There is approximately 9.5M sq ft of office space on the market across the Thames Valley and Surrey region, the majority of which is large 100,000 sq ft plus schemes such as Tempo in Maidenhead, Campus and Here + Now in Reading, as well as Botanica, Ditton Park, Slough.
However, availability of the latest generation Grade A or Cat A + space is beginning to dwindle across the region, as there is limited planned new development in the pipeline.
The risk premium of rising construction costs, higher finance rates, softening yields and economic uncertainties may curb development further, meaning that refurbished Grade B space will start to fill the gap.
Following recent departures and downsizing across the Thames Valley region, particularly in the TMT sector, we could see the return of ‘grey’ stock into the market, where second-hand space now dominates.
This will come in locations traditionally tight on supply including Green Park, where Bayer have released 40,000 sq ft, Thales and Thames Valley Park.
At the latter, Microsoft’s former HQ has been reimagined as an exciting new destination renamed ‘Here & Now’ with the highest environmental credentials targeting BREEAM Outstanding, Fitwell 3* as well as RESET Air certifications.
Reading development and refurbishment remains strong, with work underway at Station Hill, and quality space delivered at our new home, Apex, as well as the campus development bang on Junction 11, M4.
Slough, which is set to benefit from the opening of Crossrail, has several key developments which will deliver quality office space, including the mixed-use redevelopment of Queensmere Shopping Centre and Muse’s North West Quadrant, where we are advising on up to 500,000 sqft of commercial space.
Following Segro’s acquisition a 957,988 sq ft portfolio of offices on the Bath Road, we will see the 39-acre development converted into a global cluster for data centres, creative industries, life sciences as well as industrial uses.
There is approximately 244,000 sq ft of quality office space available in and around Weybridge, with just under 120,000 sq ft of Grade A stock in Guildford – which has fast become a gaming hotspot.
Woking, meanwhile, continues to steal Guildford’s office thunder, where Grade A office availability sits at just under 230,000 sq ft. However, this is slowly diminishing as a result of its position as a key office market in the south-east, where Woking Borough Council has played a significant role in accelerating office success, alongside significant investment in public realm.
Supply of quality space in Maidenhead continues to rise, with Legal & General’s 120,000 sq ft refurbishment at Tempo due to complete early in 2023. This is set to absorb much of the demand for upgraded accommodation in the town, where higher environmental credentials and inbuilt amenities are now being requested. Meanwhile in Staines and Chertsey, there is around 215,000 sq ft of office space, significantly down on 12 months ago.
Out of town
We are starting to see a polarisation in the office market, and not necessarily the tradition in town vs out of town dynamic, but more to do with the quality of space being offered.
There is an increased divergence between those buildings that have been invested in and have strong fundamentals such as location, parking, amenity, quality of finishes, vs those in secondary locations that are under-invested in.
Those business parks that are under single ownership are excelling, as they continue to offer engaging workplaces with annual calendars of events for employees to enjoy – from Winnersh Triangle and Green Park in the Thames Valley to The Heights and Bourne Business Park in Surrey.
However, at the other end of the market we are seeing business parks under multiple ownership struggle to compete in the race to offer such ‘corporatality’.
Some of these are ripe for alternative uses, such as industrial development to help stem regional demand.
Second-hand offices on business parks without a strong amenity such as Maidenhead Office Park are likely to be recycled for alternative uses such as industrial redevelopment and residential.
At the other end of the scale, following their acquisition of The Heights at Brooklands in Surrey, Kennedy Wilson invested in a comprehensive refurbishment programme, enabling them to answer to the flight to quality that was being seen in the occupier market.
Bourne Business Park is another Surrey location which has experienced a surge in lettings. We recently acted for Page Group who have chosen to remain there, taking 7,500 sq ft thanks to the quality of office space and onsite amenities on offer.
Foundation Park in Maidenhead has also had a series of successes, including defence contractor Ultra Electronics’ 56,000 sq ft off plan pre-let.
Pre-lets will become more of a feature as companies demand the best-in-class space with the very latest tech features and environmental credentials, however some of this is constrained by the limited office development pipeline across the south east.
We expect a further ‘development drag’ as rising interest rates and increasing construction costs delay new development and refurbishments coming forward, as financing pressure increase, affecting development appraisals.
Will businesses be able to absorb costs and risk by paying a higher rent per sq ft rate? Downsizing and condensing space, sometimes by 40-50%, might allow some companies to reduce their overall operational costs whilst still paying a higher rent for better quality office space.