Take-up slips but investment booms in Thames Valley

By Paul Norman - Monday, October 16, 2017 11:17

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Take-up in the Thames Valley office market fell slightly in Q3 2017, replicating the quarterly outcome in 2016, while the quarter saw a record for investment transactions.

The active sectors were professional services (20%) and, technology media and telecommunications (19%) with Slough and Uxbridge seeing the most take up. It is encouraging that the enquiry levels in Q3 2017 are the second highest seen in the quarter over the last six years, in marked contrast to the comparative drop seen in Q2.

In the Thames Valley office investment market in Q3 produced a record volume of activity.

Highlights:

• Second highest Q3 enquiries total for six years

• Demand (Take-up) falls back from Q1 & 2 levels but Slough leads the way

• Supply remains stable

• Investment market sees a record volume transacted in Q3

Nick Coote the Head of Lambert Smith Hampton’s Thames Valley business said “We are seeing reasonable occupational activity levels, albeit not at the higher size bands, over say 30,000 sq ft. There are several large Tech Co occupiers who have lease events, beginning to loom, who will need to start undertaking strategic reviews, as to their future needs. The Crossrail effect is beginning to show via activity in Reading & Slough town centres, the latter leading the way this quarter”.

Charlie Lake of Lambert Smith Hampton’s Capital markets team said:  “With a large number of deals converted in Q3, the volume currently under offer has shrunk to £240m and while there are 20 assets currently on the market, these amount to just £290m reflecting a distinct shortage of stock”.

Second highest Q3 enquiries total for six years

109 enquiries (over 5,000 sq ft) were received for Thames Valley offices in Q3 2017, an increase of 20% compared with the 91 received in the previous quarter. This increase was not uniform but mainly seen in the lower 5/10,000 sq ft range (46% increase Q2 to Q3).

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 falls back in Q3 but Slough leads the way

Take-up in Q3 2017 was 300,675 sq ft, a fall of 46 % from the 524,254 sq ft transacted in the previous quarter and slightly above Q3 2016’s total of 294,520 sq ft.

Total take-up to the end of Q3 in 2017 is 1,250,281 sq ft which is a remarkably similar total to this same point in 2016 which totalled 1,262,266,sq ft.

The two most active business sectors in Q3 2017 were professional services (20%) and technology, media and telecommunications (19%).

Slough was the town with the largest take up in the quarter; totalling 62,855 sq ft (21% of Thames Valley total office take up in Q3 2017). Uxbridge had second largest take up total of 47,309 sq ft (16%).

Office supply remains stable

Standing at 8.51m sq ft at the end of Q2 2017, Thames Valley total supply has risen, marginally, to 8.54m since the previous quarter. Compared with the same quarter in 2016, this represents a year-on-year fall of 6.39%.

The supply chain is heavily reliant on new development, LSH said.

It added: "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 51.57% of the total, compared with 50.46% in Q1 2016.

Investment market – Q3 shows record volume

Following a slightly subdued start to the year, Q3 2017 marked a record for investment volume in Thames Valley Offices. The total of £1.19bn was mainly comprised of 3 large transactions – Frasers Centrepoint’s acquisition of Oaktree’s Business Park portfolio, CPPIB’s purchase of a 50% stake in Milton Park and TPG’s long awaited completion on the Arlington Business Park portfolio. Aside from these deals, which for accounted for £850m of activity, there was still a further £340m of offices transacted which more than the first two quarters of the year combined.

Overseas investors dominated the market, being responsible for all 3 of the major deals of the quarter. Underlying this, the pool of buyers was very mixed with similar levels of activity from UK Institutions, UK Property Companies and Local Authorities, who purchased both within and outside their jurisdictions.

Investment market – Key transactions

Oaktree exited its portfolio of UK Business Parks, which included IQ Winnersh and Watchmoor Park in Camberley, prices at £365m and £42m respectively. The buyer, Frasers Centrepoint has also put Maxis in Bracknell under offer from the same vendor subject to conditions relating to occupancy.

TPG completed on its long running purchase of The Arlington Portfolio, the marketing of which commenced in Q4 last year. The portfolio included two assets in the Thames Valley - 2 buildings and the remaining development land at Arlington Square in Bracknell and all 5 buildings at Uxbridge Business Park, 2 of which are vacant.

Columbia Threadneedle purchased Mercury Park in Wooburn Green from the original developer Comland for a price of £32m, reflecting a net initial yield of 6.96%. The park was heavily multi-let with 13% vacancy and marked only the second out of town acquisition by a UK Institution this year.

Reading town centre saw a flurry of activity with the sale of four multi-let buildings: Palm Capital acquired Abbey Gardens in Reading town centre from Hermes for £40m, Longmead acquired the adjacent building Abbey Gate for £14.83 reflecting 7.81% NIY, Standard Life purchased Pinnacle from KFIM for £13.24m, reflecting 6.75% NIY and Fidelity purchased Phoenix House for £20.25m from Ediston.

pnorman@costar.co.uk

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