However, external influences such as the war in Ukraine, lingering covid-19 ramifications, rising UK inflation and a shortage of industrial land are set to make this year a time of both opportunity and challenge.
This is revealed in the influential Thames Valley Property Market Report Q1 2022, compiled by regional specialists at property consultancy Vail Williams.
The report explores the latest trends across the region’s office and industrial market, as well as looking at changing occupier needs and how landlords/developers are delivering against these, evolving design, supply and rental tone, along with key transactions.
Vail Williams’ Reading-based Partner Guy Parkes, one of the report’s authors, believed businesses were now planning with more certainty, investors and developers were readying their assets for market and businesses were also thinking smarter and looking to make better use of technology to make their workspace leaner and greener.
He said: “The workplace is increasingly being recognised as not just a place to do work but also as a powerful tool to bring companies and customers together to enhance collaboration, learning and mentoring, as well as to attract and retain talent.
“With this in mind, 2022 could be the year that businesses bite the office bullet and commit to a future workplace strategy to meet their future needs, as well as those of their people and clients/customers.”
Guy said companies moving premises were taking 66 per cent less space on average than they once occupied but were willing to spend more on achieving the right space, as the flight to office quality continued.
Equal or lower overall spend achieved by taking less space has lessened the financial burden of moving, helping to facilitate and inform decisions to relocate.
He added: “A backlog of potentially nearly 3.8m lease events for 2021 and 2.55m sq ft coming up in 2022, could see a tsunami of office moves on their way, and the potential for over 800 transactions this year.
“More than half of tenants will have renewed or extended their leases short term while they took stock during the pandemic. This pent-up demand will certainly force the pace of office moves in 2022 as companies take the opportunity to right-size and re-calibrate the workplace.
“We expect more companies to revisit their accommodation plans to provide the best workplace to attract people, as the war for talent continues – particularly in the growing technology and pharmaceuticals sectors.”
Guy said a review of recent office deals completed in the Thames Valley revealed occupiers were paying on average nearly 40 per cent more in headline rents than their previous passing rent yet were taking around 30 per cent less space.
“Because occupiers are taking less space but with the same budgets, their money is going much further and they are prepared to spend more for a better standard of space. As a result, office rents in Reading, Reading outskirts, Watford and Windsor are all increasing, reaching £45 per sq ft. Category A+ fitted suites are attracting further premiums.
The industrial market remains hot, with demand for logistics, last mile delivery, film production and data centre space continuing well into 2022, says report co-author Charlie Nicholson, Vail Williams Partner, based in Reading.
He said: “The region continues to have its sector-based location pockets – laboratory, technology and R&D space at Harwell Campus, film production in Reading and data centres in Slough with industrial demand for all increasing significantly.
“E-commerce and last mile delivery demand remained high, and we do not see this changing as consumer habits continue to feed the industrial sector, with around a third of retail transactions now happening online. Demand for lab and R&D space soared, biting into traditional industrial and logistics locations such as Reading, Slough and Heathrow.
“The expansion of the film industry out of West London to the Thames Valley has been Internationally significant, with the likes of Longcross, Pinewood and Shepperton
Studios all benefitting from the major film studios basing productions in the UK.”
Charlie warned that with rising inflation impacting on build costs the market will need to see continued increases in rents to sustain the pricing of construction and the purchase of land, which may mean more rental hikes for industrial occupiers this year.
We are, however, beginning to see some businesses begin to be squeezed out of the West London and Heathrow/Park Royal markets towards the Thames Valley.
He added: “As ever, supply of land for industrial development remains a key challenge in the Thames Valley, putting pressure on both occupiers, landlords, investors and developers. Industrial land values are continuing to match, and in many areas exceed residential levels.”