Market snapshot

Thames Valley Office Market Pulse Q4 2015

The end of 2015 saw take-up in the Thames Valley office market break the 2m sq ft barrier for the year, despite several expected deals rolling over into 2016. Although enquiries fell slightly during the last quarter, we are already seeing a return to the previous buoyant levels and we are expecting 2016 to be another active year.

  

Nick Coote, head of the Thames Valley for Lambert Smith Hampton, comments: “As we predicted, 2015 proved to be one of the best years for Thames Valley office take-up and we are confident that there is momentum in the market that bodes well for outcomes in 2016."

In this issue:

Enquiries dipped slightly at the end of the year

• There were 124 new office enquiries (over 5,000 sq ft) in Q4 2015 – 9.5% down on the same quarter last year
  

• Looking at 2015 as a whole, the annual total was is 515 – an increase of 12% compared with 2014

The current level of enquiries we are seeing should maintain market demand into 2016 and we expect take-up in the first two quarters of 2016 to be positive.

Take-up breaks the 2m sq ft barrier

• Q4 2015 take-up was 321,783 sq ft, a decrease of 57% compared with 755,000sq ft in the same quarter in 2014
  

• However, total take-up in 2015 was 2.08m sq ft, compared with 1.73m sq ft sq ft in 2014 - an increase of 20% year on year

Take-up of offices in Q4 2015 was less than expected, due to several expected large occupational deals failing to complete before the year end. The rollover of these transactions into 2016 promises to deliver a very positive start to this coming year.

53% of all take-up in 2015 was grade A and 42% grade B. The proportion of grade A take-up is continuing to climb due to the removal of the quality end of the grade B supply chain, leaving occupiers, who all want quality, to focus increasingly on the newly built options.


Supply total remains stable with grade A increasingly dominating

• Total office supply in the Thames Valley market at the end of Q4 2015 stands at 9.39m sq ft, compared with 9.6m sq ft at the end of Q4 2014. This represents a fall of 2.6%.
 

The proportion of grade A supply available has increased from 40% of the total at the end of Q4 2014 to 48% of total supply to the end of Q4 2015, an increase of 10.5%, largely due to speculative development boosting the figures, particularly in Reading.

Total years’ supply of offices in the Thames Valley is now 4.5 years (5.56 years at end of 2014), grade A and B 4.35 years (compared to 5.32 years at end of 2014) and grade A 3.83 years (compared to 5.81 years at end of 2014. These figures clearly show a tightening market dynamic that will continue to apply upward pressure on occupational rents.


Significant occupational transactions

Property  Size (sq ft)  Tenant  Rent  Lease  Landlord
Pinehurst II, Farnborough Business Park  29,741  Time Inc  £26.25  10 years  HMC 
Inspired, Bracknell  25,379  Sally Salon Services  £19.50  10 years  Mercer Real Estate
Three Forbury Place  16,145  Osborne Clark  £32.50  10 years  M&G 
Maxis 1, Bracknell  15,885  HiFX  £22.00  10 years  Oaktree/Hines 

Investment summary

• £739.75m of assets changed hands in Q4 2015, a significant increase on £452.9m transacted in Q4 2014

• This brings the total volume for 2015 to £2.065bn, which again is a strong performance compared with £1.225bn the previous year

Encouragingly, these figures show that renewed confidence in the market that began gathering momentum during 2013 has been continued with robust levels of demand.  A further £240m of assets are under offer which should further bolster this trend.

There were a total of 20 transactions during Q4 2015 with an average lot size of £39m. This was somewhat skewed by AEW’s £325m purchase of SEGRO’s assets along Bath Road in Slough. 

The figures for 2014 as a whole, however, show a different dynamic, with the number of transactions down to 91 compared with 105 in 2014, but the average lot size increasing to £23.2m from £11.6m a year earlier. This is the result, not only of a small number of extremely large (£100m+) transactions, but more so a significant increase in the number of £50m+ transactions, with UK institutions often leading the charge to deploy large amounts of capital in a single deal.


Key investment transactions

• AEW’s purchase of SEGRO’s eight office assets along Bath Road in Slough for £325m was the largest transaction of the year

• CCLA purchased 3 Longwalk Road on Stockley Park for £47.65m, reflecting a net initial yield of 4.30%. The building is let to Marks & Spencer for a further 11 years

One Valpy in Reading and The Urban Building in Slough, comprising 60,000 sq ft and 98,500 sq ft respectively, were purchased by Standard Life for £56.5m in a single transaction from Brockton/Landid

DeVille Court in Weybridge was purchased by Elmbridge Borough Council for £6.15m, reflecting a net initial yield of 5.92%. The property was recently let at a rent of £36 per sq ft with a five year certain term

Foundation Park in Maidenhead, a major repositioning opportunity, was purchased by JP Morgan Asset Management for £55.4m.


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

0118 960 6912

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