Thames Valley: LSH releases Q3 2014 Thames Valley Office Market Report

National commercial property consultancy Lambert Smith Hampton (LSH) has released its Q3 2014 office market statistics on the Thames Valley.  Key findings show that enquiries, demand and supply saw a return to normality following the volatility of the previous 18 months.  The ratio of Grade A office space is increasing due to new speculative development schemes, and strong activity continues in the investment market.

Nick Coote, head of Thames Valley, explained: “We are beginning to see take-up increase after a very slow start to 2014. The increased level of enquiries in Q2 and Q3 has fed through into better levels of take-up in Q3 and this will, we think, follow through into Q4 as well.

“Our forecast for a year-end outcome is circa 1.5/1.6m sq ft, down 1m sq ft from 2013’s result, but in line with the annual rates of take-up prevalent before 2013. We will be looking to see if this represents the ‘norm’, or maybe we will see a return to higher levels (as seen in 2013) of take-up, through 2015.

“The investment market continues to be robust, with transaction values running at 14% higher than during the same period in 2013.”

Report in full

Enquiries
· Enquiries in Q3 2014 were slightly higher than in Q3 2013.
· Overall total enquiries in 2014 are now broadly the same as in 2013, after a very slow start in Q1 (lowest recorded), a pick-up in Q2 (highest recorded) and this quarter at a normal level.
· Unsurprisingly take-up tends to follow enquiry levels with a typical three-to-six month delay (Q2 take up very low, Q3 much improved).

Demand (take-up)
• Office demand (take-up) in 2014 has been disappointing compared to the levels seen in 2013, which totalled 2.46m sq ft, 56% higher than take-up in previous years which hovered between 1.6/1.75m sq ft.
• Q3 2014 produced a take-up total of 446,000 sq ft, a much more respectable figure than that seen in Q1 and Q2 this year. It still does not hold comparison with the 2013 Q3 total of 1m sq ft.
• Total take-up to the end of Q3 2014 is 980,000 sq ft, compared to 1.95m sq ft by this time last year. A year-on-year comparison shows a fall of some 50%.
• We expect Q4 take-up to show some more improvement so our year-end forecast for total take-up is 1.5/1.6m sq ft. This will be back to what may be described as the modern norm (ignoring last year’s bumper total).

Supply
Total supply at the end of Q3 2014 was 10.02m sq ft (2013 – 10.23m sq ft), of which 32% was Grade A (2013 - 27%). This increase in Grade A is reflective of new speculative development schemes in the Thames Valley.

Investment update Q3 2014
• The value of investments transacted in the Thames Valley during Q3 2014 totalled £526.40m, which is a significant increase on Q2 2014 (£218.74m) and is also in excess of the same quarter in 2013 (£461m).
• We anticipate Q4 returning similar positive results based on the current position of in excess of £93m of transactions currently in solicitors’ hands and a further £580m being marketed.
• 22 transactions have completed in the quarter, with an average deal size in excess of £23m, highlighting that the demand has principally come from the UK institutions and overseas.

Significant transactions in Q3 2014
Building
Size (sq ft)
Rent (per sq ft)
Lease
Flow One
42,756
£33.00
10 year lease with confidential terms
93 Milton Park
42,506
 
Confidential
Bridge House
40,600
£27.00
10 year reversionary lease commencing March 2015 with 19 months’ rent free
Geneva House (ground and 1st floors)
28,340
 
5 year sublease with mutual 2nd year break option, with 6 months’ rent free and 3 month penalty if break option used
Flow Two
20,970
£33.00
10 year lease with confidential terms
Imperium
19,950
£20.00
2 years lease with a 12 month break option
90 Milton Park
16,733
 
Confidential
1 Waterside Drive
16,386
£100.00
Sold to owner occupier
Spires House
14,130
£19.50
10 years with 5 year tenant break and 18 months’ rent free
Minton Place
13,358
£25.50
10 years with 18 months’ rent free
Highlights include:

• Aberdeen Asset Management is currently disposing of One Reading Central, which is multi let with a WAULT of over 9.5 years for £88m, reflecting a net initial yield of 6.75% and a capital value per sq ft of £400.
• Aviva acquired Hunton House in Uxbridge, an office let to British Alcan Aluminium with a WAULT of 12.3 years. The property sold in September for £10,750,000, reflecting a net initial yield of 5.67% and a capital value per sq ft of £433.
• Market House in Maidenhead was sold in July by Gatehouse Bank to Tesco Pension Fund for £38.8m, reflecting a net initial yield of 5.36%. The property is let to Adobe Systems for a further nine-year's term certain with a further 25,346 sq ft currently vacant.
• Melford Capital has brought the Rackspace City Campus in Hayes to the market. The 340,000 sq ft 10-acre office development is up for sale for £120m, reflecting a net initial yield of 7%.