The world’s leading universities cities of Cambridge, Oxford and Bath’s office markets are forecast to outperform primary UK offices on an annual basis by total returns between 2015 and 2019, according to UK property consultancy Carter Jonas at its National Commercial Edge launch held at its London HQ.
Against the forecast for UK offices, total returns figure of 6.8% per annum during the next four years, Cambridge is forecast to see a total return of 9.3% per annum, with the West End and Oxford joint second with 8.1%, followed by Bath at 6.9%. Leeds is forecast to see returns of 6.6%, just 0.2% below the UK offices’ figure, with the City of London forecast at 6.1%.
The results show the strong prospects for Bath, Cambridge, and Oxford compared to a number of the prime regional markets as the return in occupier confidence was evident. In 2014, office take up across the three markets totalled 1,468,907 sq ft, and the significant upturn in transaction activity and hardening of yields were witnessed as investors continued to view these office and industrial property markets as safe havens outside the overheated capital.
Carter Jonas forecasts Grade A office rents to increase by on average 5% across all the markets in the report with the West End reaching by the end of 2015 between £102.50 and £125.00 per sq ft; the City between £57.50 and £67.50 per sq ft; Cambridge to £35.00 for City centre and £29 per sq ft for Business Parks; followed by Oxford at £25.50 per sq ft, and Bath and Leeds both at £25.00 per sq ft.
In all the report’s markets outside London, speculative office development is in full swing in particular in Leeds, and also in Bath, which is set to see an additional 113,000 sq ft of office development.
Scott Harkness, head of commercial at Carter Jonas said: “There’s no doubt that the UK’s regional markets are seeing a return in investor and occupier confidence. Having forecast it for a few years, it’s great to see the activity happening, in particular those which have leading international universities that are at the forefront of the world’s economy: Cambridge, Oxford and Bath.
“In London the lack of good quality stock, and the weight of money in the market is resulting in yield compression. Investors are shifting their focus to emerging markets and seeking out long dated income with geared uplifts, and also considering direct let opportunities. Where the University cities are able to steal a march is thanks to their incredible talent a pool and research and development capability, also the investment into infrastructure, which in some cities such as Oxford, is paramount to its future growth; their strong residential markets and new homes’ development pipeline; and general growth in business confidence. All these factors combine to result in businesses coming forward to compete in these vibrant markets and in turn there is developer and investor value. We are bullish about these markets, especially from the activity that we’ve witnessed in 2014, and we could even see double digit growth in these markets by the end of 2015.”
Catherine Penman, head of research, Carter Jonas added: “Such is the demand for office investment stock outside London in Bath, Cambridge and Oxford, that we are forecasting that investment yields across these markets will harden by between 50 and 75 basis points by the end of 2015. Whist the financial unrest in the Eurozone and UK General Election remain factors which might impact our forecasts, the UK economy continues its recovery and the interest rate environment looks set to continue. The weight of money in the market remains and the UK’s secondary office and industrial markets will gain from such investment, and indeed occupier demand.”