Thames Tap partner Vail Williams has reported a sense that the Reading office market has turned a corner after it experienced the largest number of transactions of any town in the region.
The property consultant says organisations have undertaken strategy reviews, defining what space they need going forward, and many have their sights on the town, which is home to the head offices of Vail Williams.
Thames Valley & Oxford agency partner Guy Parkes says occupiers have committed to a hybrid future and the continued flight to office quality has seen most super-prime and Grade A+ stock in Reading let to those early adopters of a return to the workplace.
He said: “In some instances, Reading occupiers are now having to compromise on more competitively priced stock as the super-prime supply dwindles. However, they are reinvesting the capital saved into high-end fit-outs and the creation of attractive office environments for their people.
“There is still the opportunity for landlords to invest in super-prime office space in Reading through extensive refurbishment projects. This is ideal for offices in already buzzing and amenity rich areas, mainly in the town centre boasting car parking facilities or within close proximity to train travel.
“Of course, the same is also true of business parks with good amenities, however office assets and associated environments without these benefits and those unable to build a vibrant community feel, continue to suffer and investment viability would remain a concern for landlords.”
What’s hot in the Reading office market?
Prime stock at Apex and Station Hill still leads the market in Reading, with rents hitting £55+ per sq ft at the latter.
Guy said: “These bigger buildings which are being carved up to offer a range of suites with collaborative business lounges provide the highly activated space with hospitality services and events programmes that major occupiers like Pepsi and PwC who are moving to Station Hill really want.
“Assets further away from Reading station which don’t boast quite the same level of quality are struggling to let. Some may be disposed of for residential development, subject to any Article 4 Directives being imposed by the local authority.
“Meanwhile others might be repurposed for industrial redevelopment where land is in short supply and high demand – such is the demand that industrial rents are outstripping secondary office rents in some cases.”
Reading market availability
Guy goes on to say that, in broad terms, Reading has the largest overall supply which could hold back rental growth. Thirty per cent of existing offices in the town is Grade B stock, and the polarisation of rents between Grade A and B is growing. Secondary Grade B buildings have seen voids and, subsequently incentives to attract cost-conscious tenants, increase.
This could mean a significant portion of the Grade B office supply in Reading is repurposed for alternative uses and Vail Williams is engaged in many options analyses in this area for landlords and investors seeking higher returns.
Most leasing activity has been around Grade A offices where only two years’ supply exists (based on the 10-year average take up figures). On that basis headline rents continue to move upwards and £40 per sq ft is the new benchmark for existing stock.
Reading office market rents
According to Vail Williams, headline rents for super-prime stock remain high across the board, but the existing office rental market is generally overpriced for some and there have been rent reductions in real terms.
Guy said: “There is now a two-tier market between existing and newly built offices which command higher rents, but this is not based on the inflation of recent years – rather, because of build cost inflation meaning that new builds need to be a step on in rental terms, to be viable.
“In the case of existing offices, landlords have been offering pre-fitted and furnished space to occupiers to remove any friction around undertaking an office move, and to underpin a higher headline rent for what is referred to as ‘plug and play’ space.”
Of the 29 office leasing transactions in Reading town centre this year, 27 were to tenants talking fully fitted space.
“Landlords have been guessing what shape of fit-out occupiers will want. However, most of these suites require further adaptation to the layout and finishes for incoming tenants.
“As a result, we are seeing more pre-let fit-out discussions where the landlord engages a contractor and architect to collaborate with the tenant prior to the space being built out.”
He said that approach is considered a ‘win-win’ solution with the occupier benefitting from a bespoke fit-out and the landlord saving on the cost of pre-deploying CapEx, prior to a tenant coming in, and saving time all round.
Vail Williams believes that, broadly speaking, Reading continues to enjoy a good level of office market activity, and the firm expects this to continue into 2025 as more quality stock comes to market there.
However, a question mark remains over what organisations will need from their workplaces in the future, increasing demand for shorter leases, typically with three to five-year break clauses.
For the second year in a row, according to research by Hays Recruitment, there has been an increase in office attendance.
Whilst many companies are settling on a pattern of two-to-three days working in the workplace, this looks like it may increase. In 2023 office attendance was 36 per cent and this year it is running at 43 per cent. Remote working has reduced from 43 per cent to 39 per cent.
Guy concluded: “It remains challenging for occupiers to properly plan for their requirements and for investors and developers to know what to build. Therefore, flexibility of lease length and the offer of swing space and business lounges in office buildings, remain a key feature of the office letting market. We are even seeing padel courts appear in some offices, to lure occupiers in. Long live the workplace!”
Guy Parkes will feature in the next Battle & Bunce Talking Property podcast. It will be uploaded here, where you can also hear all previous episodes.
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