thames valley: global leader Thames Valley offices in focus
The Thames Valley office market has seen a rapid improvement in occupier fundamentals over the past 12 months, according to data and analysis from the CoStar Group, writes Henry Murray, market analyst
A considerable uptick in demand, coupled with limited new speculative construction and further removals of empty office buildings to alternative uses, resulted in the vacancy rate plunging to a cyclical low in Q2 2019 (see Exhibit 1a). Net absorption, the true indicator of occupier demand, has soared to decade highs over the past 12 months, with a spate of landmark deals driving annual absorption of around 1.8m sq ft as of May 2019 (see b in Exhibit 1).
Exhibit 1 Exhibit 1: Thames Valley office net absorption, deliveries and vacancy
Occupiers contributing to this surge over the past year include auditor KPMG, TMT giant Virgin Media, medical research firm IQVIA, housing association Sovereign and American telecoms firm Verizon. These firms will join the likes of SSE, Gartner, Thales and GreenValley, which moved into large spaces in the preceding years. Towns that have seen extensive regeneration and infrastructure projects have been the big beneficiaries, with net absorption particularly strong in Reading, Slough and Maidenhead. Co-working firms have also descended on Reading over the past 18 months to try and tap into demand from smaller firms, with momentum building ahead of Crossrail’s completion in 2020/21.
Exhibit 2 Exhibit 2: Thames Valley office deliveries and demolitions
Increasing demand has created a supply deficit in the Thames Valley. Little new space has been built in the past five years, with conversions and demolitions actually resulting in a net loss of more than 1.2m sq ft (see a in Exhibit 2) of office stock over the period. Soaring residential house prices have encouraged many investors to reposition tired office buildings into alternative uses. Only a handful of large office schemes have delivered in the past couple of years. Among the most notable were two buildings in Slough: the Future Works (99,900 sq ft), which completed last year, and the Porter Building (119,400 sq ft), which delivered a year prior. Both schemes were built on a speculative basis and have seen decent demand since completion, at around 20% and 80% occupied, respectively. Little new space is expected to be added in the near term: only around 640,000 sq ft of office space is under construction across the Thames Valley, only around half of which is set to deliver within the next 18 months (see Exhibit 2b).
Supply pressures could ease in the medium term, however. A number of significant schemes have started construction recently. One significant project underway is The Landing in Maidenhead. The 368,000
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b.
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sq ft mixed-use scheme is being developed by HUB and Smedvig and is set to deliver around 100,000 sq ft of Grade A office space in 2022. Elsewhere, a couple more buildings are being built at Green Park outside Reading, which total a combined 229,000 sq ft and are due to deliver 2021. More than 20 additional 100,000 sq ft-plus schemes are in the planning pipeline, too.
Among the most significant is the mixed- use Station Hill scheme in Reading, whose first phase kicked off earlier this year. The total scheme has planning consent for up to 900,000 sq ft, principally made up of office space. The scheme sits adjacent to Reading station, where Crossrail services are set to begin soon. The Crossrail route has been the focus for many developers of late.
THE BUSINESS MAGAZINE – JULY/AUGUST 2019
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