UK Property Forums partner Carter Jonas has released its Commercial Edge report for 2021, summarising key activity in the Cambridge market over the year.
The report revealed that despite a slow start to the year, the office market picked up in Q3 following two notable lettings: Roku taking a 118,000 sq ft office, and Microsoft taking 36,446 sq ft lab space at Cambridge Science Park.
This spurred take ups in the city, which currently stands at 501,028 sq ft- already exceeding the 2020 annual take-up of 450,000 sq ft, with projections the final 2021 figure will be close to the five-year average of 790,000 sq ft, though the hybrid working model and its uncertainty has undoubtedly impacted the office market as a whole.
Prime office rents in the city have remained at £48.50 per sq ft, the same as the mark set by the Fora acquisition of 20 station road in 2020, though this still could be broken if an occupier takes space opposite the station being marketed by Brookgate at £50 per sq ft.
Out of town tenants have seen an increase in the price of space, rising to £37.25 per sq ft, reflecting the demand for business accommodation within science parks.
Development has remained strong in the city, demonstrating confidence in the city, with notable developments being Lockton House, rebranded as Brooklands, which will provide 67,000 sq ft of space in the city. Others include the sale for redevelopment of Abstract Land at the Old Cockwinders site adjacent to Cambridge International Technology Park for £135 million and Phase II at Granta Park by TWI Land for £100 million.
£500 million of investment was completed up to Q3 2021 (excluding the development sites aforementioned). Demand for the science and technology stock is particularly strong due to a range of factors including a higher sector profile due to Covid, lower propensity of occupiers able to work remotely, and new life science funds entering the market. Notable investment opportunities being discussed within the market include The Grafton Centre, Cambourne Business Park and Wellbrook Court.
The landmark industrial transaction of Cambridge South was completed this year, sold for £20.15 million, reflecting a NIY of 4.15 per cent. Oxford Properties acquired 310 Cambridge Science Park for £45 million, with a NIY of 3.6 per cent, further proving the high profile nature of opportunities attracting larger funds which prior to the Station Road development had shied away from the Cambridge market.
The key driver for these figures was undoubtedly life sciences, propelled by the pandemic, but also by long term demand drivers, with the university underpinning its profile in the city. Recent take ups in the city include Phoremost taking 14,400 sq ft at The Works, Unity Campus, and Metrion Biosciences taking 11,750 sq ft at Granta Park.
On the demand side, there is a significant lack of supply, with availability at an all-time low, which could become a significant barrier to both occupiers and investors, though those in the market have reaped the benefits of strong rental growth, with Cambridge Science Park rents rising to £37.25 per sq ft, up from £36 per sq ft last year.
Yields have compressed and there has been a surge in capital values, demonstrated by some key transactions over the last year: the purchase of Unit 296 Cambridge Science Park by South Cambridgeshire District Council in September 2020 achieved a NIY of 5.95 per cent, though this shifted down to 4.53 per cent in January and 4.21 per cent in February 2021 with subsequent transactions. The most recent deal at the park (May 2021) saw a NIY of 3.6 per cent, a stark contrast to the traditional yield of circa 4.75 per cent on prime office space.
Though limited space is coming forward, the supply-demand imbalance and long-term growth prospects are creating the ideal conditions for further development of lab space, with scope to both build new and redevelop existing space in established parks including Cambridge Science Park, Granta Park and Cambridge Biomedical Campus, where permission was recently granted for an additional 100,000 sq ft of space.
The sector is becoming increasingly interested in city centre space, reflected by Legal & General’s disposal of The Grafton Centre focussing on its redevelopment into a mixed-use building, incorporating both life sciences and broader technology uses, though many buildings do not lend themselves to be converted into a life science space.
The report concludes that the expectation is that demand by the life sciences sector for the lab and mixed lab/office space to remain both strong and resilient despite the economic uncertainties and the changes happening throughout the sector, with the key challenge being to develop buildings which can satisfy the high level of demand.
Full report available here.
© Eastern Echo (powered by ukpropertyforums.com).
Sign up to receive your free Eastern Echo newsletter every other week here.
