The Reading office market continues to see steady, if unspectacular, activity in the second quarter of 2017, according to property consultants Hicks Baker’s latest report. After a modest start to the year in which only 82,000 sq ft was transacted in Q1, the three-month period to June shows little change of pace although there is the prospect of further deals on the horizon.
According to Hicks Baker, the most notable event in the market over the last period has been the completion of the much heralded Thames Tower development which reached practical completion in April. This has enabled a number of negotiations to come to fruition. Austin Fraser’s and HSBC’s acquisitions of the 11th floor and part of the 7th floor respectively have been quickly followed by BDO’s signature on the 14,040 sq ft 12th floor. Hicks Baker advised BDO in this transaction.
At the time of writing, Austin Fraser and BDO represent the two largest office transactions in Reading town centre so far this year, closely followed by Workday’s recently announced acquisition of 13,315 sq ft at The White Building on Kings Road.
As a result of the latest development cycle, approximately 850,000 sq ft of new Grade A office stock in the Reading office market has been delivered within the last six months or is under construction. While there is momentum on some buildings, deals have proved more difficult on others and this is reflected in market sentiment which sums up activity as ‘patchy’.
At Thames Tower, the developers Landid and Brockton have also secured pre-lets for their ground floor A3/retail space, with Pret and Kupp gearing up to open for business in the next few months. The White Building on Kings Road has also seen good activity with the Workday deal adding to transactions with Carbon Black (5,400 sq ft) and previously reported lettings to Herjacvec, Pharmacosmos and Work.Life. The only other transaction of note in the town centre has been the letting of 12,567 sq ft at R+ to Macquarie Bank.
Rents in the town centre are nevertheless holding up well; headline figures before incentives range from £34 to £37 per sq ft at Thames Tower, £33-£35 per sq ft at The White Building and £36 per sq ft at R+.
The out-of-town market takes the prize for the largest office deal so far, with Nokia signing on 33,000 sq ft at The Hive in Theale at a reported rent of £27.50 per sq ft. However, volumes generally have been lower on the out-of-town business parks, with only two further deals at Green Park in the 6,500 sq ft to 8,000 sq ft bracket.
A number of trends has emerged
1. The buildings with real ‘momentum’ in the market are those finished with exposed services. This is now on trend, not only for IT and media sector businesses but also to professional and financial services companies such as BDO and the banks. Thames Tower and The White Building both offer this style of finish and this has also been replicated on a smaller scale at Forbury Works and One Valpy Street.
2. There is a definite trend towards greater workplace flexibility and Reading is attracting more providers of serviced/managed offices and co-working space. Chadwick Business Centres acquired the vacant 20,398 sq ft 40 Caversham Road building and is currently fitting-out to commence operation in July. Similar co-working space is being provided as part of the offer at The White Building; Landid and Brockton have similar aspirations for at least one floor at Thames Tower. It is also widely rumoured that Regus will shortly sign up on a significant amount of space in the town centre to launch its’ new Spaces co-working concept.
3. There continue to be substantial funds available for the purchase of older office buildings for conversion to residential, either with the benefit of a full planning consent, or under Permitted Development Rights. Hicks Baker sold 300 Kings Road, a largely vacant 33,000 sq ft building on an unconditional basis in under six weeks. Similarly, Clarendon House, an 18,000 sq ft office building on Kings Road has recently sold at nearly double the guide price after generating a huge response – a reported total of 45 bids.
4. Finally, returning to the occupier market, the current shift towards smaller lettings shows no sign of abating. Apart from the Nokia deal and a limited number of negotiations in the pipeline, the dearth of major requirements from corporates is marked and this reflects a generally more cautious approach which may trickle down to SMEs with more modest requirements. With the UK election regarded by many as a foregone conclusion, this is not, in our view, a factor slowing the market down. There are, however, greater economic uncertainties which may suppress any radical upturn in office take-up figures in the second half of the year.