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Thames Valley offices start 2016 on a roll

With circa 500,000 sq ft under offer across the Thames Valley and a number of deals close to completion 2016 is set to start strongly, with Q1 expected to exceed the five-year quarterly average of 367,098 sq ft, reports Cushman & Wakefield.

In its latest Thames Valley office market summary the agent said the outlook in general is one of positivity, helped by a strengthening occupier market and healthy number of requirements.

Underlying demand within the Thames Valley is strong with 4.16m sq ft of requirements recorded in 2015 compared to 3.75m in 2014, Cushman & Wakefield finds.

"This demand is anticipated to translate into higher letting volumes throughout the year as occupier sentiment strengthens, businesses grow headcounts and absorb new supply," it adds.

The supply of grade A accommodation, able to satisfy larger requirements of over 20,000 sq ft, currently stands at 1.78m sq ft, below both the five and 10 year averages and has been consistently reducing, limiting opportunities for occupiers.

Cushman & Wakefield reports that rents are now closing in on, and in some instances exceeding, their pre-recession peaks with further growth anticipated. With the £50 per sq ft mark being surpassed in Hammersmith and Chiswick for the first time in 2015, Cushman & Wakefield expects to see rents closing in on £40 per sq ft for the best product in the strongest sub markets outside the M25 during 2016.

Developers and funds are committing to speculative development in order to capitalise on rental growth and to fix their build costs which have almost doubled over the last 10 years with more inflation to come.

Developers who had already taken the plunge and were being rewarded during 2015 included M&G/Bell Hammer at One Forbury Place, Reading (185,000 sq ft let to SSE) CarVal/Chester Properties at 5 Roundwood Avenue, Stockley Park and Oxford Properties at 400 South Oak Way, Green Park (105,000 sq ft let to Pepsico).

At present the majority of requirements across the Thames Valley are from indigenous occupants seeking to upgrade or expand to meet headcount growth, reports Cushman & Wakefield. Many corporates are also looking to increase their occupational densities through a change in workplace strategy in a drive to operate more efficiently and reduce operating costs.

An increasing number of occupiers based in Central London are looking to decentralise staff and functions due to escalating occupational costs which is expected to boost take up in the Thames Valley during 2016.

The lid on public sector demand is also being lifted, having been largely absent since the downturn in 2008. A number of large scale reviews are being undertaken which is likely to stimulate demand across the regional office markets in the medium term.

With 18 schemes (totalling 1.74m sq ft) under construction and a further 298,000 sq ft poised to start throughout the wider Thames Valley in the next 18-24 months a greater number of opportunities for both existing occupiers and new market entrants will arise.

As a whole 2015 saw the Thames Valley record its second strongest year of take-up since 2008.

Despite transaction volumes dipping by 34% quarter on quarter, with 348,506 sq ft let in Q4, the market sentiment remains strong.

It writes: "2015 annual transaction levels were almost on par with the highs witnessed in 2013, with letting volumes recording a 40% rise in annual take up on 2014, with 1.59m sq ft transacted, 8% up on the 5 year and 5% on the 10 year annual averages."

There were five deals in Q4 measuring over 20,000 sq ft and totalling 190,385 sq ft (55% of Q4 take up) including Adaptimune Theraputics' prelet of circa 67,000 sq ft at Milton Park, the IHS acquisition of 29,654 sq ft at Capitol, Bracknell and Sally Salon Services committing to the 25,379 sq ft at Inspired, Bracknell.