View West: Offices, industrial & logistics report - October 2022

View West

Offices, industrial & logistics

Introduction

The office market across the Thames Valley and Surrey area is at a pivotal moment as the pendulum continues its swing back towards the workplace.

We continue to see companies embrace hybrid working and seek to redesign, repurpose and relocate their offices to suit.

We’re monitoring market activity closely, as energy prices increase alongside the cost-of-living crisis which could impact the market as we head into the last quarter of 2022.

Meanwhile, the boom that we have seen in the industrial and logistics sector continues unabated with much-needed supply required across the South East.

Lack of supply together with continued demand continues to see rents rise, although we are seeing the heat come out of the very top of the market.

In this report, we look at what is happening on the ground across the Thames Valley and Surrey regions in both the office and industrial markets.

We explore themes such as supply and demand, design and delivery, and rental trends, as well as some of the key market transactions of the last six months.

As the economic and political landscape continues to evolve quickly, our agents on the ground in the Thames Valley and Surrey regions are monitoring developments closely to help you make the most of the opportunities available to you – whether you are an occupier, landlord / investor, developer or landowner.

For more information or to speak to us about your regional property needs, get in touch.

Guy Parkes

Partner – Thames Valley Agency

T: +44 (0)778 818 8874

E: gparkes@vailwilliams.com

Office sector

Charlie Nicholson

Partner – Surrey Agency

T: +44 (0)776 967 5680

E: cnicholson@vailwilliams.com

Trends

2022 has been the lightbulb moment when businesses have realised that creativity, collaboration and connection amongst their colleagues has suffered long enough, resulting in a widespread acceptance that hybrid working is the way forward.

When the CEO of Zoom says to his staff that people are spending too much time on Zoom, you know you have a problem.

As companies become more comfortable with hybrid working, they will look to redesign, repurpose and relocate their offices, to remain relevant and compete for talent.

We believe this will fuel new office development in the regions with smaller, more local offices which are easy to access and become part of the wider work ecosystem.

There was a time when we expected office moves and take-up would bounce back quickly in 2022, but the first six months of the year were slower than expected for several reasons.

The year started in lockdown, then came the unfortunate events in Ukraine and the uncertainty this caused in the markets. This has been followed by the cost-of-living crisis and rising inflation, which together with a lack of desire (by some) to return to the office has impacted the market.

Some employees continue to argue in favour of working from home, citing factors such as productivity, commute time, quiet time, ability to do concentrated work and have private calls as key benefits.

Yet, as research by Leesman makes clear, this encompasses just 12% of the 25 core benefits of the office workplace which include collaboration, meeting clients and peers, innovation – not to mention learning and career progression.

In speaking with several CEOs and business leaders, many are planning for higher office vacancy rates. Despite this, research by The Economist has shown that approximately 33% have returned to the office full time, however, close to 76% of workers in Europe now expect flexibility in the workplace.

This reinforces the trend towards more flex and hybrid working – adjustments and changes to workstyles which will be deep and long lasting.

Calvin Williams, Director at Blue Jelly, commented:

With an acceptance from businesses that Hybrid working forms part of new working practice, we are looking to embrace innovative designs with our clients return to work to create inspiring, productive and exciting office environments.

People have become used to the variety and comfortable surroundings of their home. To harness the benefits of this variety, workplace design needs to ensure that a ‘best of both worlds’ philosophy is adopted, allowing staff to know that their time in the office is productive, enjoyable and time well spent.”

Market activity

It was only after Q1 that we started to see the move towards hybrid working be reflected in the office market, with 265 deals spanning over 887,000 sq ft of office space over the first half of 2022.

Despite a visible difference in footfall within our towns and cities, office attendance still isn’t quite there yet, sitting at approximately 20% off pre-pandemic levels with businesses still taking some 40-50% less space than before the pandemic.

As a result, take up, whilst heading in the right direction, has been lower than the long-term average, with just a handful of deals in each town or city across the Thames Valley and Surrey regions.

We have also seen several businesses in the TMT sector leave the Thames Valley. Dell and Hewlett Packard already closed their doors, and questions remain over whether Virgin Media O2 will retain its 250,000 sq ft of space in Slough.

Rather than see this as a worrying trend, we see it as opportunity for new and thriving sectors to further their expansion in the Thames Valley – particularly the growing film industry and life sciences sectors where occupiers remain resilient.

Indeed, we are seeing more and more investors enter these markets as occupier demand soars – from 50Digital in Reading to Shinfield Studios at the Thames Valley Science Park.

Media and gaming companies, professional services and the public sector have been the early adopters of the return to the office, taking a much more strategic and longer-term approach to their future office needs.

These businesses have been the driving force behind office activity across the Thames Valley and Surrey regions.

Meanwhile larger corporates have been more cautious, adopting a strategy of one to two days in the office per week / month. This is having an adverse impact on the vitality of some of the bigger business parks, where some now lack hustle and bustle and sense of community.

Some have adopted more of a business campus approach; others have opted for a hub and spoke strategy.

Discussing their approach to a return to the office, Lynita Roberts, Project Planner at Concurrent Technologies based just outside Reading, comments:

It was important to us post-pandemic to get the team functioning from the right workplace environment.

We had made do in a sensibly sized space within a serviced office over the last two years but felt that did not give us the dedicated space to function as required.

In moving onto an established business park location which is rich with amenity, landscaped grounds and good parking; it has allowed the workforce to feel confident in returning to the workplace in a safe setting. Interaction between the staff on a regular basis is so important to us as a business.”

We are also seeing a small proportion of businesses forego their secondary offices in the region altogether, in favour of one central London presence.

More often than not this will be a temporary measure to retain a core head office base whilst taking supplementary flex space in the regions, close to staff, until they know exactly what they need.

SMEs, who are much more fleet of foot, have continued to increase their serviced office take-up, and many are moving into towns to benefit from this space, allowing a shorter and more flexible approach – at a cost premium.

The Office Group and WeWork offer bespoke suites, fully fitted and managed with a fixed entry and exit cost. Landlords are also offering this sort of Cat A plus or capsule space, which is a hybrid solution between serviced and leased space.

Reading, which saw an annual take up for town centre office space last year of around 50,000 sq ft, has already seen 70,000 sq ft in lettings to date in 2022, with cybersecurity specialists Rapid 7 taking 22,616 sq ft at 2 Forbury Place in a move from out of town into Reading town centre and the County Courts’ 27,437 sq ft acquisition of The Carbon Building.

The majority of moves have been to fully fitted and furnished space, where occupiers haven’t needed to commit to CAPEX upon entry.

Heathrow, which has faced pressure because of the pandemic, is experiencing growing demand at locations including Stockley Park, with occupiers following hot on the heels of Canon’s 151,000 sq ft HQ letting in 2021. Amenity rich and highly accessible locations like Stockley Park and Bedfont will continue to be in demand, and we expect rents to rise here over the coming months.

In Maidenhead, works to revive and increase the amenity offer in the town are already reaping rewards, with Ultra Electronics taking 56,000 sq ft at Foundation Park on a 20-year lease.

Evidence of scaling rents is demonstrated by the recent letting at 4 Longwalk, Stockley Park to PGMOL, the Premier Leagues VAR hub, taking 14,000 sq ft at a new high of £39.50 per sq ft. This is fuelling further refurbishment of offices such as at 3 Roundwood where Vail Williams is advising on the new design and next generation of workspace.

Across Surrey, we have seen a notable rise in the popularity of locations such as Weybridge, where over the last 18 months, Vail Williams have transacted over 100,000 sq ft of office deals for clients including Page Group, Sony and Surrey County Council.

Staines, for example, continues to see strong activity with various lettings at Lotus Park on behalf of Legal and General and there is notable interest in their ‘Capsule’ fitted Cat A+ concept.

Finally, the life science sector gains pace in Surrey, with British Land’s investment in Guildford Research Park expected to further boost life sciences occupiers.

Some have adopted more of a business campus approach; others have opted for a hub and spoke strategy.

We are also seeing a small proportion of businesses forego their secondary offices in the region altogether, in favour of one central London presence.”

Supply

There is approximately 9.5m sq ft of office space on the market across the Thames Valley and Surrey region, the majority of which is large 100,000 sq ft plus schemes such as Tempo in Maidenhead, Campus and Here + Now in Reading, as well as Botanica, Ditton Park, Slough.

However, availability of the latest generation Grade A or Cat A + space is beginning to dwindle across the region, as there is limited planned new development in the pipeline.

The risk premium of rising construction costs, higher finance rates, softening yields and economic uncertainties may curb development further, meaning that refurbished Grade B space will start to fill the gap.

Following recent departures and downsizing across the Thames Valley region, particularly in the TMT sector, we could see the return of ‘grey’ stock into the market, where second-hand space now dominates.

This will come in locations traditionally tight on supply including Green Park, where Bayer have released 40,000 sq ft along with Thales and also at Thames Valley Park.

At the latter, Microsoft’s former HQ has been reimagined as an exciting new destination renamed ‘Here & Now’ with the highest environmental credentials targeting BREEAM Outstanding, Fitwell 3* as well as RESET Air certifications.

Reading development and refurbishment remains strong, with work underway at Station Hill, and quality space delivered at our new home, Apex, as well as the campus development bang on Junction 11, M4.

Slough, which is set to benefit from the opening of Crossrail, has several key developments which will deliver quality office space, including the mixed-use redevelopment of Queensmere Shopping Centre and Muse’s North West Quadrant, where we are advising on up to 500,000 sq ft of commercial space.

Following Segro’s acquisition a 957,988 sq ft portfolio of offices on the Bath Road, we will see the 39-acre development converted into a global cluster for data centres, creative industries, life sciences as well as industrial uses.

There is approximately 244,000 sq ft of quality office space available in and around Weybridge, with just under 120,000 sq ft of Grade A stock in Guildford –which has fast become a gaming hotspot.

Woking, meanwhile, continues to steal Guildford’s office thunder, where Grade A office availability sits at just under 230,000 sq ft. However, this is slowly diminishing as a result of its position as a key office market in the south east, where Woking Borough Council has played a significant role in accelerating office success, alongside significant investment in public realm.

Supply of quality space in Maidenhead continues to rise, with Legal & General’s 120,000 sq ft refurbishment at Tempo due to complete early in 2023. This is set to absorb much of the demand for upgraded accommodation in the town, where higher environmental credentials and inbuilt amenities are now being requested. Meanwhile in Staines and Chertsey, there is around 215,000 sq ft of office space, significantly down on 12 months ago.

Out of town

We are starting to see a polarisation in the office market, and not necessarily the tradition in town vs out of town dynamic, but more to do with the quality of space being offered.

There is an increased divergence between those buildings that have been invested in and have strong fundamentals such as location, parking, amenity, quality of finishes, vs those in secondary locations that are under-invested in.

Those business parks that are under single ownership are excelling, as they continue to offer engaging workplaces with annual calendars of events for employees to enjoy – from Winnersh Triangle and Green Park in the Thames Valley to The Heights and Bourne Business Park in Surrey.

However, at the other end of the market we are seeing business parks under multiple ownership struggle to compete in the race to offer such ‘corporatality’.

Some of these are ripe for alternative uses, such as industrial development to help stem regional demand.

Second-hand offices on business parks without a strong amenity such as Maidenhead Office Park are likely to be recycled for alternative uses such as industrial redevelopment and residential.

At the other end of the scale, following their acquisition of The Heights at Brooklands in Surrey, Kennedy Wilson invested in a comprehensive refurbishment programme, enabling them to answer to the flight to quality that was being seen in the occupier market.

Bourne Business Park is another Surrey location which has experienced a surge in lettings. We recently acted for Page Group who have chosen to remain there, taking 7,500 sq ft thanks to the quality of office space and onsite amenities on offer.

Foundation Park in Maidenhead has also had a series of successes, including defence contractor Ultra Electronics’ 56,000 sq ft off plan pre-let.

Pre-lets will become more of a feature as companies demand the best-in-class space with the very latest tech features and environmental credentials, however some of this is constrained by the limited office development pipeline across the south east.

We expect a further ‘development drag’ as rising interest rates and increasing construction costs delay new development and refurbishments coming forward, as financing pressure increase, affecting development appraisals.

Will businesses be able to absorb costs and risk by paying a higher rent per sq ft rate? Downsizing and condensing space, sometimes by 40-50%, might allow some companies to reduce their overall operational costs whilst still paying a higher rent for better quality office space.

The spectre of grey space

Having spent the last 12 months fully understanding how their employees will use their office space, some businesses are now concluding that they have too much space.

As some downsize, there is the potential for grey space to return to the market. Depending on lease clauses, some tenants may be able to sub-let their grey space, meanwhile others will surrender it to the landlord.

A good example of this is Huawei’s recent departure from Green Park downsizing from 130,000 sq ft to close to 30,000 sq ft and Astellas Pharmaceuticals who, having taken circa 58,000 sq ft at buildings 200 & 300 Bourne Business Park in Surrey, have chosen to market the space as they embrace their new workplace strategy.

It is the sort of space that is so bespoke, designed as it is for a specific occupier, that it can prove difficult to lease. To attract the right occupant, such buildings will need to have all the fundamentals.

We don’t see grey space affecting the prime market which will progress unabated, but it could impact the secondary out of town market, where business parks without quality amenities and additional benefits will likely lose out.

Whilst some could be repurposed by landlords for alternative uses, we could see an oversupply of grey space in the sub-Grade A market which is creating a sense of nervousness as a result.

The forward-thinking landlord might consider taking back such space and refurbishing it – either for continued office use or, depending on the size and location of the space, other use. Taking back space may also help consolidate the leasing strategy and control the outcome.

For buildings that aren’t letting where there is a reluctance to invest in refurbishment for whatever reason, landlords still have the opportunity to turn offices to residential use under permitted development rights, or the assets could go for industrial / logistics use, depending on its location and access to transport networks.

Invest to yield up

Landlords and investors wishing to achieve good quality tenants and command higher rents, will need to yield up their prime space. But what do we mean by that exactly?

Well, occupiers will pay more for access to high-quality common space – the spaces in between like large atriums, roof cafés and collaboration areas.

If your asset has a good level of shared space or quality common multi-purpose areas, save some of this as occupier flex space and you will surely let your building quicker.

The flexibility of this space for different uses will allow you to build this into the rent you can command, allowing for a more lettable building – and a better yield.

If you don’t invest in your assets and give up the prime common space for let, in our experience, you will lose out in the long run.

We continue to see those offices where refurbishment hasn’t taken place, remain on the market, so start to identify those buildings which have this sort of space available, and invest in them, as these will come at a cost premium.

If your asset has a good level of shared space or quality common multi-purpose areas, save some of this as occupier flex space and you will surely let your building.”

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How to create offices with purpose in mind

To inform the design of your space, we spoke to interior design specialists Morgan Lovell for some top tips. Here’s what they had to say.

• What do employees need? How will they use your space? These are questions that should guide your thinking.

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As an organisation, you also need to understand how purpose varies by individual, team, and department.

Some companies may need to change employee contracts to support remote working and have the office as a fully hybrid space.

Some teams, such as finance, may spend a week in the office at the end of the month for collaborative work.

• It’s also important to remember that individual preferences depend on a person’s role.

•

On average, admin staff need to use desks far more frequently than managers or sales team members do.

Don’t be afraid to fail

You will get things wrong in the post-pandemic office, especially on the first go. Although we may be over the worst of the crisis, the future is full of unknowns. As such, it’s important that your organisation is open to testing new initiatives, learning from mistakes, and remaining flexible.

Morgan Lovell morganlovell.co.uk

Rents

Best in class new stock will continue to be in great demand and rents are continuing to push on for this standard of office.

Record rents have been recorded at Windsor, Watford, St. Alban’s, Hemel Hempstead and Guildford because of the flight to quality. Indeed, there is talk that the top floors at Station Hill Reading have already moved on from indicative rents of £47.50 to potentially closer to £60.00 psf.

Headline rents achieved are already hitting £37.00 psf in Guilford, but we expect this to push on to £40.00 psf in the near future.

Buildings that have undergone back to frame refurbishments with generous amenity space are capable of commanding higher rents, including the likes of Tempo, Maidenhead and Campus which should be capable of achieving £45.00 per sq ft plus.

Meanwhile, you can expect to pay between £35.50£36.00 psf in Weybridge, with rents pushing north of this at locations such as The Heights.

Buildings that have undergone back to frame refurbishments are commanding higher rents, including Green Park which sits at £50.00 psf, attracting telecommunications and internet company, Three.”

What does the future hold?

Record

Windsor Watford St. Alban’s Hemel Hempstead Guildford

But their requirements may change if there is a recession. We are keeping a close eye on the economy and how things evolve over the coming months as statistics from Government indicate rising numbers of business insolvencies.

If there is a recession, businesses may begin to move their office goalposts in favour of making business efficiencies.

In the meantime, we expect to see the benefits of the opening of the Elizabeth Line start to bear fruit across the Thames Valley and Surrey as connectivity improvements are realised.

With The Elizabeth Line opening up the region to the tube network for the first time, will come greater access to talent.

Of course, this could prove to be a double-edged sword, as build to rent schemes come out of the ground in London, attract talent back into the city.

However, coming together on one central campus in London would require a much more flexible approach to work and significant investment, with a higher reliance on IT and Working from Home.

As we look ahead to 2023 and beyond, we are likely to see a second wave of office activity.

Some businesses won’t want to peak too soon and may require further space on shorter leases with three-year breaks, instead of the usual 5-yearly breaks we have become accustomed to.

We will be watching this closely over the coming months as businesses consider whether they can afford not to go hybrid.

Another area we are keeping a close eye on is the potential for the office market here to fall victim to the rise in demand for industrial space and data centres.

Guildford

£35.50 to £36.00 psf£37.00 psf

This could support the movement of some businesses away from regional hubs, back into London, like Oracle and Microsoft have.

We are starting to see swathes of office space taken out of the market for industrial development.

Weybridge Business Park was recently sold for redevelopment into an industrial / logistics hub, removing a significant amount of office space from the market.

rents This trend could result in significant office space shortages throughout the Thames Valley and Surrey into 2023.

£47.50 to £60.00 psf*

With opening up the region to the tube network for the first time, will come greater access to talent.

Employers know that they have got to get the best space if they are to attract and retain talent and get their teams back into the office.

2023: The return of presenteeism?

It is possible that, with the potential for continued economic turmoil and financial hardship, towards the end of the year and into 2023, we could see the return of presenteeism in the workplace, as employees start to worry over job security into the Winter months.

David Barden, Partner, Lease Advisory:

Market transactions

Registered Insolvencies

Depending how the UK economy fairs over the coming months, and with advent of darker nights and potentially tougher times this winter, there may be a rise in office attendance, as people seek to demonstrate their value add to employers.” 12,545 – Jan-Jul 2022 67% increase on July 2021 figures

Staines

Location: Causeway Park 2, The Causeway, TW18 3BF

Transaction type: Letting

Size: 47,254 sq ft

Rent: £32.00 psf

Tenant: ADP

Landlord: Hunter REIM

Guildford

Location: 3 London Square, GU1 1UJ

Transaction type: 10-year lease

Size: 20,172 sq ft

Rent: £34.00

Tenant: Clyde & Co

Landlord: M&G Real Estate Ltd

Staines

Location: Lotus 1, The Causeway, TW18 3AG

Transaction type: Letting

Size: 8,202 sq ft

Rent: £40.00

Tenant: Deutsche Post

Guildford

Location: 65 Woodbridge Road, GU1 4RD

Transaction type: 5-year lease

Size: 17,358 sq ft

Rent: £36.00 psf

Tenant: Supermassive Games Limited

14 Landlord: Mayfair Capital Investment Management Ltd

Landlord: Legal and General Investment Management

Reading

Location: 2 Forbury Place, Reading, RG1 1AX

Transaction type: 10-year lease

Size: 22,616 sq ft

Rent: £36.50 psf

Tenant: Rapid 7

Landlord: M&G Investment Management

Maidenhead

Location: 22 Market Street, Maidenhead, SL6 8AD

Transaction type: 10-year lease

Size: 21,082 sq ft

Rent: £33.50

Tenant: TTI

Landlord: Clearbell

Maidenhead

Location: Foundation Park, Maidenhead, SL6 3UG

Transaction type: Pre-Let - 20-year lease

Size: 56,000 sq ft

Rent: £36.00

Tenant: Ultra Electronics

Landlord: J.P. Morgan Asset Management

Windsor

Location: One Victoria Street, Windsor, SL4 1YB

Transaction type: 15-year lease

Size: 45,977 sq ft

Rent: £43.00 psf

Tenant: Intersystems Corporation

Landlord: L&G Investment Management

Windsor

Location: Windsor One, Windsor, SL4 1RS

Transaction type: 15-year lease

Size: 57,387 sq ft

Rent: £42.50

Tenant: InterContinental Hotels Group

Landlord: Canmoor

Stockley Park

Location: The Bower, Stockley Park, UB11 1EJ

Transaction type: 10-year lease

Size: 151,074 sq ft

Rent: £36.60

Tenant: Canon Europe

Landlord: Clearbell

Maidenhead

Location: York House

Transaction type: 15-year term

Size: 10,781 sq ft

Rent: £30.00 per sq ft

Tenant: Myworkspot

Landlord: Hawk Investments

Reading

Location: Earley East, Thames Valley Park

Transaction type: 10-year term/ 5 year break

Size: 33,964 sqft

Rent: £36.00 per sq ft (1st Flr) £34.24 (Gnd)

Tenant: Huawei

Landlord: Spear Street Capital

Trends

As 2022 progressed, we started to see the heat come out of the very top of the industrial market as cost-price inflation with an effect on build costs, supply chain issues and the increased cost of fuel and energy have begun to bite; these have all had an impact on sentiment and finance rates and yields.

Despite this, transactional activity has continued with demand for industrial space continuing to outstrip supply.

We have seen the way in which industrial occupiers enter into lease agreements evolve throughout 2022. Gone are the days where landlords are happy to accept RPI-linked rental increases. Lease agreements are evolving.

Whereas you would traditionally agree Heads & Terms and then enter into agreement to lease or purchase a building based on a fixed rent, we are seeing a great deal more proposals with inflation related caveats and scenarios built in.

Over the past six months, the whole nature of an industrial deal has changed, and occupiers need to budget for rent inflations and ensure that, working with a property professional, they forecast for every potential scenario possible, to avoid any unwanted surprises.

Industrial sector

However, such is the demand for industrial space and development land for industrial use, that it remains a competitive sector – both from an investment and occupier demand perspective.

Indeed, the first half of 2022 saw record levels of industrial take up continue above the long-term average across the Thames Valley and Surrey, with hotspots of activity in the film production and life sciences sectors.

As interest rates continue to rise, we could see this affect borrowing / finance in industrial construction and development into 2023, and therefore the pricing of the end let investment.

Indeed, we are being approached by several lenders against schemes for project monitoring advice to keep a close eye on this.

Meanwhile, for occupiers, as rents continue on an upwards trajectory, and a lack of meaningful supply persists, this is painting a worrying picture – particularly ahead of Revaluation 2023 and the potential for a significant business rates hike.

Rising build costs mean that developers and landlords can’t fix a price today, they need to build in inflation.

Vail Williams has the professional expertise and market knowledge to run various scenarios for you – whether occupier or landlord – from open market rent review and index-linked reviews, or the higher of both, so that you can plan effectively.

Market activity

Take up of industrial space across the Thames Valley and Surrey regions continues, with two or three applicants lining up to view the majority of buildings, from a good range of sectors.

There remains a significant level of logistics space under offer across the region at sites including Chertsey Industrial Park where six out of eight speculatively built units have quickly let .

E-commerce and last mile delivery demand remained high, and we do not see this changing as consumer habits continue to feed the industrial sector, with around a third of retail transactions now happening online. However, we are keeping a keen eye on the latest retail trends, which recently reported an 8% drop in online sales.

Over the past six months Yusen Logistics took 31,974 sq ft at Tyson Park near the M3 in Basingstoke on a 10-year lease where new headline record rents are being set, and in Reading, Pulleyn Transport Ltd committed to 29,061 sq ft at Worton Drive. Meanwhile, Menzies Distribution Ltd committed to 49,811 sq ft of space at Green Lane in Hounslow.

Demand for lab and R&D space has continued to soar, biting into traditional industrial and logistics locations such as Reading, Maidenhead, Slough and Heathrow.

Polaris Medical Services Limited took 16,720 sq ft at Priors Way in Maidenhead on a 10-year lease.

Meanwhile the film industry’s exodus out of West London to the Thames Valley continues, and those who have already located here, are expanding their presence.

Studio 54, which originally took 180,000 sq ft at Winnersh Triangle in Reading are now looking at a 295,000 sq ft pre-let in High Wycombe at Junction 4 of the M40.

Pinewood Group continue their expansion at Shepperton Studios in Surrey. Once complete in 2023, it will be one of the largest TV and film studios in the world, cementing the region as a leading location for the UK and international film industry.

Meanwhile, just north of Maidenhead, plans have been submitted 167,800 sq m Marlow Film Studios, which is expected to create more than 4,000 jobs and attract global investment and prosperity to the area.

Dido Property has submitted the application, through Arrow Planning, to turn a former land infill site alongside the A404 at Westhorpe Junction in Little Marlow into a state-of-the-art film studio development.

However, following a recent study by the British Film Industry in relation to UK independent film, there are concerns that the UK’s independent film sector ‘is inhibited to the point of market failure’1. We don’t expect this to affect the property market in the immediate term, but it is something that we are monitoring amid rising production and cast costs and crew shortages.

Lease evolution

Whereas you would traditionally agree Heads & Terms and then enter into agreement to lease or purchase a building based on a fixed rent, we are seeing a great deal more proposals with inflation related caveats and scenarios built in.

Over the past six months, the whole nature of an industrial deal has changed, and occupiers need to budget for rent inflations and ensure that, working with a property professional, they forecast for every potential scenario possible, to avoid any unwanted surprises.

Over the past six months, the whole nature of an industrial deal has changed, and occupiers need to budget for rent inflations and ensure that, working with a property professional, they forecast for every potential scenario possible, to avoid any unwanted surprises.”

We have seen the way in which industrial occupiers enter into lease agreements evolve throughout 2022. Gone are the days where landlords are happy to accept RPI-linked rental increases. Lease agreements are evolving.

Industrial design

There remains a focus on high-quality industrial buildings boasting green credentials as the focus on Environmental, Social and Governance (ESG) policies continues to increase.

Shrewd landlords are already looking beyond initial supply shortages and high demand, to create much greener buildings in readiness for what sort of stock occupiers require as standard.

“Creating more sustainable spaces for a diverse mix of customers is critical if we want to ensure that the Slough Trading Estate is the location of choice for both large and small businesses within the Thames Valley,” explained James Craddock, SEGRO’s managing director for the Thames Valley.

Such is the focus on ESG that landlords are more willing than ever to invest in their buildings to make them more carbon neutral, with the addition of Solar PV and electric vehicle charging points, to name but a few. Our building surveying and project management teams in the Thames Valley and Surrey are on hand to support clients in this area.

Explaining the sustainability overhaul of a 1980s 20,210 sq ft unit on Slough Trading Estate, James continued:

“The refurbishment of older buildings is an important part of our journey to be net-zero carbon by 2030. This scheme is a great example of how existing buildings, where appropriate, can be transformed into more modern, efficient, greener spaces that enable low carbon growth now and into the future.”

The unit will be net-zero carbon in operation and SEGRO aims to achieve BREEAM Excellent and EPC A+ ratings.

Yield Compression

As the heat comes out of the very top of the market and amid record inflation rates and build costs, there is the potential for yields to continue to harden off slightly. With this in mind, investors will need to carefully consider the merits of their industrial investments into 2023.

The downward pressure on industrial yields continues, however, investors are still building in rental growth expectations, which we expect to continue in the short term.

Rental values

As build costs continue to rise, we will see rents increase in order to sustain the pricing of constriction and the purchase of land.

We are beginning to see some businesses squeezed out of the West London and Heathrow / Park Royal markets towards the Thames Valley as a result.

To date in 2022, record headline rents continue to be achieved, creating an incredibly competitive market in redevelopment / development terms.

There remain pockets of affordability in places such as Camberley / Frimley and north to Wokingham or further west to Newbury and Swindon, however places like Park Royal are seeing rents compete with offices at £30 psf on a par with offices.

We expect some businesses will struggle in certain locations amid rising rents and business rates hikes, so there are choppy waters ahead for some businesses in the industrial sector.”

Where planning permission has been achieved and schemes are building out, we have seen record rents at places such as Tyson Park in Basingstoke where we are seeing £11.50 psf achieved.

With Revaluation 2023 on the horizon, we are expecting to see a significant impact on industrial occupiers.

We expect some businesses will struggle in certain locations amid rising rents and business rates hikes, so there are choppy waters ahead for some businesses in the industrial sector.

Visit our Revaluation 2023 Hub for more information, and our business rates experts will be able to help.

Land pressure

As ever, supply of land for industrial development remains a key challenge in the Thames Valley and Surrey. This is putting pressure on both occupiers, landlords, investors and developers.

With so many demands on land – from residential, care homes and industrial uses – land values continue to rise, with investors and developers chasing the same opportunities, albeit there has been a softening in the market in recent months in some sectors.

The inflexibility of the planning process in being able to keep up with the economic changes in demand, is exacerbating the problem.

As a result, industrial land values, in many areas, exceed residential levels.

So challenging is the situation that questions have been raised by industry as well as local boroughs, over the need for a cross-county / planning boundary strategy to ensure industrial security without taking away from other regional economic needs.

Despite this, in Newbury the first planning application to redevelop the 11.13-hectare site at London Road Industrial Estate (LRIE) is to be submitted next year, some 20 years after the concept was first mooted. If approved, it could bring hundreds of jobs to the area, along with much-need industrial supply.

Andrew Osborne, Head of Development, Vail Williams:

As a commercial industry we need to be more geared up to deliver strategic land and enable a longerterm view on the delivery of this across the Thames Valley and Surrey.

“Only by working better together as a region with the planning authorities will we be able to ensure that industrial development opportunities win out over residential in the more strategic locations around the M4 and M3.”

Market transactions

Reading

Location: Unit A Island Road

Transaction type: 10-year lease

Size: 127,500 sq ft

Rent: £11.75

Tenant: UPS

Landlord: LaSalle Investment Management

Reading

Location: 1 Acre Road

Transaction type: 10-year lease

Size: 66,559 sq ft

Rent: £9.85

Tenant: Ceramex

Landlord: Aberdeen Standard Investments

Market transactions

Bracknell

Location: Unit 2 Segro Park

Transaction type: 10- year lease

Size: 60,105 sq ft

Rent: £11.50

Tenant: GXO Logistics

Landlord: Segro plc

Bracknell

Location: Unit 3 Westpoint, 43 Western Road

Transaction type: 10-year lease

Size: 43,649 sq ft

Rent: £13.25

Tenant: Natural Baby

Landlord: M&G Investments

Farnborough

Location: Farnborough 170, Hawley Lane, GU14 9AX

Transaction type: 10-year lease

Size: 168,026 sq ft

Rent: £12.50

Tenant: DFS

Landlord: Fenwick

Weybridge

Location: 26-28 Avro Way, KT13 0YR

Transaction type: 5-year lease

Size: 10,503 sq ft

Rent: £15.71

Tenant: Edward Miles & Co

Landlord: Stuart Property Holdings

Guildford

Location: Unit 6 Henley Business Park, GU3 2DX

Transaction type: 10-year lease

Size: 41,848 sq ft

Rent: £11.75

Tenant: Mzuri Group

Landlord: Savills Investment Management

Esher

Location: A1&A2 – Equus, Mill Road, KT10 8BL

Transaction type: 10-year lease

Size: 31,563 sq ft

Rent: £13.50

Tenant: PXG

Landlord: Miscombe Limited

Get in touch

We have been advising public and private sector organisations across the Thames Valley and Surrey on their strategic property needs for over 30 years.

Guy Parkes Partner

Acquisition and disposal

T: +44 (0)778 818 8874

E: gparkes@vailwilliams.com

Kevin Cook

Partner and LLP Member

Acquisition & Disposal

T: +44 (0)776 783 4555

E: kcook@vailwilliams.com

David Thomas Partner

Occupier Advisory

T: +44 (0)781 507 1882

E: dthomas@vailwilliams.com

Andrew Baillie

Associate

Acquisition & Disposal

T: +44 (0)7502 233 770

E: abaillie@vailwilliams.com

Charlie Perkins

Surveyor

Acquisition & Disposal

T: +44 (0)7545 803419

E: cperkins@vailwilliams.com

Natalie Cummins Surveyor

Acquisition & Disposal

E: ncummins@vailwilliams.com

Our team of experienced property experts advises on the full lifecycle of your property needs, whether you are an occupier, landlord, investor or developer.

To discuss your property requirements, get in touch.

Charlie Nicholson

Partner

Acquisition and disposal

T: +44 (0)776 967 5680

E: cnicholson@vailwilliams.com

David Barden Partner

Lease Advisory

T: +44 (0)779 976 0323

E: dbarden@vailwilliams.com

Steve New Partner

Acquisition & Disposal

T: +44 (0)7815 071882

E: snew@vailwilliams.com

Arabella Macrae

Surveyor

Acquisition & Disposal

T: +44 (0)7775 862 913

E: amacrae@vailwilliams.com

James Newton Surveyor

Acquisition & Disposal

T: +44 (0)7393 235709

E: jnewton@vailwilliams.com

George O’Connor

Graduate Surveyor

Acquisition & Disposal

T: +44 (0)7836 544 564

E: goconnor@vailwilliams.com

Courtney Cox

Lease Advisory

Acquisition & Disposal

E: ccox@vailwilliams.com

Kaitlin Melledew

Transaction Coordinator

E: kmelledew@vailwilliams.com

Our Offices and Regions:

Gatwick Region

Crawley

Unit 4 Peveril Court

6-8 London Road Crawley, West Sussex RH10 8JE

T: +44 (0)129 361 2600

Brighton Projects

8-9 Ship Street Brighton East Sussex BN1 1AD

T: +44 (0)129 361 2600

Midlands and North Region

Birmingham Edmund House 12-22 Newhall Street Birmingham B3 3EF

T: +44 (0)121 654 1065

Leeds Princes Exchange Princes Square Leeds LS1 4HY

T: +44 (0)113 322 6246

South Coast Region

London Region

London 2nd Floor 33 Cavendish Square Marylebone London W1G 0PW

T: +44 (0)203 589 0050

Our Services:

• Building Consultancy

• Business Rates Consultancy

• Commercial Property Investment

• Lease Advisory

• LPA Receivership

• Marine and Leisure

• Occupier Advisory

• Property Acquisition and Disposal

• Property Asset Management

• Property Development Consultancy

• Property Planning Consultancy

• Property Valuation

Southampton Savannah House 3 Ocean Way Ocean Village Southampton SO14 3TJ

T: +44 (0)238 082 0900

Surrey Region

Woking

One Crown Square Woking Surrey GU21 6HR

T: +44 (0)148 344 6800

Portsmouth Lakeside North Harbour Western Road Portsmouth PO6 3EN

T: +44 (0)239 220 3200

Bournemouth Everdene House Deansleigh Road Bournemouth BH7 7DU

T: +44 (0)120 255 8262

Thames Valley Region

Reading Apex Plaza

Forbury Road Reading RG1 1AX T: +44 (0)118 909 7400

Heathrow 450 Bath Road West Drayton Heathrow UB7 0EB

T: +44 (0)208 564 8300

Vail Williams LLP, a Limited Liability Partnership, registered in England (number OC319702). Registered office: Savannah House, 3 Ocean Way, Ocean Village, Southampton, SO14 3TJ. Any reference to a Partner means a Member of Vail Williams LLP or an employee or consultant with equivalent standing and qualifications. A full list of Members is open for inspection at the registered office.

Regulated by RICS

www.vailwilliams.com

consent. VAI.WIL.988.22

Vail Williams

Vail Williams