Fine toothcomb: Despite strong demand, funders are being extremely careful about what schemes they will back.
The figures for October, when they are collated, could well show that the property market suffered a brief slump across the whole of England, as business paused for a few weeks. This was nothing to do with the wider economy, supply or demand, or any of the other usual causes but, simply, the Rugby World Cup.
But unlike England’s performance in the final, some developers will be hoping for a more positive score when the Bank of England’s monetary committee vote on an interest rate change next month.
Like elsewhere in the country, debt-backed developers are facing a tough lending regime from banks and, combined with escalating constructions costs, some are finding the figures do not stack up.
With inflation under control, it is looking more likely that the Bank could decide to freeze or, better still, cut rates, and this will be important for boosting overall sentiment.
However, uncertainty in the financial markets is inevitably taking its toll, and comes at a time when towns across the Thames Valley, traditionally home to the telecoms, media and technology sector, are experiencing a mixed-bag of fortunes in their markets.
Overall vacancy and availability is falling, and prime rents have been rising during the past 12 months (see key facts, p148).
According to Knight Frank research, take-up figures are mixed across the M3 and M4 corridors, with the M4 showing an improvement of 44% so far this year, compared with a drop of 42% along the M3.
So developers could be forgiven for being cautious when deciding to go ahead with office development.
Bruce Hickman, partner at Knight Frank, says: “Latest statistics indicate that the occupier market remains robust. Indeed, there are still prelettings taking place.”
However, he caveats that by adding: “On finance, some developers are pausing before committing to starts, and so it is reasonable to assume a typical delay of three to four months before starting construction.”
David Thomas, associate director at CB Richard Ellis, agrees that finance is likely to be an issue in the shorter term for speculative building, particularly as there are quite a few smaller new-builds and comprehensive refurbishments planned across the market.
He says there are a number of schemes in Reading and Maidenhead that are ready to start. “I’m not saying that any decision has been made on these schemes, but what banks will be looking at is due diligence, and they’ll be going through the business plans with a fine toothcomb. Ones with good business plans will go ahead. Those without will not.”
Any assessment on whether to start speculative construction will inevitably take into consideration the supply pipeline. But that, too, is a mixed picture across the Thames Valley.
For example, Maidenhead had been suffering from an undersupply of office stock, but now has some 400,000 sq ft under way – the largest amount of speculative development for some time. Schemes include Kier’s Concord Park.
“They are all very different schemes,” says Thomas. “Something in the town centre with good parking or proximity to the railway station will do well, but you would have to look at a scheme out of town very closely to see if the rents you were predicting are achievable.”
Likewise, Reading is suffering from an undersupply and has some development in the pipeline – the Reading Central scheme, for example. The town has enjoyed rental growth, but the out-of-town market is still oversupplied, albeit with space that is surplus to requirements from tenants suchas Cisco.
The market fundamentals are certainly not straightforward. However, there will be those who are hoping that, like England’s comeback from its 36-0 defeat to South Africa to making the final, the Thames Valley property market will make a similarly strong return.
Agents cry out for improved infrastructure
You would think that the government’s announcement
that Crossrail is finally getting thego-ahead would illicit some enthusiasm from the property market in the Thames Valley, writes Andrew Taylor.
After all, the East-West rail link through central London will stop at Slough and Maidenhead, giving those towns direct access to the West End and the City.
Apparently not. Traditionally, infrastructure is seen as an opportunity to access development sites and provide better public transport access – factors that help businesses looking to access a wider pool of potential staff.
However, all it does right now is focus attention on another big problem in the area.
“It will be 10 years before Crossrail is completed,” says Neil Impiazzi, leasing manager at Slough Trading Estate. “That says it all. We can’t wait for Crossrail to get a proper link to Heathrow, for example. Slough is lucky in having three motorway junctions, so we don’t suffer from the same morning gridlock that other locations do – but the transport infrastructure throughout the Thames Valley is a big problem.”
It is generally agreed that roads, trains and the rest of the infrastructure in the Thames Valley, are operating at full capacity, and there is no sign that it is going to get better. The fact that the government trumpets a project that is still 10 years away from completion simply highlights the immediate problems.
Big attraction
Heathrow, with its unequalled links to Europe and around the world, remains a big attraction for big international companies.
The South Korean companyLG Electronics, for example, moved its European headquarters to Slough.
But when the M4 is nose-to-tail, and you cannot get a train direct to the airport, it is not encouraging for US directors who are as used to jumping on a jet as we are to calling a cab.
Improved links from Heathrow to the rest of the Thames Valley and the west are the most common infrastructure demand from developers and agents.
To add insult to injury, the construction of Crossrail, combined with the Olympics in East London, is going to channel a huge amount of resources away from any other infrastructure projects.
For some time to come, it seems the Thames Valley’s agents and developers will just have to grin and bear it.
