Real estate consultancy firm and UK Property Forums partner has released its 2022 Commercial Edge.
The report revealed that demand from tech and life science firms continues to pioneer office leasing activity in Cambridge, with take-ups last year totalling 699,409 sq ft, up 45 per cent year on year and the highest year for take-up since 2015.
Momentum improved significantly in the second half of the year, with several notable transactions completed in the Northern Cluster and out-of-town parks.
Cambridge Science Park in the Northern Fringe continues to drive demand, supporting companies’ aggressive growth plans. The 118,000 sq ft acquisition of Building 2 by Roku for £37.25 per sq ft was the largest letting of the year (a 490 per cent increase from their current 20,000 sq ft footprint on the Park).
Microsoft took the assignment of 198 Cambridge Science Park totalling 36,446 sq ft for lab space, while Endomag leased 20,386 sq ft at Building 300.
Granta Park in the Southern Cluster also proved popular among tenants, with The Portway Building having been substantially refurbished. At the end of the year Altos and Bicycle Therapeutics both acquired lab space, taking 53,785 sq ft and 47,705 sq ft respectively within the building, with the former paying £48.50 per sq ft.
Large occupiers have continued to commit to space although the majority of activity in 2021 has been within the lab, technology, and R&D segment as the life science sector continues to attract strong investor interest.
Nearly £1.5 billion was invested in companies from those sectors, with many of those sectors, including many in the early stage of their lifecycle. This is an increase of 119 per cent from 2020.
The market for expansion is less active due to occupiers waiting for more clarity around the hybrid working model and its impact on the layout and design of office and flexible space before committing to new space rather than weaker underlying demand. This is currently benefitting the serviced office and flexible space providers, who can satisfy occupiers’ requirements for short-term space until certainty increases.
Prime grade A office rents have remained at £48.50 per sq ft which is likely to increase as several opportunities are under offer for in excess of £54.00 per sq ft. Northern Fringe rents have increased to £37.25 per sq ft, which reflects the strength of demand for business /science park accommodation.
Recent deals suggest that science parks rents are catching up with those in the CBD to the point that they may well overtake CBD rents in 2022, driven by demand from the Life Science sector.
Although rents have held firm, rent-free packages moved out during the pandemic by approximately 25 per cent and are sitting at an average of 12-15 months for a 10-year lease. However, with lack of supply following the recent flurry of lettings this is starting to rein back in.
Development has continued within the city, showing continued confidence in occupier demand. Much of the space underway has been already pre-let, however. 94,000 sq ft at One Cambridge Square is still available, due to complete in late 2022, while on St. John’s Innovation Park, planning consent was granted for The Dirac Building, which will comprise 85,000 sq ft.
By the central station, also following a successful planning decision, Lockton House is being redeveloped and rebranded as Brooklands, totalling 67,000 sq ft across two buildings.
In addition, two substantial vacant development sites have sold in Q3; Abstract Land at the Old Clockwinders site adjacent to ARM’s UK headquarters at Cambridge International Technology Park for £135 million; and Phase II at Granta Park by TWI Land for £100 million – both to Blackstone / Biomed Realty.
Investment activity remains fierce, and volumes last year hit the highest mark on record. Over £700 million was spent on offices and labs in 2021 (not including the development sites mentioned above). One of the key office transactions last year was British Land’s purchase of Peterhouse Technology Park for £74.15 million, a 4.15 per cent net initial yield (NIY). The £45 million acquisition of 310 Cambridge Science Park by Oxford Properties reflecting a NIY of 3.6 per cent is another deal that proves the strength and weight of money currently chasing product.
Demand for science park/technology stock has been particularly strong due to a combination of factors, including a higher profile of the sector amid the pandemic, the lower propensity of occupiers to be able to work remotely, and new life science funds entering the market further swelling demand. This has been witnessed by IQHQ’s purchase of 127-129 Cambridge Science Park for £20m per acre with the plan to maximise the site’s development capacity.
A significant amount of investment opportunities are still being actively discussed with further sites coming forward for redevelopment.
The industrial market has remained relatively subdued, due to the lack of available stock rather than weaker demand. Big box logistics opportunities rarely hit the market, but when they do, they attract strong investor interest. A key industrial investment transaction completed in 2021, known as Cambridge South, sold for £20.15 million reflecting a net initial yield of 4.15 per cent.
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