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Poor year for the Thames Valley office market but a brighter year ahead
16 Feb, 2010, Thames Valley, UK
2009 was the most difficult year for office take-up in the Thames Valley market since the dot-com crash in 2001 according to the new Thames Valley Business Briefing released by property adviser Cushman & Wakefield. 2009’s total figure of 891,000 sq ft was the lowest since 2001 and 52% down on 2008. The outlook is brighter for 2010 however with the market expected to stabilise with the amount of empty office space expected to fall toward the end of the year.
The Thames Valley office market is the second largest in the UK after central London and is a significant driver of the south east economy. Although the development of new offices dropped significantly on 2008 (down by 83.5%), many existing tenants also decided to sublet excess space which meant that the supply of offices available to rent still increased year on year by 29%. Encouragingly however supply increased by only 2.4% in the last quarter of 2009 and the current supply of grade A space is only around 60% of that during the post dot-com downturn in 2003.
With tenant-led, sublease space exerting downward pressure on rental levels across the region, prime headline rents fell by 11.6% during 2009 to stand at an average of £23.90 per sq ft per annum – the lowest since 2004. Taking into account the effects of escalating tenants’ incentives packages however, net effective rental levels are some 30-40% below this level. These historically low office rents are now encouraging occupiers to review their property strategy and take advantage of lease breaks and expiries in anticipation of the economy improving. As a result there is now 2,450,000 sq ft of requirements for office space in the region, a marginal increase of 3.7% in the last quarter.
Charles Dady, head of UK Office Agency at Cushman & Wakefield, said: “2009 was not a vintage year but headline rents and incentives are now stabilising and, when we look back in 12 months’ time, the first quarter of this new decade may well be regarded as the turning point in the cycle. The recovery will be gradual but areas where supply is most constrained – the main CBDs for example – will see a quicker turnaround in fortunes as occupier confidence returns.”