Commercial
EDGE
OXFORDSHIRE
Our analysis on the office and industrial market in Oxfordshire dives into the latest take up levels, rental trends and investment deals.
OFFICE & LABORATORY TAKE-UP
Strong quarter for office/lab leasing in Oxford
Oxfordshire’s office and lab take-up surged in the second quarter of the year, supported by several companies expanding their footprint. Office and lab space leased in Q2 totalled 167,317 sq ft, up 127% quarter on quarter, 96% above the five-year quarterly average and the strongest quarter for take-up since Q2
"Office and lab space leased in Q1 totalled 39,599 sq ft"
Source: Carter Jonas
The number of deals in the second quarter equated to 29, a notable increase from 17 in the previous quarter. From all the deals in Q2, three were above 10,000 sq ft, while 15 were below 5,000 sq ft.
Notable deals of the quarter include Exscientia, which expanded its presence with an additional 37,000 sq ft, and Oxgene taking 8,411 sq ft. Both lettings were within two buildings at The Oxford Science Park. Several spaces in Milton Park and Oxford Technology Park are also under offer, which could usher in a strong second half for office
Source: Carter Jonas
OFFICE & LABORATORY RENTS
Prime headline city centre rents have surged year on year and are sitting at £49.50 psf, while rents for grade A laboratory-enabled space are heading towards £55.00 psf, as demand continues to increase and availability remains tight.
Prime headline city centre rents
Source: Carter Jonas
However, it should be noted that there is significant variation in both the differing quality and the approach of landlords to laboratory-enabled space and fitted space, with evidence of fitted lab space exceeding £100 per sq ft.
There is now a significant range in incentive packages, although typical city centre rent-free periods are limited to circa 0.5 months per year term certain. While, out of town lab space has a higher headline rent than city centre, it is still less expensive on a net effective (10-yr) basis, but the gap is narrowing.
Source: Carter Jonas
OFFICE & LABORATORY INVESTMENT
Investors continue to target Oxford office and lab assets
Office investment totalled £220 million in Q2 2022, up 260% quarter on quarter, up an impressive 555% year on year and the third highest quarter for office/lab investment on record. With a total of £280 million spent in H2 the year is course to exceed the 2021 total of £350 million. Competition for well-let office/lab assets over the past 12 months has pushed up pricing, with prime yields now sitting at circa 3%.
Source: Carter Jonas, Property Data, EGI, CoStar
The standout deal of the quarter was Life Science REIT’s acquisition of Oxford Technology Park for £183 million in May. The deal includes the park and a £62.7m forward funding component to complete the OTP’s build-out.
INDUSTRIAL TAKE UP
Industrial leasing activity eased further in the second quarter. Take-up in Q2 2022 totalled 185,675 sq ft, down 22% quarter on quarter, 27% down the five-year quarterly average but 6% up year on year. A number of deals were completed during the quarter at Harwell Campus, Milton Park, Abingdon Business Park and Tungsten Park. A continuing theme is the use of sheds as labs/hybrid/R&D space in certain locations.
Source: Carter Jonas
INDUSTRIAL RENTS
A notable lack of available stock is now evident across the market, and consequently, the upward pressure on rents continues with headline industrial rents in Oxfordshire now sitting at £12.00 psf. This excludes deals to R&D occupiers where rental levels of between £15.00 and £27.00 psf are now being witnessed.
Source: Carter Jonas
INDUSTRIAL INVESTMENT
Industrial investment slowed in the second quarter
Industrial investment totalled £37 million in Q2 2022, down 52% quarter on quarter, 30% down on the five-year quarterly average but a notable increase from the £6 million spent in Q2 2021.
In the standout deal for the quarter, NFU Mutual agreed to a £26.4 million forward funding deal for the speculative development of the final phase of Tungsten’s warehouse and industrial project at Downs Road in Witney. The three-building scheme will total 167,800 sq ft and is expected to be completed by early 2023.
Source: Carter Jonas, Property Data, CoStar
In the latter part of the quarter, Clipstone REIT purchased Marley Way Trade Park for £5.5 million, reflecting a net initial yield of 4.38%.
"Industrial investment totalled £37 million in Q2 2022"
OUTLOOK
Strong demand for lab space and the shift in preferences among occupiers for high-quality office space for which there is limited availability is likely to support steady rental growth in that segment.
Given the imbalance between supply and demand, industrial rents will continue to increase across all size ranges, due to the shortage of new stock coming through the development pipeline.
Oxford’s strong occupier base and low vacancy rate will continue to attract UK and overseas investors. However, given the current economic climate, rising costs and uncertainty, we are not expecting yields in both office and industrial sectors to shift back to peak levels, while buyers are likely to return with a more cautious view of genuine rental growth prospects.