With so much emphasis on urban revival and the demand for in-town office locations to attract Generation Y, it is understandable that some investors may have thought twice about keeping business parks on the shopping list. But with 37% of take-up over the past five years in the South East on business parks, the broad-brush trends that some have focused on don’t stack up when you examine the strong long-term investment case for this asset class.
The fall in sentiment was originally reflected in the valuers’ perception of business parks a few years ago. MSCI property data showed that between 1990 and 2008, the office park market, in terms of capital value growth, broadly followed the all office and all property growth trends.
However, post-2008, the data was less positive – despite the rental growth relative performance tracking historic trends.
As the UK emerged from the financial crisis, following a blanket 27% fall in capital values in 2008, both 2009 and 2010 marked a recovery period in UK property. However, business parks did not follow this trend. The UK office investment volume data, excluding the central London market, shows that from 2000 to 2009, business parks accounted for 23% of transactions by value.
In 2010, while the UK office investment market showed overall annual growth of 44%, the business park share fell to 16%. Sentiment swung against business parks. However, in the past five years, the annual average value percentage share has risen to 30%, presenting a stronger recovery in progress.
Indeed, Savills’ What workers want research suggests that occupiers prefer out-of-town locations, primarily business parks.
Data for the greater M25 office market shows that in the past five years, 27% of technology take-up by floor space has been on business parks, versus 18% in the central business district.
Many employees favour a workplace with amenities (and some business parks allow for up to 30% of floor space to be allocated for this purpose), as well as the ability to drive to work and park on site. Business parks are responding to these occupier requirements.
We have already seen a surge in business parks providing amenities such as cafés and gyms, but for the next generation we foresee an increase in a greater mix of uses, including retail, crèches, hotels and education facilities, as well as residential.
Indeed, Kings Hill at West Malling in Kent, although it is presently for sale, has been a longstanding exemplar of a proper mixed-use park. Even Stockley Park is responding to this demand with a new hotel proposed. And up the M40, Wycombe district council is promoting its HXH development at junction 4, which will boast a Waitrose, leisure centre and hotel, along with land for more than 300,000 sq ft of offices.
With £14bn invested over the past decade and key investors such as Oaktree, Patron, Harbert and Blackstone active in this market, the prospect for business parks looks positive, as these locations not only fit existing occupier requirements but respond to a trend for decentralisation – as well as having positive rental growth prospects, particularly in the South East.
Steve Lang is director of research at Savills
