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The RARE Seat Survey Q3 2018

The RARE Seat Survey Q3 2018

“Grab the hot seats and B competitive” is the call at the launch of the latest RARE Seat survey. Referring to the prime growth locations for investors and the opportunities for occupiers to seek competitive advantage in Grade B space, RARE launches its quarterly look at the South East Market.

In our latest Quarterly ‘Seat Survey’, tracking cost per workstation across the region, Slough and the towns following the Elizabeth Line continue to top the rental growth table with prime rents in Slough increasing 10% during H1 2018 and year-on-year this represents 30% growth. The next best performing town is Reading with a 22% uplift and the highest rent paid outside the M25 in Windsor at £41.20 psf. Cost per workstation is still up to still on average 35% cheaper than central London.

The supply and choice of Grade A&B Offices has continued to reduce for the 7th consecutive year to below 6M sqft across the region, down from 7.3M (2017) and 9M (2016). Some pundits are suggesting that a reducing supply and growing net absorption is a product of solid demand, however this is misleading, as it is the almost absence now of lower quality stock to alternative uses that has shortened overall supply, as well as over the last 12 months the tailing off of the development pipeline as developers sensibly anticipate cautious demand going forward. In identifying geographical ‘hot spots (or seats) and where not’, investors are encouraged to look to three key reoccurring wants that are focusing tenant demand on certain locations - those with a wide catchment of talent, are amenity rich & have strong connectivity. Whatever people say, cost will also always be an important driver for businesses to help them keep pace in a highly competitive market place and address the massive industry disruptions and changing working practices occurring almost everywhere. Crossrail will bring an extra 1M of working population within reach of Reading and 2M into Slough for instance. Carbon Black, a fast-growing cyber security business recently pointed to Readings talent pool as a key reason to set up its EMEA HQ at The White Building. They said – “The Thames Valley has always been viewed as a great location and an alternative to London where those who worked there often couldn’t afford to live.” So, what is the potential exposure of the Thames Valley market to Brexit related risk? If we look at which countries have been contributing the creation of 3,390 jobs in the region over the last year, it is the USA which tops the tables as the greatest influencer. Sectors seeing the most growth are Life Sciences (892 jobs), Automotive Engineering (693) and ITC (410).

Whilst new entrants tend to focus on the Grade A space more we have noticed that for indigenous companies looking to relocate it is the better value Grade B stock that is being taken up. This space remains 20% cheaper than prime however, we envisage that this gap will close as supply shortages place upward pressure on rents and Grade A rents become unaffordable for some low margin businesses. This is a growth opportunity which are exploring with investors particularly in urban centres which fulfil the dynamics of access to talent, amenity and connectivity.

Going forward, we see a measured rise in costs per workstation particularly in urban locations along the Elizabeth line whilst experiencing a slight decrease in surrounding towns which are competing to attract occupiers and are more likely to appeal to the indigenous local companies who tend to be more cost sensitive.

Click Here to see the latest RARE Seat Survey

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