It is hard to imagine what would have happened to the rest of southern England’s office market, with the exception of London, if the Thames Valley had not been devastated by the dot.com downturn.
Agents in cities near the M25 corridor point to the 3m sq ft vacancy levels in the Thames Valley, and say “thank goodness it’s not us”. Overall, agents’ thinking throughout the M25 corridor seems to be that no matter how bad their own office market, it will always be good compared with the Thames Valley.
Oxfordshire is one place that likes to make the comparison. FPDSavills’ Oxford office commercial property update for autumn 2003 happily chirps that: “The serious oversupply problem seen in the Thames Valley has been avoided.”
True, Oxfordshire’s figures are better. The vacancy level is at 750,000 sq ft, with around 200,000 sq ft prime grade A. As Jon Silversides, director at Lambert Smith Hampton who has instructions on Oxford Science Park, points out, the city’s resilience is down to its diverse range of office occupiers, from the professional to the hi-tech and biotech.
But Oxford’s bubble could be set to deflate, if not quite burst, as a result of problems emerging in one of its most reliable markets the biotech sector.
Lack of appropriate space
Eighteen months ago, a report by the Oxford Trust, the charitable body that promotes the study and application of science-based enterprises found that there was a “perceived lack of appropriate space” for the biotech sector.
At the time of the report, most of the area’s agents would have agreed. Richard Venables, a director of local Oxford agent VSL, says he expected to see an “explosion” in the sector. “The biotech companies were lauded by the local business companies and support agencies as key to Oxford’s economic future,” he says.
This never happened. Over the past few months, the sector has been hit by significant company mergers that have left premises empty, particularly on business parks. In April, British Biotech bought up RiboTargets. In May, Celltech bought out Oxford Glyco Sciences, and in September, the newly-constituted British Biotech merged with Vernalis.
In addition to the mergers and buyouts, the biotech companies have seen venture capitalist investment dry up, although it is still available for companies with good science and strong management.
Agents and developers have been left counting the cost. As Venables puts it: “We haven’t really seen the lab sector taking that much space, and we never saw the explosion we were expecting.”
Business parks have been the main victims of the biotech consolidation. MEPC’s Milton Park and Prudential’s and Magdalen College’s Oxford Science Park house the majority of biotech companies outside the city centre. The sector takes 10% of the floorspace in the former, and around 45% of the latter.
Milton Park has already felt the effects of the buyouts. Celltech’s takeover of OGS saw OGS released from a new 60,000 sq ft building, two-thirds of which had already been fitted out to specific standards.
John Bateman, managing director of Milton Park, agrees that a lot of biotech companies have had a tough time over the past 18 months, and as a result the release of the unit is an “inevitable part of the market”.
“Celltech didn’t need the building, so we came to an agreement to take a surrender of the lease.” Bateman says it is now talking to a number of medical and pharmaceutical businesses about taking either the whole building or part of it.
Substantial amount of empty space
Given what happened at Milton Park, agents are looking to Oxford Science Park, where there is still empty space. Some 12 months ago, Venables, referring to two empty buildings, told EG there was nothing to worry about because “they were only completed last November (2002) and so hardly constitute a crisis of oversupply”. But a year later, only one of the developments the smaller 27,000 sq ft Sherrad building was let to AMEY. And that deal was only completed earlier this month.
Still, Ian MacPherson, business development manager of the science park, remains optimistic. “Consolidation within the biotech industry is obviously having an effect on some of the larger companies in the county,” he says.
“However, the entrepreneurs who originally started and grew these companies are now often founding new companies. Consequently, Oxfordshire is seeing a new wave of serial entrepreneurs, with both a proven track record and the contacts, starting to grow companies even more quickly.”
Despite the biotech sector showing some wobbly signs, Oxfordshire agents are continuing to talk positively about the future. Deals at Arlington’s Oxford Business Park where solicitor firm Manches signed for 35,000 sq ft in November and Oxfam has taken 85,000 sq ft are among the indications that the market is doing well.
Rents have also remained steady throughout the downturn, averaging around £22 per sq ft for business park space and £19 per sq ft in Oxford city centre, although incentives are being offered.
As Richard Stansfield of FPDSavills points out: “Although the market was quiet last year, limited supply enabled rents to be maintained. There is little grade A space in Oxford so we are confident the market will improve in 2004.”
While the two Oxford Business Parks’ deals are undoubtedly good news, Silversides remains cautious about the market’s overall future. “There have been key deals, like Manches and Oxfam, but we don’t want to get too carried away. I don’t want to be too rosy about it because, while there have been deals, the general state of the market shows a relative lack of interest in grade A stock.”
First speculative building
Given the restrictive nature of the historical university city, there is little space for development a fact highlighted by the 21,000 sq ft at 40-41 Park End Street, the first speculative building in nearly 15 years.
For these reasons, Oxfordshire’s business parks will be hoping they will be able tomaintain their diverse range of occupiers and that none of them, especially the biotech sector, succumb to the Thames Valley disease and burst.
But, as Bateman says, especially about the biotech market: “The biotech sector has taken a nasty knock, but it certainly hasn’t gone away.”
The market only has to look at the construction of a centre to house a new synchrotron (intense light beams produced to probe deeply inside atoms), operated by joint venture company Diamond Light Source in south Oxfordshire, to prove that the area is still attractive to the science industry.
While it may not technically be offices, the £235m science facility nicknamed the “doughnut” because of its rotund shape is the largest science facility to be built in the UK for 30 years, and is a significant boost for the region.
Funded by the government through the Council for the Central Laboratory of the Research Councils and Wellcome Trust, the centre will open in 2007.
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There has been a significant rise in the demand for seconhand space, freeholds and office within a 10-mile radius of the city centre |
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Not a lot has changed within the Oxford office market since 2002 |
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says Cluttons’ 2003 Oxfordshire occupier survey. Anticipated business turnover is similar |
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with nearly 70% of retailers predicting their turnover will grow by more than 10% over the next two to three years. Requirements are also more or less the same |
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with the majority of businesses remaining in existing premises. |
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As in 2002 |
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there is a slight increase in demand for smaller office space |
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from 1 |
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500 sq ft to 3 |
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000 sq ft |
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and a decrease in larger requirements. |
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Among the changes that have occurred is an increase in demand for secondhand space |
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from 49% to 63% over the last year. There has also been a 13% increase in requirements for freeholds and a demand for offices within a 10-mile radius of Oxford. This demand has been compounded by the lack of space within the city |
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which is propelling more occupiers to look outside. |
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“This trend of looking out of the city has made the availability of business services |
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such as broadband |
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of key importance |
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” says Richard Dawtrey of Cluttons. “Outside Oxford |
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broadband is available in most of the main towns |
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but there are still large gaps in rural areas. Coverage is due to increase as more exchanges are upgraded. We expect the market to be in a state of flux over the next two years.” |
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Source: Cluttons |
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Consolidation in the biotech sector has dented demand significantly, particularly for space on business parks |
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Leasehold evidence |
Landlord |
Tenant |
Size (sq ft) |
Rent |
Date |
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Oxford Business Park |
Arlington |
Oxfam |
85,000 |
In the region of £20 per sq ft |
August 2003 |
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Oxford Business Park |
Arlington |
Manches Solicitors |
35,000 |
£21.75 per sq ft with 24 months rent free |
November 2003 |
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Lambourne Court, Abingdon Business Park |
Smiths Group |
Schlumberger |
35,000 |
Passing rent of £18.30 |
June 2003 |
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Oxford House, Oxford Road, Thame |
Mosaic UK In administration |
23,520 |
£2.7m freehold |
May 2003 |
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1st and 2nd floor, Fountain Court, Oxford Spires, Kidlington |
Anchor Trust |
Thames Valley Police |
22,500 |
Passing rent of £18 per sq ft |
March 2003 |
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Part first floor, Beaver House, Hythe Bridge Street, Oxford |
Blackwells UK |
Mirada Solutions |
16,000 |
£16.50 with substantial rent-free period |
October 2003 |
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Greyfriars Court, Paradise Square, Oxford |
Blake Lapthorn Linnell |
Critchleys Accountants |
15,760 |
Passing rent £12.50 per sq ft |
October 2003 |
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First floor, 2 Park Square, Milton Park |
Psion |
Sunguard systems |
11,870 |
£20 per sq ft |
May 2003 |
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Park House, Haddenham Business Park |
Land Improvement Holdings |
Babtie |
12,740 |
£16.60 per sq ft |
February 2003 |
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Unipart House, Cowley |
Unipart |
Carillian |
c 10,000 |
Inclusive. Rent unknown |
January 2003 |
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Source: FPDSavills |
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