Thames Valley, Oxford, Surrey
Offices & Industrial Report
David Barden
Regional Managing Partner
Thames Valley
Executive summary
Moving beyond the crossroads to where opportunity abounds.
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.
Falling interest rates have invigorated the property market. Offices have regained their importance as hybrid work solidifies, and the creative repurposing of secondary office space is bridging the gap in industrial land and residential quotas.
Landlords and investors are identifying the right microclimate to invest in to deliver a good return on investment. And developers are starting to see improvements in viability for their schemes as build costs stabilise and interest rates fall.
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”.
Overall, this is a moment to harness change, turn potential hurdles into stepping stones and shape a more dynamic and resilient future, as our latest Thames Valley, Oxford and Surrey property market report explores.
Office Insights
Industrial Insights
Office Insights
There is a real sense of having turned a corner in the office market, as occupiers commit to a hybrid future. As a result, we have seen a good level of office transactions in H1 across the Thames Valley and Surrey regions.
The continued flight to quality has seen most super-prime and Grade A+ stock let to the early adopters of a return to the workplace.
In some instances, occupiers are now having to compromise on more competitively priced stock as the super prime supply dwindles. However, they are reinvesting the capital saved into high-end fit-out and the creation of an attractive office environment for their people.
Overall, out of town locations are still finding their feet and urbanisation will be key to their future success. Occupiers like Pepsico, for example, are looking for a ‘jacuzzi’ office in the town centre and are willing to leave larger, cheaper premises out of town in favour of taking smaller town centre footprints because they recognise the need for this to make their hybrid models work.This approach remains popular with young people but not everyone - particularly if car parking options are not readily available.
There is still the opportunity for landlords to invest in super prime office space through extensive refurbishment projects.
This is ideal for offices in already activated areas with a good location in the town centre, boasting car parking facilities or with close proximity to train travel. The same is also true of business parks with good amenities. However, where office assets don’t have these benefits, investment viability remains a concern.
Key transactions
Staines
Location: Twenty – 20 Kingston Road, TW18 4LG
Transaction type: Letting
Size: 5,110 sq ft
Rent: £40.00 psf
Tenant: Pure
Landlord: CLS Holdings Ltd
Oxford
Location: 109 St. Aldates, OX1 1DS
Transaction type: 10-year lease
Size: 40,000 sq ft
Rent: £39.40 psf
Tenant: Aurora Energy Research
Landlord: Oxford City Council
Maidenhead
Location: Tempo – 20 Grenfell Road, SL6 1EH
Transaction type: 15-year lease
Size: 96,940 sq ft
Rent: £52.50 psf
Tenant: Johnson & Johnson
Landlord: Legal & General
Reading
Location: R+ - 2 Blagrave Street, RG1 1AZ
Transaction type: 10-year lease
Size: 43,875 sq ft
Rent: £38.00 psf
Tenant: EY
Landlord: Oval Real Estate
Spotlight on
Availability
On average, office supply across the Thames Valley and Surrey remains static. There has been a lack of new developments and limited take-up. Where there have been new occupier entrants, the additional take-up has simply replaced those occupiers downsizing their space requirement.
There remains a very limited supply of Grade A stock and above, across the board, but particularly in Surrey, despite that being what occupiers are demanding.
And whilst super prime supply is dwindling across the Thames Valley, 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 Grade A & B is growing. This could see a significant portion of the Grade B office supply in Reading repurposed for alternative uses and we are engaged in a lot of options analyses in this area currently for landlords and investors.
Total Sqft Available Per Town – Office
Achieved Prime Office Rents Per Sq Ft
Achieved Rents
Headline rents for super prime stock remain high across the board but the office rental market is generally underpriced and we have seen rents reduce in real terms. Having said that, rents remain high in locations such as Oxford and Reading, but you can get some fantastic premises in Woking and Guildford for competitive (if rising) rates.
There is now a two-tier market between existing and newly built offices which command higher rents, but this is not based on the inflation of recent years – rather, because of build costs.
Landlords are seeing some voids and there has been a moderate rise in incentives, depending on the location. Some fitted, secondary space is now being offered out at nine months’ rent free. However, there is rental growth in markets where supply is limited, such as in Windsor.
Richard Dawtrey
Head of Investment
Vail Williams LLP
Investment Insight: Mind the gap
“Whereas super prime rents are vertical and rising, rents on Grade A- or B stock across the Thames Valley and Surrey remain broadly flat. The difference is around £12.00 psf.
“Many languishing assets in secondary and out of town locations are therefore being repurposed or disposed of for alternative uses such as residential.
“As a result, we have seen a lot of movement in the office investment market as landlords dispose of assets. In Windsor, almost 50% of office stock has gone to residential, where disposals command between £600-700 psf.
“This represents a significant opportunity for astute cash-rich investors as we look ahead to 2025, particularly if interest rates come in at 3% or less over the coming years.
“The glue to all of this is the viability piece, particularly as forecasts suggest that interest rates will settle at circa 2.75-3%.
“If you invest to create super prime space you are looking at £400 psf and will need to achieve rents of £40-50 psf and that is where you will get your return, but the location and amenity offer has to be right.”
Voice from the market
Returning back to better – a best practice case study.
Delivery of super prime workplaces continues to prevail and, whilst we have seen serviced offices pile into towns to fill some of the gaps in prime office supply, occupiers themselves continue to drive this trend through fit out, whilst reaping the benefits of consolidation.
FTSE 250 recruitment firm PageGroup, developed a new workplace strategy which was underpinned by a balanced approach to the needs of the business, its clients and its people. Working with Vail Williams, Irwin Mitchell and Egg | Design | Build, they embraced strategic principles such as unassigned desking and neighbourhoods, with technology as an enabler and a more inclusive and sustainable design.
Olly Wilkins
Managing Director – Group Procurement and Property at PageGroup.
“We proposed a complete rethink to the Board around how we approached property, to embrace a modern workplace design with technology embedded, and a neighbourhood approach with unassigned desking, inclusive design and more sustainable, green features. All of this was aimed at supporting productivity and agility, attracting and retaining talent, and improving engagement and collaboration.”
Sarah Swann
Legal Director at Irwin Mitchell, who advised PageGroup.
"PageGroup’s environmental consciousness enabled them to embrace modern workplaces boasting good environmental credentials – supporting not only their own ESG policies, but the desire of their people to work in offices with a lower carbon footprint. This goes against the trend we’ve identified nationally, whereby just under a third of businesses we surveyed, were concerned about whether or not their office would be MEES compliant.”
Industrial Insights
There remains a lot of optimism in the industrial market across the Thames Valley and Surrey, in spite of the fact that the logistics and e-commerce markets are now at the consolidation stage.
As the highs of the pandemic era fade into a distant memory, some retailers are questioning their logistics needs, meanwhile life sciences and data centres have taken the driving seat, particularly in Oxford and Slough.
Generally, activity has been more subdued in the first half of 2024 due to ongoing lack of supply, yet we continue to see a lot of lab space units let up and occupiers are prepared to pay a premium for it, in particular around the Oxford market.
The imbalance between lack of stock and good demand prevails and, despite the fact that land values have come down slightly, the development pipeline across the Thames Valley and Surrey continues to be challenging.
In spite of this, some development continues to come through, for example at EVO32, achieving record rents. There are several schemes proposed across the wider Thames Valley and Surrey regions. Those markets that have seen new build stock boasting green sustainable credentials have flourished and continue to trade well, especially in Reading.
We expect activity to gain pace into 2025, as we settle in under the new Labour Government. In the meantime, the message to investors and developers remains “build it and they will come.”
Key transactions
Slough
Location: Unit B2Y Skyway 14 – Calder Way, SL3 0BQ
Transaction type: 10-year lease
Size: 8,185 sq ft
Rent: £22.00 psf
Tenant: Fermod
Landlord: CBRE Investment Management
Uxbridge
Location: Unit 25 Riverside Way, UB8 2YF
Transaction type: Letting
Size: 22,431 sq ft
Rent: £25.00 psf
Tenant: Cafe Connections
Landlord: Aviva Life & Pensions UK Limited
Wokingham
Location: Unit 5 Millars Business Park, RG41 2TZ
Transaction type: Letting
Size: 13,808 sq ft
Rent: £14.50 psf
Tenant: Hiper Global UK Limited
Landlord: IPIF Ltd
Poyle
Location: EVO 32 – Riverside Way, SL3 0HG
Transaction type: 10-year lease
Size: 32,481 sq ft
Rent: £25.00 psf
Tenant: C H Robinson Worldwide UK Ltd
Landlord: Hathaway Opportunity Fund LP
Spotlight on
Availability
A lack of quality new stock remains a problem across the Thames Valley and Surrey regions. When new high-specification stock is delivered to market, such as EVO 32 at Poyle which we marketed on behalf of Hathaway Opportunity Fund LP, it is let up quickly.
But in some cases, supply is being held back by power limitations. This is putting off some developers, bringing into question development viability in some cases.
Prologis’ unit at Brooklands has just reach practical completion, delivering a 125,000 sq ft unit to market and it will be exciting to see interest in this which is quoting headline rents in the early £20s psf.
Some markets have no proposed development under construction at all to meet demand. As a result, a lot of the stock in the development pipeline is either under offer or being built in 2025-2026.
Total Sqft Available Per Town – Industrial
This will see a lot of new industrial premises come through in areas such as Bracknell and Maidenhead, where rents will catch up in due course. In the meantime, most supply is currently in Reading and Slough where there is over 664 sq ft of ready and available space currently, the majority of which is older stock in Reading.
Despite a somewhat plateauing industrial market, speculative development presses on. Chancerygate’s new 70,000 sq ft urban logistics multi-let development at Surbiton has just completed, bringing much-needed supply to market and Jansons Property and Blue Coast Capital have just completed on the acquisition of an 8.1-acre site in Bracknell.
The former EMEA headquarters of Dell will be redeveloped by the joint venture as a major industrial redevelopment in a key Thames Valley industrial zone. Meanwhile, Graftongate has exchanged on an 8.5 acre site in Reading which will bring through 150,000 sq ft of new industrial space.
Supply of Grade B varies and those markets with a greater share of this haven’t seen the same rental growth as prime markets in locations such as Slough, Didcot and Bicester. Reading has the largest volume of pre-2000s stock which is stunting rental growth here. On the other hand, Didcot is proving to be a good secondary location with a pipeline of quality stock coming through.
Achieved Rents
New developments in Didcot, Slough, Uxbridge and Thatcham are leading market rental growth, but in general, there remains 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 include Life Sciences and Tech / Data Centres because that is very much where occupier demand is coming from, whereas a year ago it remained logistics and e-commerce which continued to ride the post-pandemic wave.
Achieved Prime Industrial Rents Per Sq Ft
This is creating the perfect storm – with rents having gone so high in recent years, together with a rise in overall occupation costs with utilities and business rates, end users in retail and e-commerce are beginning to question if they need the space because they can’t pass the cost on to the consumer. Meanwhile, the demand for industrial and logistics units from life sciences and data centres sectors continues to push rents on.
For astute investors, there is an opportunity to repurpose assets to take advantage of the demand for lab space – indeed, Mission Street did exactly that when they turned one of their assets – a former Toys R Us warehouse, into lab space, doubling the footprint and tripling the rent from £17 psf for out-of-town retail, to £65 psf for the resulting lab space.
Will Lawther
Occupier Advisory Partner
London
Investment Insight: Open Storage grows in popularity
“We are seeing investors and developers broaden their investment and development criteria and many are now telling us they will look at developing out smaller industrial schemes, such is demand.
“One particularly sophisticated asset class at the moment is open storage which is performing well. There has been a lot of rental growth in this market which provides a versatile asset without the requirement for significant capital expenditure.
“Marchmont Investment Management have become a big open storage investor and were quick to jump early on this type of asset and has been reaping the benefits.”
Voice from the market
Data Centres: The Next Generation
Everything we do today, every interaction we have, involves a breathtaking amount of data which has to be stored somewhere. In the UK, this is predominantly in the South East – specifically in West London and the Thames Valley – which is where some of the very first generation data centres evolved.
Data centres represent a significant growth market in the Thames Valley and Surrey region. We will continue to see a whirlwind evolution in this sector. The challenge for landlords will be keeping up with demand through sufficient and sustainable supply.
David Barden
Regional Managing Partner (Thames Valley), and Data Centre expert
“Many of the first-generation data centres were relatively small and converted for use. Aside from the security that surrounded them, there wasn’t a great deal to differentiate them from other industrial stock.
“Then came the second generation of data centres which were purpose-built mid-big box warehouses, with an operator already lined up.
“Today we see the hyperscale data centre which can be categories as multi-storey purpose-built products in the commercial property market.
“As artificial intelligence (AI), the Internet of Things (IoT) and data requirements explode, now is the time for investors to plan the next generation data centre to ensure we are on the supply front foot.”
