The Thames Valley office market is at a pivotal moment while the thriving industrial sector faces challenges from rising interest rates and inflation.
Those findings are published in the first of a new report by Vail Williams called View West, covering its Thames Valley and Surrey areas.
It reports that office occupiers are taking barely half the space they would have pre-Covid and forecasts that the fast-evolving economic and political landscape, including the energy and cost-of-living crises, will have a major impact on the market in the last quarter of 2022.
Guy Parkes, Vail Williams partner based in Reading (pictured right), said: “The office market pendulum is continuing to swing back towards the workplace with companies embracing hybrid working and seeking to redesign, repurpose and relocate their offices to suit.
“Office attendance remains at approximately 20 per cent off pre-Covid levels and, even with signs of increased occupancy as companies get back into a rhythm, most businesses are still looking to take some 40-50 per cent less space than before the pandemic.
“Media and gaming companies, professional services and the public sector have taken a strategic and longer-term approach to future office needs and have been the driving force behind office activity across the Thames Valley and Surrey regions.
“Availability of the latest generation Grade A or Cat A+ space is beginning to dwindle across the region, as there is limited planned new development in the pipeline, meaning that refurbished Grade B space will start to fill the gap.”
The much-discussed flight to quality has continued with buildings offering favourable location, parking, amenity, flex space and quality of finish strongly in demand.
Around 9.5 million sq ft of office space is on the market across the Thames Valley and Surrey region, the majority of which is in schemes of 100,000+ sq ft. However, vacancy rates for Grade A buildings in some specific towns remain low, fuelling rental growth.
Record rents of between £47.50 and £60 per sq ft have been recorded at Windsor, Watford, St Albans, Hemel Hempstead and Guildford.
The Elizabeth Line is expected to lead to greater access to talent and support ‘hub and spoke’ strategies for those seeking to relocate.
While the industrial market remains buoyant Charlie Nicholson, Vail Williams partner based in Woking (pictured left), warns of dark clouds looming.
Both investor and occupier demand is competitive and the first half of 2022 saw record levels of industrial take-up across the Thames Valley and Surrey continue above the long-term average with hotspots of activity in the film production and life sciences sectors.
Mr Nicholson said: “As interest rates continue to rise, we could see this affect borrowing/finance in industrial construction and development into 2023, and therefore the pricing of the end let investment.
“For occupiers, as rents continue on an upwards trajectory and a lack of meaningful supply persists, this is painting a worrying picture – particularly ahead of Revaluation 2023 and the potential for a significant business rates hike.
“Indeed, the whole nature of an industrial deal has changed with inflation-related caveats and scenarios now built in. Occupiers need to budget for rent inflations and ensure that, working with a property professional, they forecast for every potential scenario possible, to avoid any unwanted surprises.”
He added: “As build costs continue to rise, we will see rents increase in order to sustain the pricing of constriction and the purchase of land. To date in 2022, record headline rents continue to be achieved, creating an incredibly competitive market in redevelopment/development terms.
“There remain pockets of affordability in places such as Camberley and Frimley and north to Wokingham or further west to Newbury and Swindon. However, places like Park Royal are seeing rents at £30 per sq ft, on a par with offices.”
View West is available to read here:
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