Take-up figures across much of Hertfordshire remain subdued as finding occupiers proves elusive. Paul Norman reports on a tough market for agents
There have been slim pickings for Hertfordshire’s office agents of late. The latest market figures reveal a sector struggling to gain momentum since the onset of the downturn, and few commentators are holding out for much improvement in 2011.
According to Strutt & Parker, around 240,000 sq ft of office space was leased in the county last year, marginally down from the 260,000 sq ft recorded in 2009 and almost in line with 2008’s figure. But it is in stark contrast with 2007’s 500,000 sq ft and a now unthinkable 880,000 sq ft in 2006.
Strutt & Parker’s Matt Willcock blames the dramatic fall in chunkier deals since 2007. He points out that the two largest transactions of 2010 were for 15,000 sq ft in St Albans: Rockspring Property Investment Management let 15,280 sq ft at Verulam Point to eyewear company Luxottica Group, while BSkyB took 15,000 sq ft at Threadneedle’s 4 Victoria Square.
In 2009, there was a smattering of larger deals. The most notable was Epson’s take-up of 52,000 sq ft at Telereal’s 187,000 sq ft Westside in Hemel Hempstead.
“Without those bigger deals in 2009,” Willcock points out, “the figures for the past three years would have been exactly the same.”
Bellwether office market Watford was lifted by some welcome signs of year-end activity. But Jonathan Mannings, head of national offices at Colliers International, admits the town’s office market has suffered in comparison with other South East locations as the fight for scarce requirements intensifies.
“Take-up in Watford has been pitifully low for some time, and it is difficult to know exactly why, except that it has to fight Staines and Uxbridge for occupiers and is losing out,” he says.
However, Lambert Smith Hampton figures show that Watford’s take-up to the end of Q3 2010 was 175,000 sq ft, which is above the recent 10-year annual average of 154,000 sq ft. Despite this, along with most of the county, figures are significantly below the market’s pre-downturn performance. According to LSH, Watford’s take-up in 2007 was 284,000 sq ft.
LSH says that around 800,000 sq ft stands empty in Watford, including 234,000 sq ft of grade-A space. The agency expects up to 40,000 sq ft of good-quality secondhand space to come to market within the next few months as lease expiries and break clauses come into effect.
Strutt & Parker’s Willcock agrees that the long-term dearth of expansion activity in Hertfordshire means that landlords and their advisers are necessarily targeting lease events or consolidation.
Nevertheless, there have been recent signs of tenant movement. Budget retailer TK Maxx is understood to have entered talks to sublease 20,000 sq ft at 41-43 Clarendon Road from tenant Vinci Construction. It is set to pay a rent of around £20 per sq ft.
Separately, Malory Clifford’s Blackfriars Investments is understood to have appointed Brasier Freeth to market 75,000 sq ft of offices at Iveco Ford House above Watford Junction station in the event that sole tenant Iveco Ford Truck vacates. The truck firm is considering plans to consolidate into around 35,000 sq ft at Vision House on Colonial Way.
Prime rents held steady in Watford in 2010, at around £20-£21 per sq ft. Across much of Hertfordshire, however, rents have fallen back, and incentives have increased. Willcock says that prime rents sit between £18 and £20 per sq ft across the county. In particular, Hemel Hempstead has struggled after a good 2009, with rents slipping. According to LSH, they have fallen from around £20 per sq ft in 2008 to closer to £18 per sq ft.
Rental incentives trigger shortages of good-quality industrial stock
While parts of the South East are beginning to look attractive to industrial developers as they eye retailer demand for big-box sheds, Hertfordshire has remained stubbornly quiet.
According to Strutt & Parker partner Ben Wylie, this has been exacerbated by landlords “sitting on the fence” with regard to the terms they will consider. However, there is evidence that this is changing.
In October, printing and display firm Delta bought Henderson’s 178,000 sq ft Magnum 25 shed in Waltham Cross – a building that has remained empty since it was built five years ago – for its own occupancy, for around £12m. Market commentators suggest that Delta bought the warehouse for as much as a third less than it would have had to pay two years earlier.
At the end of 2010, Valad Property Group secured Watford’s largest warehouse deal for three years. Four separate units, totalling 40,910 sq ft, were acquired by Sigma Pharmaceuticals at the Ascot Centre on Watford Business Park.
Lambert Smith Hampton director Christopher Smiddy says: “Watford, like other centres, has seen a decline in industrial enquiries over the past two years, due to the recessionary climate’s impact on consumer confidence.”
He adds: “However, the level of competition between buildings in Watford has caused landlords to significantly reconsider their rental requirements, with many offering greater rental incentives. As a result, space is being disposed of and Watford is beginning to see a lack of quality stock.”
HelioSlough plans dismissed
Communities secretary Eric Pickles dealt a blow to those hoping for major industrial development in Hertfordshire last summer when he threw out HelioSlough’s plans for a £400m, 3.5m sq ft rail freight distribution hub at the former Handley Page airfield, between Park Street and Radlett (pictured above).
Following a six-week public inquiry, Pickles overturned the decision of the inspector and quashed the appeal on the basis that it would have too great an effect on greenbelt land.
HelioSlough is understood to be considering taking its case to the high court, but it declined to comment.
Agent Gerald Eve has decried the decision to turn down what it calls “one of the few opportunities to cut the shortage of land supply for B8 use in the region”.
