Office news Western corridor 16th September 2015

Office take-up in the Western Corridor will be up at least 25% this year from 2014’s admittedly muted figures as a string of large-scale occupier moves complete in the second half, while the booming investment market is set to chalk up a record £3bn-plus for the region, circa 180% up on last year, JLL has reported.

In its regular Thames Valley and West London seminar released this morning and this time entitled Is the gravitational pull shifting? JLL reports that leasing activity is set to accelerate rapidly in the second half of the year, as a number of major tenant requirements come to fruition and new demand arrives in the form of tenants decentralising from central London locations.

JLL is predicting Western Corridor office investment will hit £3bn, setting a new record for the region and more than doubling 2014’s full-year volumes of £1.07bn.

JLL said a feature of the market is that the money flooding in is becoming more balanced with UK institutions more and more the dominant force.

Angus Minford, director, South East Office Investment at JLL, said: “The first half of 2015 has already surpassed 2014’s full-year volumes and as a result we are on track for a record year for the region, with focused yield improvement in prime and core plus areas.

“UK investors have been the most prominent buyers so far this year, accounting for almost 80% of purchases, however we are expecting higher levels of global investment for the remainder of the year, particularly on larger lot sizes.”

One notable lot size expected to attracted foreign private equity is SEGRO’s proposed sale of its portfolio of offices on the Bath Road in Slough for in excess of £326m.

Helpfully the occupier side of the equation is beginning to pick up with a number of major requirements having recently completed or set to complete.

As revealed by CoStar News last month M&G and Bell Hammer have leased the 185,000 sq ft Forbury Place to Scottish and Southern Electric while as also tipped by CoStar News first Thales and Bayer are set to take major headquarters at Oxford Properties’ Green Park in Reading. Amadeus is also on the cusp of an 80,000 sq ft move in the Thames Valley. 

Together JLL is predicting these deals totalling around 275,000 sq ft will take office take-up at least 25% over the circa 2m sq ft seen in 2014 to in excess of 2.6m sq ft, comfortably ahead of the 2.1m sq ft five year average.

James Finnis, Head of South East Office Agency at JLL, said: “The leasing market looks set to benefit from further infrastructure investment with Crossrail and the electrification of the main Bristol to Paddington line.

“Demand for space in the Western Corridor has been boosted by the concept of strategic dispersal, which sees tenants decentralising from Central London, and it’s a trend we expect to gather further momentum as costs in Central London continue to rise. Western Corridor locations provide amenity rich town centres with a surrounding employee base and connectivity to Central London, which is hugely attractive to occupiers.

“This demand, combined with a lack of existing Grade A supply, further reduction in stock levels due to ongoing office to resi conversions and a limited development pipeline is driving rents upwards across the region.”

JLL did caution that the improved figures need to be put in to context of particularly poor take up in 2014 and also come in a General Election year which usually generates a significantly higher bounce-back in terms of take-up than seen this year.

JLL reports that occupiers are increasingly looking for different space in the Western Corridor with the stripped back unplugged environment with flexible floorplates that enable space to be used in a more creative way that has been brought forward in London’s fringe more and more popular. JLL cited Landid and Brockton Capital’s success bringing tenants to its One Valpy office development in Reading.

JLL says supply is notably shrinking in the region with 10.4m sq ft available at H1 2015 compared to 11.4m sq ft at the end of 2014.

JLL said permitted development rights in the region and particularly along the proposed Crossrail one and two routes is creating a structural shift with 1.5m sq ft of offices having gone to residential thanks to the legislation. Reading for instance has seen 96 offices or 850,000 sq ft or 7.2% of stock change to residential.

JLL points out that following the rates revaluation in 2017 “the pressure to decentralise will become very strong”.

Finnis said the company is already tracking several occupiers looking to move out of London to the Western Corridor in response.

Breaking down total occupational costs to include rent, rates, service charges and other costs JLL forecasts total costs in the West End for instance will increase from £178 per sq ft to £200 per sq ft in 2017 while Reading total occupancy costs will for instance increase from £49 per sq ft to £54 per sq ft.

JLL has also tracked what it terms “leasing velocity” or the speed at which deals are done in buildings that have been speculatively developed or refurbished.

JLL said spec refurbs or new builds over 50,000 sq ft are being more than 60% leased up in the first 12 months following launch with in town schemes filling up quicker than out of town driven by a trend towards the trend to urbanisation.

JLL said those who have been brave enough to press on with speculative builds have been rewarded.