A key theme of this year’s report is a warning that a fall-off in development comes at the same time as “major transport infrastructure changes, regional consolidation, advances in technology and the region’s increasingly sophisticated skills base are all working together to alter the conventional market dynamics”, creating voids.
2018 has proven resilient so far, LSH said, across the Thames Valley but the agent reports that there is also “a pattern of profound structural change, and this is arguably the most important long-term consideration for landlords and investors”.
2018 has continued on from the relatively steady performance of 2017, with take-up of 342,000 sq ft in total, LSH reports. That said, the number of deals in Q1 was down notably on the same quarter in 2017.
LSH said Grade A take-up has been the main focus of activity, making up almost 90% of activity. There has been above average take-up levels in the Reading, Slough, Staines and Uxbridge markets.
TMT has been the major driver of activity, accounting for one third of total take-up across the Thames Valley over the past year. Pharmaceuticals, medical and healthcare and professional services have been the next most active sectors over the last year, with 14% and 13% of total take-up respectively.
LSH said an interesting development has been the rise in activity from serviced offices providers. While they accounted for only 7% of total take-up in 2017, “take-up has been negligible over the years previously”, it writes.
Overall supply in the Thames Valley fell once again in 2017, a sixth successive year-on-year reduction since 2011, LSH writes.
It adds: “Total supply was approximately 7.2m sq ft in 2017, down from 9m sq ft in 2016 and far removed from the peak level of 11.5m sq ft in 2011. This is equivalent to four years supply based on the long-term average take-up rate for the Thames Valley.
“Meanwhile, the share of grade A space as a proportion of total supply has steadily increased. In the early part of the decade grade A supply was less than 30% of total supply. By 2017 this figure had increased to over 50%.”
LSH reports that the improved quality of supply has helped ensure the market is delivering space to meet the needs of occupiers but issues a warning that the reduction in office supply is creating shortage issues for a number of locations with Newbury, Oxford, Blackwater Valley, Bracknell and Staines all facing less than three years supply based upon LSH’s measurement of long-term take-up rates.
Alternatively LSH points out that this is not true of all locations with notably Slough and Uxbridge having potentially more than seven years supply. As a caveat LSH reports that these headline figures often “mask the nature of the supply position in these two centres, with Slough, for example, seeing investor confidence driving supply delivery based on expectations associated with the Elizabeth Line”.
LSH predicts that take-up in 2018 is likely to be “at least as strong as in 2017”.