Nick Coote, Head of the Thames Valley, Lambert Smith Hampton, explains: “The high level of enquiries carried through Q1 2015 from Q3 and Q4 2014 makes us confident that we will see a significant pick up in transactions in Q2 and that actual take up levels through the first half of 2015 will be positive”.
In terms of the investment market, Charlie Lake, Lambert Smith Hampton’s Director of Capital Markets for the Thames Valley, adds: “With £111m already under contract and over £600m of available investment opportunities, we are expecting Q2 to build further on the strong start to the year, albeit dominated by a small number of significant transactions.
Enquiries continue their upward trend
122 office enquiries were received in Q1 2015, compared with 89 in the same period last year – this was applicable in every size band. Encouragingly, this strong level of enquiries has been maintained from Q3 2014 and shows no signs of diminishing, suggesting we’ll see an increase in activity through the next quarter.
Is the take up time lag set to end?
Total office take up over 5,000 sq ft in the Thames Valley in Q1 2015 was 356,000 sq ft, slightly up from 332,000 sq ft in Q1 2014.
Given the positive level of enquires in the last three quarters, this take up outcome is disappointing, but may be attributed to an adjustment following Q4 2014’s take up level of 755,000 sq ft.
32% of the take up was Grade A and 44% Grade B.
Supply continues its polarisation away from grade B
On the basis of Q1 2014 take-up, there is currently 6.3 years’ supply of grade A offices in the Thames Valley (NB: This is very dynamic number – current grade A supply/(Q2 +Q3 + Q4 2014 + Q1 2015 grade A take up).
Office space supply continues to polarise and grade A supply now accounts for 43% of the total, compared with 27% in 2013.
Grade B supply is steadily decreasing…
· 2012 total = 6,368,000 sq ft
· 2013 total = 5,474,000 sq ft
· 2014 total = 4,740,000 sq ft
· Q1 2015 total = 4,638,500 sq ft
The polarisation of Grade A supply is largely due to speculative development activity on the supply side and take up of quality grade B space on the demand side. Occupiers have taken the available high end grade B space out of the market, leaving only the lower end grade B space available. This cannot be replaced unless businesses give up space, which is not happening at present.
Therefore, new occupiers are increasingly faced with a choice between poor end grade B or new grade A space. New quality stock is being developed, but occupiers will have to be prepared to pay higher rental values.
Investment market dominated by larger than normal transactions
The value of investments transacted in the Thames Valley during Q1 2015 totalled £462.85m, a significant increase on Q1 2014 (£124.89m). We anticipate a strong start to Q2, with a further £111m currently under contract. The investments transacted comprise 22 key deals, with an average lot size of £20.12m, considerably larger than witnessed in previous quarters (Q1 2014: £8.386m), albeit due to 74% of the value attributable to just four transactions. There are currently 17 properties being marketed across the region, totalling just under £478m, however 82% of this is attributable to just six assets.
Key investment deals
Four single transactions totalling £342,750,000 occurred in Q1, including 3M, Bracknell; Rackspace City Campus, Hyde Park, Hayes; Arlington Business Park, Theale; and Farnborough Aerospace Centre, Farnborough.
AVIVA disposed of Dorking Business Park, an out of town office park let to nine tenants and set in 5.6 acres of landscaped grounds. The park has an AWULT of 1.9 years to breaks and four years to expiries. It sold to Clearbell for £17,275,000 (quoted price £18,000,000) in March, representing a net initial yield of 8.73% and reflecting a price per sq ft of £147.
Clearbell purchased One Thames Valley in Bracknell, a multi-let investment with an AWULT of two years in an out of town site. The property sold in February and the price achieved was £14,500,000, reflecting a net initial yield of 8.06% and a price per sq ft of £193.
A number of large lots are currently available within the Thames Valley. These include Apex Plaza in Reading, a 221,000 sq ft building adjacent to Reading Station; New Square, Bedfont Lakes, an office park of seven headquarters buildings with central amenity; and the SEO Portfolio, nine offices in the South East, of which the majority of assets lie within the Thames Valley.
