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RARE Seat Survey Q1 2022

RARE Seat Survey Q1 2022

**’The Times They Are a-Changin’

2021 was yet another stop-start year with lock downs and fears over Covid affecting occupiers’ willingness to undertake planned relocations. However, lettings in the South East region totalled 3.4 million sqft placing it just under the 5 year average and 42% higher than in 2020.

The lettings that took place revealed a growing trend that occupiers are increasingly taking smaller amounts of space reflecting the increase in hybrid working with employees choosing to work remotely for part of the week. That said, it does seem that there is growing recognition that the benefits of working at least part of the week in the office outweigh the inconvenience of having to travel there. Being seen in the office, mentoring and being mentored and just the sheer companionship offered by an office environment are all cited as reasons driving increasing numbers to go back to the office.

The continued flight to quality was evident in 2021 with 65% of take up being of Grade A quality space. Increasingly, the term Grade A almost requires a further classification. Whilst buildings which have been refurbished over the past 7 years may claim to be Grade A, the increasing levels of specification now defined as “leading edge” are significantly above where they would have been 7 years ago and occupiers are favouring the best specified buildings in order to “future proof” their accommodation and help them in their fight to attract new staff as well as to retain existing staff. Town centre schemes in particular, are pushing the envelope to create ever more sophisticated offerings. Such schemes include One Station Hill in Reading which will completely redefine Grade A space when it completes in 2024 putting it on a par with the best of what central London has to offer in an attempt to attract occupiers based in the Capital or considering a move into central London. There are an increasing number who are considering a relocation from the Thames Valley to central London Microsoft being the latest and possibly largest occupier to reveal it is focussing its new Headquarters search in the west-end rather than the Thames Valley where it has been based for the past 30 years. It was therefore good to read last week that Vodafone despite downsizing from seven to four buildings at its Newbury campus plans to retain its home in the Berkshire town for the foreseeable future.

However, there have been numerous examples of occupiers vacating their former headquarters. The trend began a decade ago with Sun Microsystems in Fleet and has been followed by others including Virgin Media at Hook, Hewlett Packard and BMW in Bracknell, and Eli Lilly in Basingstoke. This prompts the question what will happen to the buildings vacated by such occupiers? Increasingly, we have witnessed a number being redeveloped for warehouse space and latterly in Slough, SEGRO will redevelop much of its former Bath Road office portfolio to create additional data centre capacity on what has becomes the world’s second largest cluster of data centres.

Screenshot 2022 03 22 at 10.35.34

The other rapidly expanding sector in the Thames Valley is the Film and Media sector and this too has greedily acquired former office sites to satisfy its apparently insatiable appetite for ever larger facilities. At Winnersh Triangle land which may have once formed the next phases of the office element to the scheme have recently been pre-let to provide almost 200,000 sqft of studio space for Studio 55 for whom it will become their new HQ and just along the M4 at Shinfield, work on the new Shinfield Studios site is already well advanced with the first major production to be filmed scheduled to commence in early 2023.

Much of the regions poorer quality office space has already been removed from the supply chain through permitted development conversion to residential. This has maintained a tight control on supply resulting in there being only 4.4 million sqft (or just over 18 months supply) of office space currently available.

The constricted supply has been good news for office rents which far from falling due to the lower levels of demand seen since 2020 due to the pandemic, have surged reaching new record levels in towns including Windsor and Guildford and which now stand at £45 per sqft and £37.50 per sqft respectively. Reading, also widely tipped to receive city status later this year is now expecting its latest and finest scheme to break new records with the unofficial quoting rent at Station Hill expected to be between £45 per sqft and possibly £50 per sqft by the time the first building completes in 2024.

Whilst it is undoubtedly the case that large movers in the Thames Valley are each taking less space reducing their overall space take by up to 50% continued merger and acquisition activity and a desire to occupy the best space continues to drive demand. What is very noticeable is the way offices are occupied is also rapidly changing. No longer the dull rows of grey desks filled with computer monitors. These have been replaced with business lounges, break out space, meeting spaces and coffee bars creating a more informal, relaxed style of work-space to compete more effectively with home settings and designed to attract staff back to the office. Developers are increasingly looking at how they can load their schemes with attractive amenities and whilst some are simply gimmicks, some have given real thought to what they can provide to “add value” to the building. Attractively landscaped, secure spaces often situated on roof terraces and in internal winter gardens are increasingly rentalised to reflect the value they add to the occupiers’ overall enjoyment and viability of the space.

In this era of “levelling up” there has also been a levelling up of office rents with out-of-town schemes which offer good motorway connections and good parking ratios competing more effectively with in-town locations often better served by public transport links and access to better retail and leisure amenities. Who will be the winner in the long term remains to be seen.

2022 looked poised to start the year strongly. Sadly, events in Ukraine have thwarted this and the effects of the conflict have touched virtually every aspect of our lives whether it be due to increased fuel prices, increases in inflation leading to increased interest rates or commodity shortages and delays in the supply chain generally. At a time when the UK was emerging from the slump caused by the pandemic, we could have done without yet another crisis but we cling to the hope that the situation in Ukraine will be resolved quickly and there will be the opportunity to make up for lost time.

In the meantime we at Rare remain upbeat about the UK’s position in a post-Brexit Europe and our ability to quickly capitalise on opportunities as soon as they present themselves.

Our Q1 2022 Seat Survey is now available for download here.

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