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Thames Valley offices: the true market dynamic?


The true dynamics of the Thames Valley’s office market go beyond the interaction of supply and demand. A more detailed appraisal using different economic models, coupled with a review of trends over the past 15 years, can give property investors and occupiers a much clearer perspective on the office market outlook. Nick Coote, head of Lambert Smith Hampton’s Thames Valley team, explains


Past, present & future


Thames Valley office demand is today fuelled predominantly by lease events, often on maturing 1980s/90s stock. In the recent past the growth in the TMT, pharmaceutical and science/research sectors has fuelled high volumes of office take-up. Other influences, such as the dollar exchange rate, the opening of Heathrow T5, corporate consolidation/ globalisation and access to labour pools, have also impacted the sliding scale of office demand.


When it comes to office supply, lengthy planning and development timelines mean that creating new product to fulfil demand is not a quick process. This supply chain challenge is likely to have medium to long-term consequences for the regional market, leaving some Thames Valley centres suffering from a shortage of quality space.


Market pinch-points


Using data captured from the past 15 years, we can delve deeper into current supply measurements and paint a longer-term picture. We measure this in three different ways: Total Years Supply (total supply ÷ past 12 months take-up); Long-term Supply (total supply ÷ long-term average take-up); and finally, given that take-up is driven by quality, Quality Years Supply (total supply – secondary stock availability ÷ past 12 months take-up).


The results of this analysis, contained in the following table, illustrate the number of years of office supply (and that of quality supply) across the key regional centres.


Office supply in the Thames Valley Town


Blackwater Valley Bracknell Guildford Heathrow


Maidenhead Newbury


Oxfordshire Reading (in town)


Total Years Supply (based on past 12 months take-up)


27.5 9.5 4


3.5 4.5 3.5 4


11


Reading (out of town) 5.5 Slough Staines


4 Uxbridge


1.5 9


Quality Years Supply (based on past 12 months take-up)


21


8.5 3 2 4 2


1.5 4.5 4.5 3


0.5 3


NB: Figures are represented to the nearest half year.


Total Years Supply (Based on long-term average take-up)


8


7.5 1.5 6 4 4


2.5 6.5 5 5 4 3


Knowledge is power


We have clearly been carrying the consequences of over-supply and reduced demand since the bursting of the dotcom bubble. More recently, the market has gone on to endure the impact and consequences of the economic downturn. As a result, there is limited speculative office development in the region – many investors, developers and banks have little appetite (or funding) for such projects.


It therefore falls to those investors to forecast much further into the future: pinpoint where the market is tightened both today and ten years from now; identify hotspots for rental growth and potential development; and address the challenge of older stock by recycling or redeveloping it.


Uncharted waters


From an occupier’s perspective, planning much further ahead will pay equal dividends. Corporates that have previously signed pre-let agreements to procure large amounts of space will already be aware of the long timescales involved. However, occupiers at the small/medium


end of the market (under 50,000 sq ft) have historically enjoyed an easier ride, courtesy of an over-supply of quality stock to acquire from.


As supply levels become more critical than ever before (a situation likely to get worse before it gets better), taking this relatively relaxed approach to moving offices is no longer practical. Small and medium-sized occupiers would do well to learn from their corporate counterparts and plan much further ahead, while viewing their property as an integral and strategic part of their business’ operations.


As property owners and occupiers alike enter these uncharted waters, foresight and understanding of the wider market dynamic will prevail over relying on the fortunes of the past.


This article is taken from Lambert Smith Hampton’s Thames Valley Office Market Review 2011, which also contains in-depth analysis for 11 key centres in the region. To download a copy, visit www.lsh.co.uk


Details: Nick Coote ncoote@lsh.co.uk 0118-9606912


THE BUSINESS MAGAZINE – THAMES VALLEY – NOVEMBER 2011


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