Flight to quality boosts Thames Valley commerical property
THE FIRST quarter of 2022 has seen the Thames Valley’s commercial property activity remain buoyant, according to a real estate property consultancy.
Vail Williams says that the demand has been driven primarily by lease events and pent-up demand as businesses seek highquality premises at a smaller footprint.
But there are also challenges from external influences such as the war in Ukraine, lingering covid-19 ramifications, rising UK inflation and a shortage of industrial land.
This is revealed in the firm’s Thames Valley Property Market Report Q1 2022.
Vail Williams’ Reading-based Partner Guy Parkes, one of the report’s authors, said he believed businesses were now planning with more certainty, while investors and developers were readying their assets for market and businesses were 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.”
Companies moving premises were looking to reduce their footprint, taking around two-thirds less space than previously.
“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,” Mr Parkes said.
“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.”
And this strategy is changing the marketplace, as Mr Parkes said that recent office deals completed in the Thames Valley revealed occupiers were paying on average nearly 40 % more in headline rents than their previous passing rent yet were taking around 30% 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,” he said.
“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.”
And demand in the Thames Valley remains strong, with demand for logistics, last-mile delivery, film production and data centre space continuing well into 2022, says report co-author Charlie Nicholson.
“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,” he said.
But, he warned, 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.
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.”