Thames Valley: LSH property overview shows quiet third quarter
The latest report from Lambert Smith Hampton (LSH) shows that the Thames Valley office market has experienced a quiet third quarter in terms of transactions. Office enquiries (over 5,000 sq ft) have totalled 109, down against a spike of 175 in the same quarter last year but broadly in line with the long-term quarterly average. Take-up in Q3 2016 was 294,520 sq ft, 34% below the 444,976 sq ft transacted in the previous quarter and 65% down in comparison to Q3 2015. 52% of take-up in Q3 2016 was grade A, compared with 45% in Q2 2016.
Nick Coote, head of the Thames Valley for LSH, said: “Take-up in Q3 has been very disappointing and reflects the reality that the market seemed to hit the pause button during the Referendum. We now will see how much of a bow wave has been created to occupier demand as post-vote we are faced with a new reality but one still tinged with uncertainty. Q4 will demonstrate how much the uncertainty as to future Brexit arrangements will impact office demand”.
Charlie Lake, director of capital markets for Lambert Smith Hampton, added: “Given the UK’s decision to leave the EU and the resulting period of uncertainty, we expected investment activity in Q3 to be more subdued than in previous quarters. However, it will come as a surprise to many that total transactional volumes in 2016 have already exceeded 2014 levels and we forecast to be within 10% of the record 2015 total by the end of the year.”
At the end of the third quarter, total take-up stands at 1.26m sq ft. This means that LSH is maintaining its previous forecast (end of Q2) of between 1.5 million and 1.8m sq ft of total take-up for 2016, significantly below the 2.08m sq ft recorded in 2015.
So far in 2016, there has been 330,273 sq ft of activity in Reading, representing 26% of all take-up in the Thames Valley. With known ongoing interest and transactions, LSH expects this position to strengthen in Q4.
Total office supply in the Thames Valley at the end of Q3 2016 stands at 9.13m sq ft, 4% down against the end of Q3 2015. The proportion of grade-A supply is now 50% of the total, compared with 45% in Q3 2015.
Supply has increased to 7.23 years of supply overall, compared with 4.5 years of supply at the end of 2015. Grade A years of supply has slightly risen from 3.16 years to 5.83 years between Q1 and Q3 2016 – a consequence of the poor take-up levels seen in Q3.
The value of investments transacted in the Thames Valley during Q3 2016 totalled £452.25m across 11 transactions. The most notable of the quarter was the sale of the BP Campus in Sunbury to Spelthorne Council for £360m, which makes up 65% of the total volume. The overall figure represents a decrease on the Q2 total of £761.83m, albeit 70% of this was attributable to the £526m sale of Green Park in Reading.
Other large transactions were Columbia Threadneedle competing the sale of Wey House, a single-let office building in the Guildford Town Centre to the Guildford Borough Council for £22.65m, equating to a net initial yield of 5.10%.; High Wycombe Borough Council buying Sword House in High Wycombe for £6.6m equating to a net initial yield of 5.88%; and Schroders completing the sale of One & Two New Century Place in Reading for £10m at a net initial yield of 8.50%.
There was a noticeable decrease in the availability of office investments, as well as transaction activity, in July and August after the UK Referendum, a period in which investors had to adjust to a more uncertain market landscape. However, since the summer break, September alone saw over £121m worth of office investments being launched in the Thames Valley, a significant increase in market activity from the months prior.
The total transaction volume in the Thames Valley for 2015 was £2.065 bllion, compared to a 2014 total of £1.225bn. Total transaction volume for the 2016 year to date stands at £1.44bn, with approximately £120m of property under offer and a further £333.5m of current availability.
Based on these figures, LSH forecasts the total 2016 transactional volume to reach close to £2bn, which it said may come as a surprise given the challenges the market has experienced in the year to date.
Credit: Co-Star
