FRESH PERSPECTIVE: David Barden, Vail Williams Regional Managing Partner, Thames Valley, says the office and industrial markets in the Thames Valley, Oxford and Surrey region are facing a time of change, but this can shape a more dynamic and resilient future
Office market confidence is returning across the Thames Valley, Oxford and Surrey but a lack of new industrial supply remains a core issue for the commercial market.
Property consultancy Vail Williams has produced a comprehensive report on the commercial property market across the region.
David Barden, Vail Williams Regional Managing Partner, Thames Valley, said: “A new government has brought with it a fresh perspective and we are already seeing the positive impact of this on the office and industrial markets.
“Stabilised interest rates have invigorated the property market. Offices have regained their importance as hybrid work solidifies, and the creative repurposing of secondary office buildings are bridging the gap in industrial land and residential demand.”
In the office market, occupiers committing to a hybrid future have boosted the level of office transactions and the continued flight to quality has seen most super-prime and Grade A+ stock attract those early adopters of a return to the workplace.
Office supply across the Thames Valley and Surrey remains static with a lack of new developments and stable take-up. New occupier entrants have simply replaced those downsizing their space requirement.
There remains a very limited supply of Grade A stock across the board, particularly in Surrey, despite that being what occupiers are demanding. In Reading and Maidenhead, super prime supply is a large part of the take-up figures across the Thames Valley, however, there remains a good level of Grade A and B stock here.
Reading has the largest overall supply which is holding back rental growth. Stock in the town is largely dominated by Grade B stock, and the polarisation of rents between Super prime, Grade A & B is growing. This could see a significant portion of the Grade B office supply in Reading repurposed for alternative uses.
Headline rents for super prime stock remain high across the board but the office rental market is generally underpriced and rents have reduced in real terms. However, rents remain high in Oxford, with Woking and Guildford showing competitive (if rising) rates.
In the industrial market, there remains a lot of optimism across the Thames Valley, Oxford and Surrey in spite of the fact that the logistics and e-commerce markets are now at the consolidation stage.
New industrial developments in Didcot, Slough, Uxbridge and Thatcham are leading market rental growth, but in general, there remain good prospects for further rental growth across the Thames Valley when compared to other locations.
Locations such as Reading, with a higher percentage of secondary stock on the market, have seen lower rental growth in H1.
The sectors driving rental increases through occupier demand include life sciences and tech/data centres.
For astute investors, there is an opportunity to repurpose assets to take advantage of the demand for lab space – rent on a converted out of town unit tripled from £17 psf for retail to £65 psf for the resulting lab space in Oxford. Occupiers are prepared to pay a premium for lab space, particularly in Oxford.
However, the development pipeline across the Thames Valley and Surrey continues to be challenging due to construction costs, interest rates, inflationary pressures and a narrowing gap between what vendors want to try and achieve and what occupiers want to pay.
David added: “A lack of industrial supply remains a core issue across the Thames Valley and Surrey regions, but deals are still being done here and we are welcoming some quality schemes to market with open arms. The overall theme in industrial terms is ‘build it and they will come’.
“Landlords and investors are identifying the right microclimate in which to invest to deliver the right product to meet tenant requirements, while also delivering a good return on investment. And developers are starting to see improvements in viability for their schemes.
“Overall, this is a moment to harness change, turn potential hurdles into stepping stones and shape a more dynamic and resilient future.”
- Read the full Vail Williams report: https://explore.epigram.co.uk/vail-williams-vw-insider/
