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Thames Valley Commercial Property News - Friday, February 9, 2018

Issue #59


Thames Valley News

A more cautious mood has crept into the commercial property market in the region as the economy slows and problems of a shortage of stock undermine some towns.

Even so, most forecasters view the market as sound with a good level of demand but also feel that major changes in the economy will have an effect on the outcome.

Of specific interest to the high tech companies in the Thames Valley are the pressures on business to invest in new computer and information systems in the face of sophisticated cyber attacks. There is also the challenge for logistics and distribution companies of the shift to online buying, though this may surprisesomebyreachingasuddenpeak.

Mark Clancy of London Clancy said of the M3/M27 corridor that: “2018 will be a challenging year but also one for optimism given the surprisingly strong resilience and outperformance shown during the past 12 months”. He is not concerned about the impact of Brexit on the region but feels it may help if “if the way forward becomes more clear”.

Clancy anticipates that the shortage of industrial/logistics and office stock will put pressure on rents, with the upper part of the region reaching £118.36 a sq.metre (11 psf) for industrial property and £258.24 a sq.metre (£24 psf) for offices in Basingstoke. The shortage of stock has brought forward some schemes and Clancy suggests a good market for these, such as at the ITT/St Modwen scheme at Junctions 6 and 7 of the M3 at Basingstoke, an 11.3 acre site for up to 20,903 sq.metres (225,000 sq.ft.) of B1, B2 and B8 space, subject to planning.

Expecting continued capital growth and an investment market buoyed by low interest rates, Clancy cites the purchase of business parks in Farnborough, Basingstoke and Camberley by the Fraser Group for £359 million.

“It will be a year of continued confidence and investment in our region”, Clancy said. Bracknell is a good example of a town that had a good showing in 2017 and expects to continue on the same path, particularly as the available space has declined.

Examining the broader picture for the UK, Savoy Stewart said: “Last year was considerably stronger than many anticipated.

The economy pleasantly surprised many businesses and forecasters with unemployment falling to the lowest level since 1975, consumer spending robust and occupier take up healthy”.

It expects a healthy investment market this year with investors spending £55 billion.

Managing Director Darren Best said: “Our research suggests that now is the best time to purchase commercial property in the UK, now that business confidence is more stable than many expected, which speaks volumes”.

MORE stability

Thames Valley News

Broadly speaking, Colliers International considers that performance in the Thames Valley will be moderate as pricing remains pressured and rental growth modest.

It adds that “on the upside the market will become less volatile, offering attractive, stable returns for investors”, said Mark Charlton. He believes the competitiveness of Sterling will attract new entrants to the investment market which will top £50 billion.

As far as the Thames Valley is concerned, the Colliers International analysis points to a development potential that will result in new Grade A properties. The argument is that the search for yield will draw investors towards non core locations and regional markets but also that industrial property will be the top performing sector.

Of some significance is that Colliers International expects UK institutions to become net purchasers of property after some years of being sellers, and that must mean something in their favourite Thames Valley towns such as Maidenhead, Reading, Slough and Bracknell. One interesting point made by Colliers International that applies to the Thames Valley is that the competition between industrial and residential developers for sites will lead to the first truly integrated mixed use scheme between the two this year. To be fair, that was normal in the 19th and early 20th centuries.

Walter Boettcher of Colliers International summarised the Brexit influence by saying: “While official Brexit negotiations have floundered, investment in the UK property markets has, by and large, continued to press on with business as usual.

This has been, and will continue to be, driven by the sheer weight of capital with global institutions targeting 10% plus allocation to real estates, equivalent to around $5 trillion”

ANOTHER foreign deal

Thames Valley News

Confirming the broadening of foreign investment throughout the country, the Singapore-based Frasers Centrepoint is expected to purchase Farnborough Business Park for around £170 million with a yield of 7%.

The 51,467 sq.metres (554,000 sq.ft.) park is owned by Harbert and XLB and is on the former defence and aircraft testing site. It was put on the market through CBRE in June 2017. They paid SEGRO £80 million for it in 2012 when the vacancy rate was 24% (it is now full) and have sold some of the 18 acres of development land that came with it.

The partnership also speculatively developed 9,290 sq.metres (100,000 sq.ft.) on its own behalf - so a good deal for them. The deal would bring Frasers’ total spending in the UK to over £900 million, mainly on business parks such as the five it is buying from Oaktree Capital Management and Patrizia.

Three of those parks are in the Thames Valley at Chineham Park, Basingstoke, Winnersh Triangle, Reading and Watchmoor Park, Camberley.


Thames Valley News

Sorbon Estates, the commercial property investment arm of the Shanly Group has purchased Reading Link Retail Park for £16.3 million.

Reading Link Retail Park, which extends to 6,423 sq.metres (69,139 sq.ft.) on a 6 acre site fronting the A33 is home to companies such as Magnet, Poundworld, Matalan and Iceland Foods and has become a popular shopping destination following its partial refurbishment and introduction of new tenants.

Sorbon plans to actively manage the property with a view to extending it and introducing new uses.

Sorbon’s Mark Allaway said: “Reading, in particular the southern area along the A33 corridor, is seeing exponential growth in both commercial and residential development and investment. The £900 million improvement to the station and the imminent arrival of Crossrail will strengthen its appeal”.

He added that with the passing rents of £13-£16 per sq.ft., there is rental growth potential and the opportunity to expand further.

Buckinghamshire based Sorbon is actively growing and diversifying its commercial property portfolio in the Home Counties, with other recent acquisitions in Henley, Weybridge, Thame and Maidenhead.


Thames Valley News

Among the proliferation of year ahead forecasts, Colliers International reports a mixed picture for the south east office market with slowing demand but a rise in investment although they did expect a spurt in the last quarter of 2017 on the basis of the amount of space that was under offer. The third quarter of last year saw investment in south east offices double to £1.75 billion.

On the other hand, Real Estate Strategies is expecting five tough years with office values declining by 8% because of dwindling demand.

It adds to the gloomy picture by expecting returns at 3.2% between now and 2021. Some agents are reporting increased incentives by landlords, but that does not appear to be true in the Thames Valley.

In this mixed picture, Slough stands out with a 19% hike in rents to £365.84 a sq.metre (£34 psf) putting it on the same level as Maidenhead and Reading. Colliers International ’s Mark Emburey said that a significant number of deals are coming through lease events.

West London saw a surge in lettings in the final part of 2017 with solid take up in Ealing and the White City and strong demand in Hammersmith.

New unit FOR SEGRO

Thames Valley News

SEGRO plc (SEGRO) has now completed the first phase of its development at SEGRO Park Bracknell, a 17 acre site.

The first unit to be completed is a speculative 8,361 sq.metres (90,000 sq.ft.) urban logistics unit which fronts the A3095 dual carriageway and provides exceptional access to the M3 and M4. It has 7,097 sq.metres (85,000 sq.ft.) of industrial and logistics space and 427 sq.metres (4,600 sq.ft.) of office space in the core employment area of Bracknell.

The site also has planning consent for two light industrial units or logistics units of 5,574 sq.metres (60,000 sq.ft.) and 288 sq metres (31,000 sq.ft.) respectively.

The remaining three plots on the site offer the flexibility to design and build new industrial or trade counter units up to a total of 14,400 sq.metres (155,000 sq.ft.) in a range of configurations.

SEGRO’s Paul Lewis said: “Bracknell is one of the South East’s most compelling locations for industrial and logistics space, benefiting from exceptional motorway connectivity and an abundant workforce. We are seeing strong demand for the completed unit and we look forward to embarking on the next phases of construction in due course”.


Thames Valley News

Seldom can a regional market have so much to celebrate as is true of Reading in achieving record rents, a record forward funding deal and top level year of take up.

That is the message from Haslams after last year’s record rent in excess of £118.36 a sq.metre (£11 psf), with trade counters even better than that, and take up of 60,322 sq.metres (649,325 sq.ft.),was 31%above the five year average.

Even more impressive is that Haslams reckons that take up would have been even higher if not for the lack of stock, particularly for medium and smaller units.

Naturally enough the agent anticipates that rents will continue to increase this year because of the endemic problem of a shortage of stock together with strong demand, which is being led by distribution space for e-retailers.

There is more to come from those that have been slow to adapt to this demand factor. Among the major lettings was a warehouse to Argos at Island Road, south of Reading which is close to Peel Logistics’ big scheme.

This location is also attracting new developments. Other major projects in the pipeline are Kier with a trade counter (a speciality of theirs) and Aberdeen Standard at Suttons Business Park as well as McKay at Theale Logistics Park.

Even so, the chances are that supply, which Haslams puts at 63,376 sq.metres (682,199 sq.ft.), will shrink further, particularly as a substantial part of the availability is in one large building at Island Road.

Interestingly, the record levels of business were not reflected in the investment market which had seen a record in 2016, apart from the forward funding by Exton Estates with Equities Property Fund of South Africa with an interest rate of 4.25% (which Haslams believes is a national record).

Haslams considers that manufacturing could play a larger part in the market with the push for electrification of vehicles and driverless cars. Also playing a major part this year is the competitive rate for Sterling which should encourage foreign investors into the region. Otherwise Haslams sees 2018 as a period of rising rents, consolidating yields and slow progress on new developments, hindered by a shortage of land.

It is a landlords’ market with declining incentives and pressure on potential occupiers to take longer term leases with 10 years becoming more common.

LIFE SCIENCES set the pace

Thames Valley News

Another positive voice for a firm market comes from Savills that predicts companies will have to make decisions about their real estate needs in 2018, having held back recently.

Looking ahead, Savills believes that the life sciences sector will see significant take up as demand remains strong and the sector faces renewed focus as part of the UK government’s new industrial strategy. Indeed, the largest requirements in the market are from this sector, such as Sanofi, Merck, UCB and Novartis.

Savills’ Jon Gardiner said: “We are confident that larger corporate occupiers will resume making decisions in 2018 and commit to new space”.


Thames Valley News

The popularity of the business parks in Oxfordshire continues unabated in attracting high tech companies.

At MEPC’s Milton Park there is an initiative to bring in a green travel plan to help companies to inspire their employees to make travel changes by bringing in consultants to advise businesses. The measures include a free bike loan scheme, upgraded car sharing, more electric car charging points and the creation of the Milton Park Travel Forum.

MEPC’s Philp Campbell said: “Our green travel plan is all about helping people who can change the way they travel here to do so”. This, of course, fits the image of high tech companies in the region.

Oxfordshire business parks generally are popular with high tech companies.

An example of this is Rezatec, a geospatial data analytics company, that is relocating within Harwell Campus and into the new Quad One building which completes this year.

The company’s technology allows businesses to make decisions about their land based assets through the analysis of complex Earth Observation imagery and data.

William Cooper of Harwell Campus said: “Rezatec is an important asset to us within the space cluster at Harwell. The success of the cluster has brought the ‘Harwell effect’ which we are using as a model to create new clusters in the HealthTech and EnergyTech sectors”.

Retailing in Oxfordshire has been given a fillip with the opening of the Westgate in Oxford, designed by Chapman Taylor, the largest new shopping centre to open in the UK this year. It is a joint venture between Landsec and the Crown Estate.

The 74,320 sq.metres (800,000 sq.ft.) is anchored by a John Lewis store and has a range of blue chip retailers.

It has the city’s first public roof garden and a range of eating places.

Phil Durrans of Chapman Taylor said: “The Westgate Oxford redevelopment is an exciting addition to the city centre, offering a unique world class shopping destination for the students, residents and tourists who visit the city every year”.

POPULAR Bracknell

Thames Valley News

Bracknell has performed well in the past few years with 2017 bringing an above average take up of 32,515 sq.metres (35,000 sq.ft.), said Simon Fryer of Fryer Commercial.

What is impressive is the way this year has started with 3,252 sq.metres (35,000 sq.ft) of offices let or under offer so far.

Fryer said “Supply is now down to 39,482 sq.metres (425,000 sq.ft.), or 7% of the stock. This should be seen in the context that the vacancy rate was 185,800 sq.metres (2 million sq.ft.) in 2008”.

That is a perfect illustration of the extent of the recovery in the Thames Valley since the financial crash. This has now brought higher quoting rents and these are moving up this year with Fryer putting the highest at £301.28 a sq.metre (£28 psf).

Not to be forgotten is that a proportion of the buildings sold have been for residential development, although Fryer suggests that some of these may not ultimately go for conversion.

What has also operated to the advantage of Bracknell is the opening of the Lexicon Shopping Centre and the improvement in rail services to Waterloo. Fryer points out that most of the major office buildings shared in the strong performance, notably Maxis, Greenwood, Columbia and One & Three Arlington Square.

The quality of the lettings is also impressive, such as Panasonic, Bracknell Forest Homes and a host of technology companies including Snow Software and Software AG.

The largest building on themarket at the moment is the refurbished 9,290 sq.metres (100,000 sq.ft.) Atrium Court, three quarters of which is being marketed by Knight Frank and Fryer Commercial.

Colliers International said: “A lack of choice in Grade A space and a lull in the future pipeline supply in some towns such as Bracknell has resulted in a recent increase in occupier activity, with a strong emphasis for ‘best in class’ product. We have noticed that floor plates are having to work harder to retain and attract new occupiers, with building presentation and image also growing in importance”.


Thames Valley News

Developer Montreaux will be delivering an exciting, mixed use regeneration scheme on the 12.4 acre brownfield site known as Middlesex Business Centre.

The comprehensive redevelopment will deliver 2,000 much needed new homes, as well as 300,000 sq.ft. of new commercial, retail and community floorspace. The scheme will transform the existing, under-utilised site into a fantastic new destination around a public square. The proposals will importantly maximise the improved connectivity with the Elizabeth Line station and further strengthen pedestrian links to Southall Town Centre. Chief Executive, David Burke, said: “The site is in a highly convenient west London location, with excellent transport links, and a strong local economy and workforce.

Montreaux is well placed to unlock the potential for a first class mixed use scheme”.


Thames Valley News

Two new speculative buildings totalling 16,072 sq.metres (173,000 sq.ft.) have been completed by British Airways Pension Fund and db symmetry at Central M40, Banbury.

In the first phase, Prodrive Motorsport took 10,591 sq.metres (114,000 sq.ft.) while Hellofresh leased 21,832 sq.metres (235,000 sq.ft.) on a scheme which will eventually total 92,900 sq.metres (1 million sq.ft.) on a 70 acre site.

Harry Sadleir of db symmery commented: “Central M40’s location alongside the M40 corridor provides national operators with a highly prominent site and access to the wider motorway network”.

InBrief #1

Thames Valley News

Eynsham Hall, a Grade II listed country house hotel with 135 bedrooms, is being marketed by joint agents Christie & Co and Nick Sweeney. There is planning consent for another 80 bedrooms and conference facilities. It has been developed by Richard Upton, co-founder of Cathedral Group, who said: “We have taken the Hall to a new level of turnover and profitability but there is a lot more potential for this magnificent hotel”.

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