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Oxford and Cambridge are both global hubs of innovation

Oxford Commercial Property Agency News

Oxford commercial property agency working with commercial landlords and tenants. Start-ups to established businesses. Office, retail, industrial and leisure sectors. 

Oxford and Cambridge are both global hubs of innovation

Amy Williams

In the recent article by Costar it looks at the changes in how offices are being occupied are structural and permanent and not cyclical and are creating a new reality which landlords must respond to. 

It says "Unveiling its annual report on the M25 and South East offices market KF said new development has all but stopped. In the last six months only three office schemes have begun one a ground-up development and two substantial refurbishments.

In the last 15 years there has been 17m sq ft of space either newly constructed or substantially refurbished i.e. grade A quality in the market. In 18 key markets in the M25 and South East 82% of stock on average is more than 15 years old.

Emma Goodford, Head of National Offices, Knight Frank, said there was a "new reality" emerging for offices in the region. "We are seeing smaller deals and more flexibility. For the first time in Q1 our figures showed take up in the red and below the 10 year average. Overall they were 6% down on the 10 year average."

Goodford said landlords needed to rethink how buildings will lease up going forward.

"A typical leasing will be ground floor let to co-working space to bring life to the building at first. The first floorwill be serviced but with some larger corporate deals."

Goodford said the upper levels will offer a mix of tenures between five and 10 years while the top floor best space could be reserved for more conventional 10 year terms.

"This is the new reality not a function of Brexit although this has been a part of this."

Goodford said there had been just four deals over 50,000 sq ft last year as big international business continued to "navel gaze".

"Quality differentiation" will be the key Goodford said adding "you cannot rely on a single let".

Comparing a number of factors including the amount of older space, current availability, rental growth propsects and travel times to London KF has picked its top picks.

Five towns - Heathrow, Woking, Watford, Croydon, Uxbridge and Farnborough - have more than 90% of stock which is pre-2003.

Emma Goodford, Head of National Offices, Knight Frank, commented: “The quality of the workplace is affected by age- and with stock in the M25 centres now showing signs of obsolescence caused by age, there is a case for selective new development. We have seen the recent completion of the speculative development wave, which started in 2016. From mid-2018 supply will peak and then reduce.

“Age in itself isn’t enough of a factor to instigate a decision to develop, other factors such as vacancy rates and a forecast of sustained rental growth must also be considered. However, today’s occupiers are not attracted to old space and new development is needed to ensure that the market does not stagnate and continues to attract new tenants.”

The five hot locations in the M25 and South East office markets to watch Goodford said are:

"Watford’s available Grade A supply equates to approximately one year’s worth of average take-up, at a time when occupiers are seeking high quality real estate. With significant regeneration underway within the town centre and being only 16 minutes from London, the Watford market has strengthened its appeal to the occupier while presenting a positive rental growth story to the investor.

"Croydon has the lowest vacancy rate in the M25, sub 1% and 90% of its stock is more than 15 years old. With London out-migration, fast transport links to Heathrow and the capital, a hugely improved cultural scene and streetscape, a growing tech sector and 30% rental growth in the last five years.

"The development pipeline of offices in Brighton is naturally constrained by the sea to the south and the South Downs to the north. This concentrates an already tight office supply dynamic in a town where too few sites can be identified. A cool culture, dynamic workforce, big business and entrepreneurial start-ups, creates perfect conditions for rental growth. Prime headline rents currently sit at around £31.00 per sq ft, and new quality stock coming to the market will support further rental growth.

"Oxford and Cambridge are both global hubs of innovation in the life sciences and technology sectors and have suffered new development issues due to their constraining historic city centres. However, this trend is starting to reverse with redevelopment of the area around the main railway station (Cambridge) drawing large occupiers such as Microsoft and Amazon.

"Ongoing investment in infrastructure, has resulted in greater connectivity into London from the science and business parks. The global draw of Cambridge and Oxford, their position as two of the UK’s fastest growing cities, coupled with the current supply and demand imbalance, will push headline rents to record levels in 2018. Proposals announced for the Cambridge-Milton Keynes-Oxford corridor road link would further reinforce the strength of the two cities."

Richard Claxton, head of UK capital markets, said three key themes were driving the market - a perception of shifting interest rates, political uncertainty and changes in the occupier market.

Claxton said prime yields will remain stable although money will be more selective. But Claxton said disruption in terms of how occupiers relate to property was profound.

Lee Elliott global head of occupier research, said: "The change we are seeing is structural not cyclical and it is permanent. It is also multiple. What is important is the new wave of technology is bringing far more data and that is creating enablement."

Elliott said the boom in coworking was not being driven principally by a desire for more flexibility, as is so often thought, but by more important people-related factors and the experiences working in buildings.

Gabrielle McMillan, CEO, Equiem, said: "Real estate is a b to c relationship now and we are moving to being service providers now."

Tim Smither KF said overseas investors accounted for 51% of deals last year with Singaporeans and North Americans particularly active.

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Photo by Breather on Unsplash