Thames Valley: JLL optimistic about post-Brexit property prospects
Real estate investment management company JLL has pronounced West London and the Thames Valley’s prime office occupier and investment markets well placed to perform robustly in the face of the uncertainties caused by the UK’s move towards Brexit.
The optimism, based on a wide-ranging review of the region’s recent performance and make-up, reflects the region’s global connections and clustering of growth sectors.
JLL noted that first-half take-up figures are down 25% year on year at just over one million sq ft in the year to date, with the likelihood that they will come in well below the 2.3m sq ft 10-year average over 2016. The too,prime headline rents are up 7.1% year on year and JLL is revising its forecasts to show a flat-lining in growth in the coming months.
Nevertheless, JLL said that despite the notable falls in take-up levels and numbers of transactions this year, thanks in part to the uncertainty surrounding the EU Referendum vote, it has a “robust outlook” for the region. This optimism is thanks to the diverse occupier base. The latest findings show that the US and UK occupier parentage makes up respectively 38% and 33% of recent take-up, while only 22% of occupiers have European parents located in the region for their UK headquarters.
James Finnis, head of South East office agency at JLL, said: “Though take-up levels of office space are low and will remain low for the balance of 2016 and into 2017, the West London and the Thames Valley offer is strong.
"It has a good selection of high-quality speculative developments, a highly-educated mobile demographic, powerful clusters of growth sectors, and global connectivity through two international airports, all of which makes it a popular location for companies from around the world. The resulting diverse occupier base means that the region is less exposed to macro-economic political downside risks.
“Infrastructure developments such as the impending Elizabeth Line, the M4 becoming a Smart motorway and, in due course, the Western Rail Link to Heathrow will prove increasingly attractive with occupiers, as will the region’s lower total occupational costs compared to central London.”
JLL’s findings highlight consolidation as a key factor, with a move to greater efficiencies in occupation in prime buildings behind 40% of all deals. A clear example is Becton Dickinson, advised by JLL, which has consolidated its Oxford and Basingstoke offices into a new headquarters at Winnersh Triangle. Stark figures from JLL also reveal the impact of efficiency-drives on space requirements. A requirement for 1,000 people in 2008 would have needed a 108,000 sq ft building, while in 2015, through higher occupational densities and desk-sharing ratios, a 69,000 sq ft building would suffice - a 36% reduction.
Another key is set to be decentralisation as government and private sector companies come out of London.
The driving engine of the market remains sub 20,000 sq ft lettings, which proves the importance of building flexibility into multi-letting into developments.
JLL reports too that a combination of the explosion of Permitted Development Rights applications, and office and educational take-up has chipped away at supply to significantly low levels. Put together with a particularly low level of upcoming prime office development, it thus seems likely that from 2018 onwards the region could be facing a development pipeline gap, just as the Elizabeth Line opens across the region.
Noel Lander, director of South East office investment at JLL, observed that there is a marked lack of exposure to the EU in the region’s office investment market, with 88% of deal volume this year completed by overseas investors. Most notably, the four largest deals have come from Asian, Australian and Middle-Eastern capital which is attracted by the UK’s long-term property fundamentals and safe-haven status as well as by the falling value of sterling. £1.54 billion has been transacted in the first half of the year in the Western Corridor, 13% up year on year, and 39% ahead of the 10-year average.
Nonetheless, Angus Minford, another director of South East office investment at JLL, pointed out that: “There has been a significant reduction in the number of transactions due to Brexit, notably in Q2.”
Courtesy of CoStar
