Market Insight

Spotlight on the Thames Valley office market

March 2, 2020

Despite recent economic and political turmoil which promoted some commentators to predict a slow-down in property transactions into 2020, the Thames Valley office market remains incredibly resilient.

The area’s increasingly strong credentials as the go to place outside of London to live and work, together with its impressive transport connections, quality office stock and cost effectiveness, are fuelling transactional activity.

2019 in review 

2019 saw very tight office supply in places such as Maidenhead, where town centre regeneration plans fell behind, forcing occupiers to other locations, where Reading and Slough have been beneficiaries.

Work is now starting on ‘The Landing’ town centre development in Maidenhead and will refocus attention back into the town along with the planned redevelopment of Statesman House and Braywick Gate, around the rail station.

And, whilst office uptake in Slough was slow in 2019, the Porter Building, the town’s gateway building onto the train station, is now 100% let.

Meanwhile, we have seen increased pre-let activity in 2019 such as at No1 The Causeway, Egham, with leases to Gartner who took 45,123 sq ft, and L’Oreal, who committed to 124,000 sq ft at White City Place.

Drivers for 2020 demand 

Business consolidation was a major driver for office demand in 2019, which together with lease events, led to more activity in the market overall in 2019, and greater investment in the quality of stock available.

Meanwhile, improved business efficiency drivers as well as the anticipated effects of the Elizabeth Line in broadening out the region’s talent pool, are leading more companies to downsize and question whether to decentralise their teams away from central London.

This, together with more agile working practices, has resulted in smaller office deals becoming more prevalent as corporates take, on average, 2,000 sq ft less office space compared with last year – a trend which we expect to continue over the next 5 years.

Companies are taking ‘core’ essential space, supplemented by ‘flex’ expansion space which they can peel away as required.

Innovation centres are also emerging with smaller units and workshops offering a more co-working style of serviced space on more flexible terms, including an exciting new scheme we are working on with Arena Business Centres, which is expected to come to market in Reading soon.

Overall, lack of supply remains an issue in the short to medium term, particularly in Reading where there is a drought of Grade A office stock and schemes such as Station Hill with its 250,000 sq ft of offices in Phase 1, can’t come quick enough.

Here, some companies have renewed leases short term, with the aim of moving to prime accommodation when it is built.

Continued rise of the business park 

Over the next few years, with town centre supply constrained, business parks will accommodate the majority of office moves in the Thames Valley.

With the addition of amenities making them a more sustainable destination location, we anticipate that any previous differential in rents will close – Reading business parks are already attracting rents around £37.50 psf, similar to the town centre.

Occupiers want to belong to a place and community and so occupier engagement or ‘Corporatality’ as we call it, is key.

Business parks not able to offer this nucleus of activity will find it tougher to attract tenants, and many are having to reinvent themselves to compete, like Thames Valley Park where the added vitality of café and gym amenities, attracted BBC Radio Berkshire and Bovis Homes, recently and The Hive at Theale, where the addition of amenities attracted occupiers into 100,000 sq ft during the last 12 months.

This represents a good opportunity for many business parks in the region to redevelop and reinvent themselves with a stand-out destination theme to help them compete with the larger parks, whilst pricing themselves accordingly.

Meanwhile, the sale of The Microsoft buildings at TVP will create a new opportunity for the next stage in the evolution of the Park, which has sufficient critical mass to be a district destination in its own right.

What does the rest of 2020 have in store?

The start to 2020 has been a positive one with enquiries up on the same period last year and early signs of a post-Brexit bounce.

And now that we’ve got beyond some of the political impasse, we may even see some international corporates increase their London and UK footprint to straddle the Brexit border and offer clients a base from which to negotiate with the UK and US, close to the international hub at Heathrow.

This could see rents increase across the London and the Thames Valley, but only time will tell.

Thames Valley gamechangers 

In the meantime, we need to see some of the fruits of the big infrastructure projects like HS2, and the Elizabeth Line come forth and start running, generating more confidence to invest in the region.

The Elizabeth line, in particular, will be a gamechanger for towns like Maidenhead, Slough and Reading, where we expect to see further office demand and rental growth.

We would also welcome a big infrastructure project to connect Heathrow up to Slough via the Western Rail (WRTLH), which would have a significant impact on west London, Heathrow and Slough, connecting two important areas whilst alleviating traffic around what is a very busy part of London and the M25.

Finally, watch out for Prop Tech which will become an increasing feature of new buildings, monitoring day-to-day activity, enhancing efficiencies and improving the tenant experience – putting the occupier in control of the space they use.

To discuss your property needs with experts who know the Thames Valley property market inside out, don’t hesitate to get in touch with our leading agency team based in Reading.