A report by Vail Williams has shown confidence returning to the Thames Valley’s office market while its industrial scene continues to experience a lack of supply.
The VW Insights report, covering the Thames Valley, Oxford and Surrey, looks at commercial markets across several key towns.
Office occupiers who have accepted a hybrid working routine have boosted the number of office transactions and the continued flight to quality has seen super-prime and Grade A+ stock attract firms which seek a return to the workplace.
In the industrial market, there remains optimism across the region even though logistics and e-commerce markets are reaching consolidation stage.
David Barden, Vail Williams regional managing partner Thames Valley, said: “A new Government has brought with it a fresh perspective and we are already seeing the positive impact of this on the office and industrial markets.
“Stabilised interest rates have invigorated the property market. Offices have regained their importance as hybrid work solidifies, and the creative repurposing of secondary office buildings are bridging the gap in industrial land and residential demand.”
The report shows new office supply across the Thames Valley and Surrey remains static with a lack of new developments and stable take-up. New occupier entrants have replaced downsizers.
There remains very limited supply of Grade A stock across the board, particularly in Surrey, despite it being what occupiers are demanding. In Reading and Maidenhead, super prime supply makes up a large part of the take-up figures across the Thames Valley although there remains good levels of both Grade A and B stock availability.
Reading has the largest overall supply which is holding back rental growth. Stock in the town is largely dominated by Grade B and the polarisation of rents between super prime, Grade A and B is growing. The report suggests this could lead to repurposing of many Grade B offices.
Headline rents for super prime stock remain high although the office rental market is generally underpriced and rents have reduced in real terms. However, rents in general remain high in Oxford, with Woking and Guildford showing competitive rates – which are still rising.
New industrial developments in Didcot, Slough, Uxbridge and Thatcham are leading market rental growth but, in general, there remain good prospects for further growth across the Thames Valley when compared to other locations.
Reading, with a higher percentage of secondary stock on the market, has seen lower rental growth in H1.
The sectors driving rental increases through occupier demand include life sciences and tech/data centres.
Vail Williams says, for astute investors, there is an opportunity to repurpose assets to take advantage of the demand for lab space.
Rent on one redeveloped out-of-town unit more than tripled from £17 per sq ft for retail to £65 per sq ft for the resulting lab space in Oxford. Occupiers are prepared to pay a premium for lab space, particularly there.
However, the development pipeline across the Thames Valley and Surrey continues to be challenging due to construction costs, interest rates, inflationary pressures and a narrowing gap between what vendors seek to achieve and what occupiers will pay.
David added: “A lack of industrial supply remains a core issue across the Thames Valley and Surrey regions but deals are still being done here and we are welcoming some quality schemes to market with open arms. The overall theme in industrial terms is ‘build it and they will come’.
“Landlords and investors are identifying the right microclimate in which to invest to deliver the right product to meet tenant requirements, while also delivering a good return on investment. And developers are starting to see improvements in viability for their schemes.
“Overall, this is a moment to harness change, turn potential hurdles into stepping stones and shape a more dynamic and resilient future.”
Read the full Vail Williams report here.
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