Thames Valley: LSH says resilient office market will meet the challenge

The Thames Valley office market is well-placed to withstand the considerable challenges of the year ahead, according to the 2016 edition of Lambert Smith Hampton's (LHS’) annual Thames Valley Office Market report. It predicts that occupier demand will remain steady against a backdrop of falling supply and solid investor interest; that this will lead to increasing rents in 10 out of 11 centres; and that speculative development will continue across the region, centred on Elizabeth-Line locations and town centres.

Nick Coote, head of the Thames Valley for LSH, explained: "Relocation is driving demand and supply in the Thames Valley as major occupiers look to move out of London, and this is set to continue, albeit at a slower pace than if the UK had not voted to leave the European Union."

Charlie Lake, capital markets director at LSH, added: "It is inevitable that medium-term business decisions will now be put on hold until the future becomes more predictable. But the region benefits from global investment demand and with the backdrop of a weaker pound, the characteristics of securely-let prime buildings at sensible rental levels will still prove popular.”

The report showed that the total take-up (items over 5,000 sq ft) in the Thames Valley in 2015 was 2.08 million sq ft, a 20% improvement on 1.73m sq ft in 2014, and 6% above the 10-year average. Grade A take-up increased significantly to 1.1m sq ft, some 75% more than that seen in 2014 and 53% more than that seen in 2013’s record take-up year.

The total Thames-Valley office supply stands at 8.96m sq ft as of the end of Q1 2016, equating to 4.5 years of supply, compared with 5.6 years in 2014. Approximately half of this is grade A space, giving 3.83 years of supply, a sharp drop when compared with 5.81 years in 2014.

Speculative development centres on the Elizabeth Line locations and in town centres, with a particular focus in Reading, where five schemes (607,268 sq ft) are being built in the town centre and one (60, 483 sq ft) out-of-town. 

Prime yield movement has been limited over the last 12 months, with the best towns in the Thames Valley now standing at 5.00%, a 25 basis point inward shift from this time last year. There has been a lack of truly prime stock to test the market but there has been competitive demand for almost all available assets, whether offering long term income or asset management opportunities.

Rents are forecast to increase in ten of eleven Thames Valley markets in 2016/17, with Maidenhead, which has just experienced a significant increase the only exception. Total rental growth across the Thames Valley is forecast to be 7.4% in 2016.