With a sizeable employment market, strong occupier demand and circa 10 million sq ft (929,030 sq m) of office stock, Reading continues to punch above its weight as a commercial location. However, new research from Savills suggests that in order for the town to continue to grow, its housing market will need to expand to allow Reading to achieve city status.
Reading remains the dominant office market in the outer south east, outperforming all other nearby locations. The long term average take-up is just over 400,000 sq ft (37,161 sq m), 132% above the next largest market which is Chiswick. According to Savills, Reading’s success can be attributed to its excellent transport links, with connectivity set to improve further still following the opening of Crossrail in 2019, as well as its strong office provision that has enabled businesses to grow and expand without leaving the area.
As a result, Reading appeals to a spectrum of occupiers from international corporates, who are attracted to the town’s large out-of-town business parks and campus style working environments, to start-ups taking advantage of available talent. Reading’s technology cluster is now considered the second largest behind London whilst its out-of-town market is on par with that of Oxford and Cambridge. What’s more, Savills notes that Reading’s office supply far exceeds that of the two cities, highlighting its credentials as a competitor on a global stage.
The town’s investor appeal is also evident, ranking fourth for UK investment volumes, transacting £2.7 billion since 2012 (excluding central London), coming in behind heavyweight cities such as Manchester, Birmingham and Edinburgh.
Jon Gardiner, national head of office agency, comments: “We believe that the traditional golden triangle of knowledge economies, notably Cambridge, Oxford and London, can be extended to Reading to form a ‘knowledge kite’, further reinforcing the town’s position as a key component of the wider regional economy. What’s more, people working in Reading are a rich mix of international and domestic employees, predominantly in the technology sector. Our research has shown that a third of technology businesses employ people from outside of the EU, the highest figure in the UK. This provides Reading with a degree of insulation from Brexit. It also highlights the attraction of Reading to workers on an international scale and underlines its identity as a leading technology hub in a global context.”
For this reason, the town has seen a raft of new office development as a result of strong occupier demand. Recently completed schemes such as R+, Thames Tower and The White Building have seen 110,013 sq ft (10,220 sq m) let across the three buildings by H1 2017. This in turn has resulted in record rents for Reading, with Savills predicting that rents are likely to increase by up by 10% by 2020, hitting £40 per sq ft (£430 per sq m). For Reading to be recognised as a regional city, it will need to embark on further new development to satisfy larger requirements. Savills analysis indicates there is likely to be a shortage of town centre office space by 2019 and that typically footloose Thames Valley occupiers will move elsewhere in the region if their needs cannot be met.
Despite Reading’s commercial success, constrained housing stock is currently holding the town back from reaching its full potential. Whilst it is starting to deliver the number of homes it estimates it needs to meet local demand, 699 per year, Savills suggests that this figure could be far higher because of Reading’s strong and growing employment market. Much of the delivery in the last two years has been boosted by city centre office to residential conversions. In the year to March 2016, 254 homes were converted, providing up to 34% of new supply.
What’s more, there is currently no build-to-rent stock in Reading, but with such strong economic growth and good transport links to London, there is high demand to support this tenure. Almost a third of households rent privately in Reading, which is significantly above the national average and much more in-line with central London. Alongside the rental market, the town also desperately needs homes for open market sale. Reading has become less affordable for local people, with average house prices now nine times annual earnings, up from six in 2013. For this reason, additional supply is needed to meet the local owner-occupier market.
Phil Brown, head of office at Savills Reading, adds: “Ultimately, for Reading to grow into a city it needs more homes of all tenures to accommodate the growing housing need. However, the Borough is very constrained in terms of environmental designations and remaining urban capacity , so in order to do this it needs to look beyond its boundaries if it is to achieve its full potential.”
