Can central Reading fill its shiny new office buildings? Claire Robson assesses the schemes’ credentials and asks what 2017 has in store for the wider Thames Valley market
Spring will see the launch of Reading’s iconic Thames Tower (above). Following a refurbishment by Landid Property and Brockton Capital, the 187,000 sq ft building opposite Reading station will provide 14 storeys of grade-A offices. Yet the scheme faces competition from other new developments and after a disappointing year for Thames Valley take-up, what sort of market conditions is it launching into?
According to JLL, 2016 Thames Valley office take-up stood at 848,000 sq ft, down 29% on 2015 and 24% below the five-year average. James Finnis, JLL’s head of South East office agency, says: “The market has been impacted by Brexit and a general sense of uncertainty in the occupational market.”
Take-up in locations such as Reading suffered from a lack of chunky deals such as 2015’s 186,000 sq ft letting to SSE at M&G Real Estate’s 1 Forbury Place near Reading Station. Although early in the year Green Park let 110,000 sq ft to defence company Thales and 80,000 sq ft to pharmaceutical giant Bayer, Reading town centre didn’t lure any large-scale occupiers.
Yet most agents remain optimistic about Reading’s credentials and report an upturn in enquiries since Q4 2016.
Duncan Campbell, director at Campbell Gordon, says: “We think there is around 65,000 sq ft of office space under offer in central Reading and the new schemes are all attracting occupiers.”
Accountancy giant EY was rumoured to be taking around 60,000 sq ft at Thames Tower, but decided to stay put at Apex Plaza where it still has four years remaining on its lease. More positive market chat suggests that HSBC has space under offer and recruitment agency Austin Fraser has recently signed for 14,000 sq ft on a 10-year lease.
Flexible floorplates
Landid Property director James Silver wouldn’t name names, but comments: “We have three chunks of space under offer, which totals 30,000 sq ft, and significant interest from others. We have flexible 14,000 sq ft floorplates and a multilet approach seems the most appropriate in a market which has seen a pause in larger requirements.”
M&G Real Estate’s nearby 104,000 sq ft R+ scheme is also likely to go down the multilet route. The scheme completed in summer 2016, but has failed to land a major letting. Yet agents say Macquarie Bank is set to take around 15,000 sq ft. With Macquarie rumoured to be paying around £36.50 per sq ft, the deal would set a new headline rent for central Reading and help R+ gain some ground on the competition.
For those occupiers looking for slightly cheaper space a few minutes further from the station, the 93,000 sq ft White Building on Kings Road completed in January. Developed through a joint venture between Boultbee Brooks Real Estate and CBRE Global Investors, the building secured lettings pre-completion. At the end of 2016 Canadian tech business Herjavec Group committed to 7,800 sq ft at a rent of £33.50 per sq ft and Danish pharmaceutical group Pharmacosmos signed up for 5,500 sq ft at £34.50 per sq ft.
“We’ve also got ground floor and fifth floor space under offer,” says Lambert Smith Hampton’s head of Thames Valley, Nick Coote. “When you’re competing in this market you can’t afford to be churning out the same old corporate box. Occupiers want something to inspire them and the building’s exposed surfaces, roof terrace, concierge service, business lounge and café are proving very appealing.”
New developments
Indeed, if the cluster of new office developments in central Reading are to all succeed, they need to differentiate their offer.
Whereas the first three schemes have focused on meeting the needs of small-to-medium-sized requirements, M&G Real Estate’s other major Reading scheme, 2 Forbury Place is targeting larger lettings and is likely to have a more conventional corporate feel.
Due for completion in Q3 2017, the 191,000 sq ft development is also being delivered by M&G which hopes features such as 27,000 sq ft floorplates, generous parking and bike facilities will help the new building bag another SSE-scale letting.
M&G asset manager Aaron Pope acknowledges there has been a distinct lack of 50,000 sq ft-plus requirements, but says: “We hope we’ll soon see more coming through. We offer large efficient floorplates which can be split if necessary, although we would prefer to see them let floor by floor.”
The long hoped for demand from business relocating from London has failed to materialise on any significant scale. In the absence of wholesale relocations, those delivering Reading’s new stock hope quality product, the prospect of Crossrail and rating revaluation in April pushing up costs in the capital, will persuade London corporates to at least dip a toe in the water.
“Our research shows the cost per workstation in Reading is £5,800, compared to £18,300 in the West End,” says Jonathan Mannings, director of Thames Valley agency RARE. “That makes a compelling case for relocating staff who don’t need to be in London. Then again, I’ve been predicting decentralisation for almost as long as I can remember.”
In the meantime, developers will focus on fulfilling existing requirements. As well as Macquarie and HSBC, names such as Virgin Media and accountant BDO are thought to be looking.
Charles Dady, head of South East office agency at Cushman & Wakefield, says: “There may be a number of new schemes completing at around the same time, but there is a good level of new enquiries. The acid test will be converting interest into lettings.”
Robust rents
The disappointing take-up figures seem at odds with the rental growth seen in parts of the Thames Valley. Quality space that is more attractive to employees and efficient space that can be used more intensively seems to be the overarching driver of deals at higher rents.
Last May law firm Gateley set a record rent in central Reading by paying £34 per sq ft for 7,235 sq ft at Aviva Investors’ scheme The Blade.
“They want the best stock and are prepared to pay for it,” says BNP Paribas Real Estate director Simon Fitch. “I think we’ll see one of the town centre schemes achieve £40 per sq ft by the end of the year.”
Sharing the spoils
Although Reading is likely to remain the dominant Thames Valley office market in 2017, it is not the only location boasting new product and decent pulling power.
Slough
New grade-A schemes are being delivered, including Landid Property and Brockton Capital’s 110,000 sq ft Porter Building and U&I’s £60m speculative office development 2 Brunel Place. Occupiers are paying closer attention to the town in light of Crossrail and the proposed 2021 arrival of the Western Rail Access to Heathrow, meaning it will take just six minutes to reach Terminal 5.
Maidenhead
2016 saw Maidenhead’s headline rent hit a record £37.50 per sq ft at TH Real Estate’s Pearce Building, with Blackberry and law firm McAllister Olivarius leasing 16,000 sq ft and 5,000 sq ft respectively. Q4 also saw Rockspring and BlackRock securing a 39,050 sq ft letting to Rank Gaming Group at its TOR building, further reducing grade-A supply.
Bracknell
Bracknell is the Thames Valley’s value ticket with rents generally around £10 per sq ft lower than Reading. Schemes such as Oaktree Capital Management and Hines’ Maxis Bracknell have let well and the completion of the £240m Lexicon Bracknell shopping centre in September will further enhance the town’s appeal.
