Q4 2013

This suggests a marked pick up in market activity at the end of 2014 after an unexpectedly slow start to the year.

30% fall in take up compared with 2013 but strong upsurge in Q4

  • Total office take up over 5,000 sq ft in the Thames Valley in 2014 was 1.73m sq ft
  • Compared with the total of 2.46m sq ft in 2013, this is a 30% drop
  • However, Q4 2014 accounted for 41% of all 2014 Thames Valley take up, suggesting the market rallied strongly

This reduction in take up, combined with an increase in grade A space, has led to the grade A years’ supply measure increasing from 3.96 years' supply at the end of 2013 to 5.76 years' supply at the end of 2014.

Office space supply is polarising

  • Grade A supply now accounts for 40% of the total, compared with 27% in 2013
  • Grade B supply is diminishing – 2012 total = 6,368,000 sq ft, 2013 total = 5,474,000 sq ft and 2014 total = 4,740,000 sq ft

This polarisation is largely due to speculative development activity on the supply side and take up of quality grade B space on the demand side. Occupiers have taken the available high end grade B space out of the market, leaving only the lower end grade B space available. This cannot be replaced unless businesses give up space, which is not happening at present.

Therefore, new occupiers are increasingly faced with a choice between poor end grade B or new grade A space. Grade A facilities are being built, but occupiers will have to be prepared to pay higher rental values.

Thames Valley transactions above 25,000 sq ft

Property

Size (sq ft) 

Rent (per sq ft)  Landlord  Tenant Lease information 
450 South Oak Way, Reading

104,886

c£28.50 Oxford Properties Pepsi Co

10 years

2 Roundwood Avenue, Stockley Park

97,204

£30.00 Cordatus Gilead Confidential
1 and 2 Manor Park, Reading

67,949

Freehold sale RO Real Estate  Ultima  n/a
Windrush Court, Watlington Road, Oxford

50,000

Freehold sale £3.2m Astellas Pharma  Oxford BioMedica  n/a
Canvas, Abingdon Business Park  43,533 Virtual freehold sale Receiver  Smeg UK  n/a
Tower 4, Royal Pavilion, Aldershot  29,100  £20.00 CSC  SITA  10 years
Harman House, Uxbridge  28,000 £27.00 Pramerica Pepper Group  10 years
102 Park Drive, Milton Park, Didcot  27,588 Confidential MEPC  Ipsen  Confidential
1 Waterside Drive, Reading  26,677 Confidential Bay Beauty Ltd  Direct Wines  10 years
Ash House, Ashford, Staines  26,000  £17.50 BUPA Commissioning  Gate Gourmet Pourshins  15 years

Investment in the Thames Valley continues to increase

  • The value of investments sold in the Thames Valley during Q4 2014 totalled over £452.9m, compared with £372.5m in Q4 2013.
  • Total investment for 2014 was in excess of £1.225bn, compared with £1.16bn in 2013.
  • In addition, there is a further £312.76m of investment transactions remaining in solicitors’ hands, which will add considerably to the level of transactions recorded.

The most significant change in the market is an increased appetite across the board. This has been chiefly witnessed by a reduction in the average transaction vale to £11.6m from circa £16m in the preceding two years. It is also demonstrated by the number of deals transacted in 2014 – 105, compared with 72 in 2013. This comes from demand for both short and long let opportunities at each end of the risk spectrum.

From a capital markets perspective, 2014 has witnessed a significant yield shift with prime yields in the Thames Valley hardening into 5.25% across a number of centres.

Key Thames Valley investment deals

  • One Reading Central, a 220,000 sq ft town centre multi let office building in Reading was sold by Aberdeen Asset Management to M&G Investments in November for £94.5m, equating to a net initial yield of 6.30% and a capital value per sq ft of £430.

  • In September, M&G Investments also purchased the R+ development site in Reading from Consi Investments, which has consent for seven floors, for £33m.

  • Midas House in Woking, a multi let office in the town centre with a WAULT of 3.4 years, was sold in December by DTZIM to Standard Life Investments for £19.05m, equating to a net initial yield of 6.45% and a capital value per sq ft of £339.

  • Chatsworth House in Maidenhead, a multi let town centre office with a WAULT of 4.8 years, was sold in December by the receiver to Christ’s Hospital Foundation for £6.42m, representing a net initial yield of 6.25% and a capital value per sq ft of £366.

  • Aberdeen Asset Management acquired Walton Green, Walton upon Thames, from Capital Trust Group in October for £16.33m, reflecting a net initial yield of 5.35% and a capital value per sq ft of £5.27. The property is one mile out of the town centre and is let to Kia Motors UK Ltd for 13 years.

Office market forecast for 2015

  • Take up will increase

  • Rental values will move upward

  • There will be further polarisation of supply towards grade A

  • Investment yields will harden

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Nicholas Coote

0118 960 6912

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Nicholas Coote
Head of Thames Valley

0118 960 6912

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