Market Watch
Oxford Office Market

Oxford Office Market
Oxford Office Market

13 March 2017, words by Mike Barnes

Office take-up set to reach record levels during 2017, driven by three large requirements

Occupational

Oxford's office leasing take-up reached 208,000 sq ft during 2016, in line with the long term annual average. The key deal during 2016 was AC Nielson's 45,000 sq ft lease at Oxford Business Park.

The Oxford office market is forecast to see take-up reach a record 500,000 sq ft during 2017, driven by large out-of-town requirements. With three large requirements totalling 400,000 sq ft currently in the market, and a further 200,000 sq ft of underlying demand expected, the wider Oxford market is preparing itself for a record year.

 

GRAPH 1

Record year of take-up forecast

 
Graph 1

Source: Savills Research

We expect the newly opened Oxford Parkway station, along with the £110m of funding for the east-west rail link between Oxford and Cambridge to improve accessibility to the city centre and out-of-town markets.

However, there remains a shortage of the best quality space in the city centre, with only 5,000 sq ft of Grade A space remaining. Out-of-town, 55,000 sq ft of space at the Danby Building, Oxford Science Park is the only large floorplate stock remaining, after Becton Dickinson relocated to Reading. Over the last two years, a large volume of secondary office space has been converted to student and residential, rather than kept for refurbishment.

This has applied further pressure to rents. Grade A space is currently quoting in excess of £30 per sq ft, and with a shortage of Grade A space, we see rents rising to £31.50 per sq ft by the end of 2017 for two reasons.

Firstly, top refurbished space is now achieving £27.50 per sq ft, which has squeezed the rental differential between new build and refurbished space. Occupiers will look to pay the slight premium for higher quality space.

Secondly, Oxford remains attractively priced relative to the UK regional cities. For example, top rents in Cambridge are currently quoting £36 per sq ft.

Three new speculative developments at Milton Park totalling 110,000 sq ft are due to complete during 2017, with a further 60,000 sq ft of speculative development at Oxford Science Park, which will act to ease the shortfall.

GRAPH 2

Further rental growth is forecast

 
Graph 2

Source: Savills Research

Investment

Office investment reached £39 million during 2016, in line with the 10-year average, largely driven by Sutton Borough Council's £30 million purchase of Oxfam's headquarters at Oxford Business Park, representing a yield of 5.3%.

We expect a busier year of office investment during 2017 driven by overseas investors taking advantage of a weak Sterling. We also expect to see the return of the UK institutions after what was a comparatively quiet year. With the prime/secondary yield gap closing, we see further downward pressure on prime yields during 2017.

With returns set to be income driven going forward and yields remaining attractive relative to central London, we see this as an opportunity for the Oxford office market to outperform.

GRAPH 3

Availability

 
Graph 3

Source: Savills Research


Expert view

Charles Rowton-Lee, Director of office agency in Oxford, comments on the market

There remain a number of unprecedented large enquiries from scientific based companies looking in Oxford, whilst Grade A stock remains in short supply.

The solution to this may lie in the form of defurbishments, which allow existing secondary space to be upgraded and can include exposed brickwork, open ceilings and collaborative break-out areas. We expect this to gather pace in the Oxford market during 2017, as occupiers search for modern space at an affordable price.

The new Oxford Parkway station with services to Oxford and London Marylebone has now improved accessibility which is positive from a business point of view and has been reflected in house prices which have been driven up over the last 12 months.

Demand for industrial and warehouse accommodation of all sizes is very strong, with increased development having taken place over the last five years.

TABLE 1

Significant Leasing Deals in 2016

 
Table 1
 
 
 

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Key contacts

Mike Barnes

Mike Barnes

Research Analyst
Commercial Research

Savills Margaret Street

+44(0) 203 107 5459