Thames Valley Office Market Report 2013 Inside this report:

Transcription

1 Thames Valley Office Market Report 213 Inside this report: Across the pond: a US perspective on the Thames Valley The creative class : its impact on the Thames Valley Business expansion triggering corporate relocation Addressing office obsolescence

2 Thames Valley Office Market Report 213 Thames Valley Office Market Report 213 Across the pond: a US perspective on the Thames Valley Mark Cote is Managing Director of T3 Advisors, a Boston and Silicon Valley-based tenant representation firm. Since its launch in 21, T3 has advised more than 3 corporates on real estate projects in the US and worldwide. It has partnered with Lambert Smith Hampton on projects in the Thames Valley, central London and Dublin, including the recent acquisition of office space for Fleetmatics and Pegasystems in Reading. In recent years, the Thames Valley has seen an influx of US corporates cementing their UK and European footprints in the region. But what is attracting these US occupiers to the Thames Valley? What is their view of the region from across the pond? What trends from the States can be applied to home turf? Mark explains: What s the attraction? To US corporates, the Thames Valley has historically been the favoured location for European headquarters and an easy travel gateway through Heathrow. Clients opening offices are surprised by the ease of rail travel to Heathrow and London from towns such as Reading, Maidenhead and Slough; the time it takes to get from Reading to Paddington is less than travelling across London. In addition, there is a deep labour pool that companies can recruit from, with influential universities creating a knowledge bank for influential businesses. The combination of travel ease, minimal language barriers, access to London without central London costs, and the ability to be an easy gateway to other European markets have all driven the attraction over the years. Oracle, Microsoft, Dell, Adobe, Computer Associates and Symantec are just some of the tech-titans now with major presence in the Thames Valley. Others are following suit; Pegasystems, a long-time client based in Cambridge, USA, recently evaluated its Reading base while considering a relocation to London or another Thames Valley office market. Ultimately, a decision was made to relocate within Reading to One Reading Central. According to Dan Ryan, Vice President of Real Estate & Facilities at Pegasystems: The decision to stay in Reading / the Thames Valley was based on three factors: 1) transportation hub into Heathrow and London, 2) proximity for existing workforce, and 3) the ability to find a modern office building with the amenities for employees. Reading ticked all of these boxes, allowing Pegasystems to recruit new employees, benefit from urban amenities, and accommodate the commuting patterns of the existing workforce. What s next? The opportunity and the new players The percentage of companies looking to establish European locations early in their lifecycle has increased greatly in the past two years. In fact, many of our emerging growth clients in industries such as social software, big data, mobile, robotics and medical devices are looking to diversify their engineering and R&D to European locations. Central London has been a hotbed for establishing such engineering beachheads, along with Dublin, Amsterdam and Munich. However, venture-backed and emerging growth clients are no longer trying to grow all of their R&D, engineering presence and management teams in one location; the venture capital and Boards are pushing for international diversification of product development. This change has meant a comparative location review of various markets. Here s T3 s take on the key drivers for those locations, and where the Thames Valley is positioned: Urbanisation Clients recruiting young engineering talent and relocating a few existing US employees look first to the urban tech hub markets such as the Silicon Roundabout, Paddington, the Docks in Dublin, or emerging hubs in North and East London. Urbanisation means companies don t want to be in isolated suburban settings, they want easy transport access and walkable amenities, as well as a work/ life balance. Where is the Thames Valley positioned? Reading, Maidenhead and Slough offer urban environments at a lower cost, while being easily connected to London. As the core London markets heat up and costs increase, we believe we ll see more industry players considering the Thames Valley as an alternative to central London. For those US corporates that haven t toured the UK markets, there is a perception that the Thames Valley is akin to a US suburban office park. In reality it can deliver urban locations without certain central London headaches. Community creation/renewal In addition to urbanisation, companies want to be in tech community markets. For instance, Boston s Seaport District, San Francisco s SOMA, Silicon Valley s Palo Alto / Mountain View have all become more than real estate markets; they are vibrant tech communities. The US tech markets have established themselves in urban renewal locations in various cities these markets were once shunned by companies as too gritty, but that is now the appeal for the young workforce. Where is the Thames Valley positioned? This urban renewal trend will be seen in many central London markets and, having spent time in the Thames Valley, it is just as likely to be seen in Reading and Slough. The Thames Valley has the opportunity for community creation within unique real estate markets such as Maidenhead, Reading and Slough. Urban renewal is part of community creation, where companies are locating in areas that have urban grittiness. We are seeing this trend throughout the major US tech markets, with companies now flocking to renewal projects. In time, and with proper planning and leadership, towns like Reading and Slough are in a strong location to capitalise on this. Silicon Valley/San Francisco cohabitation Many of the Silicon Valley s tech players now have joint operations in San Francisco and Silicon Valley. Corporate occupiers are likely to look to both the Thames Valley and London to replicate this trend, so that office occupation isn t about being in one or the other location, but about operating from both for strategic and operational purposes. Nuances for US corporates Despite the many similarities between the markets, for US occupiers setting up in the UK it is vital that we re able to bridge the operational gaps between the UK s commercial property system versus the US real estate sector. As we ve found with both the Pegasystems and Fleetmatics projects, there is an education process when it comes to addressing wayleave access and the new HVAC (Heating, Ventilation & Air Conditioning) standards, for instance. Likewise, there are many other nuances when understanding the intricacies of restoration exposure and assessing business rates liabilities in a UK property transaction. Getting to grips with these nuances is key in order for a project to be successful. Clients continue to look to the Thames Valley as a location of choice particularly for established and mature companies. The region can further strengthen its position with new industries based on trends we are seeing in the US and the evolving demands of the technology companies. For more information about T3 s work: Lambert Smith Hampton Lambert Smith Hampton 3

3 Thames Valley Office Market Report 213 Expansion triggering corporate relocation We have undertaken some research into what drove corporate office activity in the Thames Valley last year and in Q1 213, analysing all transactions in depth. In 211/12, this same analysis found that 72.5% of activity was triggered by a lease event. Interestingly, our research tells a different story this time around What is driving corporates to acquire new office space? We have split the influencing factors into two groups triggers and drivers. A trigger is what will initially prompt the occupier to acquire new offices, with a driver being the factor that influences the final acquisition decision. The triggers are characterised by being: a lease event, corporate activity (i.e. merger), consolidation, expansion or contraction. The drivers are identified as being: location, property betterment, efficiency (i.e. the modern workplace), a specific physical need (i.e. selfcontained, parking, power) or cost. While a lease event is still the primary influencing factor when an office occupier decides to acquire new offices, the proportion of occupiers influenced by a lease event has dropped significantly to 43% from 72.5%. The primary triggers were lease events (43%) followed closely by expansion (34%). 12% 34% 9% Lease event Expansion Corporate activity Consolidation Contraction 2% 43% Expansion now a key trigger for corporate relocation In weaker economic conditions, lease events are the dominant driver behind occupational activity, with occupiers only considering relocation when facing a lease break or expiry. However, our latest analysis of 212/13 trends clearly demonstrates a positive economic market indicator; with a steadying economy, occupiers are considering their future growth requirements and are showing the confidence to expend the necessary capital and make a move to larger premises. A good example of corporate occupier expansion is that of QlikTech, which occupied offices in two buildings (3,2 sq ft and 4,678 sq ft) at IQ Winnersh, but has now relocated to 21,143 sq ft at Building 12 on the business park. The need to expand and grow the business was compounded by the fact that it could consolidate two separate offices into one, generating business efficiencies at the same time. QlikTech s driver was location, given that it was happily located at IQ Winnersh. Sean Farrington, Regional Vice President of QlikTech, said before the move: Our landlord s help allows us to keep concentrating on what we need to do. Location, cost and property betterment Like QlikTech, location was a primary driver for corporate occupiers in 212/213, accounting for 41% of all activity. Cost (22%) and property betterment (22%) took joint second place in the analysis. These results are interesting, and suggest that occupiers are able to achieve both a reduction in total property costs and improve their working environment at the same time, due to the economic pressures on the Thames Valley office market. Experto Credite benefited in this way when it relocated from a grade C building in Reading to Inspired, a grade A property in Bracknell (the town that currently offers the best value for money in the region compared to all other Thames Valley centres). 22% 22% 1% 5% Location Property betterment Cost Specific physical need Efficiency Breakdown of office relocation drivers in 212/13 (%) 41% Physical office needs and building efficiency Relocations driven by a specific physical need (such as Care UK s move to Hawker House, Reading, due to its exceptional parking, and Netgear s relocation to Reflex, Bracknell, due to its positive Feng Shui) accounted for just 1%. Surprisingly, efficiency (i.e. a desire to move into a modern workplace) drove only 5% of deals in the period. Improving corporate confidence? While the economy both in the UK, EU and wider global markets continues to recover from recession, occupiers will continue to consider corporate real estate activity very carefully. The need and desire to acquire office accommodation is often outweighed by the significant capital expenditure required to move. However, with a shortening supply of good quality accommodation in the Thames Valley, coupled with the competitive terms that are available to occupiers, it appears that corporate occupiers are growing in confidence and are starting to seize the moment in order to relocate and grow their business. Thames Valley Office Market Statistics July 213 Occupational overview In our research we monitor the Thames Valley s total office stock of just over 64m sq ft, with current availability standing at 11.4m sq ft (18%). Office demand in the region is recovering from the 29 low of 1.1m sq ft; take-up in 21 and 211 totalled just under 1.7m sq ft and, in 212, levels dropped slightly to 1.578m sq ft. Last year s take-up was lower in total square feet as well as in the number of transactions the overall effect of the latter being mitigated by more large transactions completing than in the previous year. One of the main drivers behind office demand over the last few years has been occupier lease events. These are time and datedriven, rather than being indicative of the business and economic environment. Having analysed occupier take-up in 212, we have identified a new and very encouraging occupational driver for 212 and Q1 213 business growth! Occupiers are still preferring high quality offices configured over as few floors as possible. This is because the occupational trend is very much focused on more agile working using flexible, open plan space with meeting rooms and breakout areas, as opposed to individual offices. These changes are also enabling the same headcount to be based in 2 45% less office space. There is a steady erosion of quality office supply in the region, so we continue to anticipate that market supply issues (where there are shortages of quality stock) will become increasingly exposed in some centres. This may lead to increases in rents, and potential frustration from occupiers seeking quality solutions in specific locations. To the east of the region, in Hammersmith and Chiswick, we are already seeing this dynamic in action as rents have increased by 2 3%. With a high proportion of 25 year leases on late 198s stock coming to an end between 213 and 216, there is the opportunity for some of these buildings to be recycled. Where these buildings are considered obsolete by location, specification, configuration or all three, then alternative uses are being sought. Pressure is therefore building on investors and developers, as occupier options in some locations are thinning. As a result, we do expect to see more speculative office development over the coming months. It is important to see beyond the surface level changes and instead start to understand the tectonic forces that are altering the commercial landscape, both for office occupiers and investors. Elsewhere in this report we highlight the urban/social changes and the creative class theorem, which may account for changing demand patterns. In turn, these patterns require an urban planning and transport infrastructure response in order to defend and promote the Thames Valley s success. Breakdown of office relocation triggers in 212/13 (%) 4 Lambert Smith Hampton Blackwater Valley Bracknell Guildford Heathrow Maidenhead Newbury p6 p8 p1 p12 p14 p16 Oxford & South Oxfordshire Reading Slough Staines Uxbridge p18 p2 p22 p24 p26 See page 28 for the Investment overview Lambert Smith Hampton 5

4 Blackwater Valley Blackwater Valley Take-up in the Blackwater Valley continued to improve from the low point in 29, rising to 211,8 sq ft in 212. Activity levels are set to match or exceed that figure in 213. Occupational activity has almost returned to the 1 year average take-up figure for the Blackwater Valley, which stands at 235, sq ft per annum, with the 212 figure only 1% short of this total. Availability has fallen from a peak of 2.3m sq ft at the end of Q1 212, to just below 2m sq ft at the end Q This represents a notable change, with take-up now exceeding the release of second hand stock onto the market. While second hand stock accounts for the majority of space on the market, more than 35% of good quality, second hand stock is accounted for by Sun Microsystems and Nokia s former HQ buildings in Fleet and Farnborough. The supply of second hand stock is expected to reduce further, with several larger buildings being put to alternative uses over the next few years. Prime headline rents remained at 2 per sq ft, although the general lack of grade A space is expected to put increased pressure on rental values for prime space over the coming months. Paul Dowson, Director Tel: +44 () , pdowson@lsh.co.uk Nick Coote, Director Tel: +44 () , ncoote@lsh.co.uk Given the high levels of availability, the prospect of new development remains unlikely. SEGRO s former IQ Farnborough was purchased by Harbert European Real Estate Fund III in April 212 and was rebranded to Farnborough Business Park. Planning approval has been given for 18, sq ft of new office space to be developed if market conditions continue to improve. Refurbished older buildings, both in town and out of town, hold an advantage over newer stock, with occupiers attracted by the higher car parking ratios. Under construction sq ft Q1 213 Take-up in the Blackwater Valley increased in 212 for the second year in succession, rising by 43% from the previous year s figure to 211,8 sq ft. The continued improvement in activity in 212 shows signs of increased confidence in the Blackwater Valley, although take-up remains 1% below the 1 year average for the area (235, sq ft per annum). There was a lack of larger transactions in 212, with the majority of activity in lettings below 1, sq ft. Two deals of around 7, sq ft completed, with software development group, Anite, and market research group, Grassroots, signing for space at Innovation House in Fleet. Q1 213 saw a slow start to the year, with only one major transaction completing the 25,13 sq ft letting to NACCO Materials Handling at Frimley Business Park. However, several larger lettings are expected to be completed in Q2 and Q3, which will boost activity levels. Take-up sq ft Q year average The majority of activity has been focused on good quality, second hand space over the past few years, with occupiers able to take advantage of the competitive terms on offer. Prime headline rents for grade A stock have remained at 2 per sq ft since 211, and with the availability rate still standing at 25.1% the incentives on offer to tenants have remained high. Rental values on second hand space have also remained under pressure, although the rate of increase in second hand space available to the market has begun to level off. Improving sentiment regarding the prospects for the Blackwater Valley has seen prime investment yields move in by 25 basis points in Q1 213, falling to 6.75%. While rental growth prospects remain weak, there are signs that the occupational market is showing greater resilience. The sale of SEGRO s IQ Farnborough in April 212 to Harbert European Real Estate Management and XLB Property has seen one of the Blackwater Valley s prime assets change hands. The 1.6m sq ft business park was sold for 79.7m, with a further 1.4m paid for 11 acres of development land. Blackwater Valley: prime yields Q1 213 The only other purchase over the past 12 months has been that of Pinehurst Park by McKay Securities in May 212 for 3.5m. Part of the site has subsequently been sold for residential development. Since peaking at 2.3m sq ft at the end of Q1 212, availability has reduced steadily over the past 12 months, ending Q1 213 at below 2m sq ft. The reduced supply level has been aided by improved take-up and use changes which have outweighed the release of second hand space onto the market. continues to be dominated by second hand space, which accounts for 97% of total stock on the market. However, 16% of second hand space is poorer quality stock. The former head office buildings of Sun Microsystems and Nokia remain the most significant contributors to the second hand supply figure, representing over 35% of the good quality space on the market. A significant element of space at British Aerospace s Farnborough Aerospace Centre offices is also available. New grade A availability has fallen to 54,4 sq ft, with the majority of space confined to three buildings ranging from 13,5 sq ft to 21,6 sq ft. Availability sq ft 2,5 2, 1,5 1, Q1 213 Although the availability rate has reduced, it remains at 25.1% of built stock, which amounts to 9.4 years supply of space based on the take-up figure for 212. This figure reduces to 8.5 years when compared to the long run average take-up level. The improving occupier market and reduced levels of availability have driven improved prospects for growth in prime rents in the region. Prime rents have remained at 2 per sq ft since 211, but growth in headline rents is expected to return in 215 as availability reduces from its current levels. Farnborough Business Park is the most likely location of new development over the next few years. However, corporates are demanding high levels of car parking and therefore refurbishment may offer more attractive occupier options (f) 214 (f) 215 (f) 216 (f) 217 (f) 6 Lambert Smith Hampton Lambert Smith Hampton 7

5 Bracknell Bracknell Bracknell continues to offer good value when compared to other Thames Valley locations, with good quality grade A buildings able to accommodate large corporate occupiers and prime headline rents standing at 2 per sq ft. While take-up has been relatively strong over the past 15 months, there is still a lack of large transactions. The largest transaction in the last 15 months has been the 24,85 sq ft letting to Lloyds Register at 5 Arlington Square. Occupiers have focused on second hand stock in order to benefit from the competitive terms on offer when negotiating deals in Bracknell, with 74% of all take-up over the past five years being in good quality, second hand accommodation. Availability has reduced over the past 12 months, falling to 1.1m sq ft, with the main reduction in availability coming about because of the fall in good quality, second hand space (grade B), which now stands at 346,7 sq ft. Grade A availability remains high, with 63,8 sq ft on the market. Prime headline rents have remained at 2 per sq ft and this is expected to prompt further occupational activity, with Bracknell continuing to offer a cost advantage when compared to other Thames Valley centres. Nick Coote, Director Tel: +44 () , ncoote@lsh.co.uk The high levels of grade A availability will continue to hold back any further development in Bracknell, although the continued reduction of good quality, second hand space may cause occupiers to switch their focus towards grade A stock. Progress is expected on the town centre regeneration scheme during 213, with Marks & Spencer and Cineworld both committed. This regeneration scheme, when complete, will add much needed improvements in terms of amenities. Under construction sq ft Q1 212 Tom Fletcher, Associate Director Tel: +44 () , tfletcher@lsh.co.uk Take-up increased by 39% in 212, with 132,6 sq ft of activity recorded compared to 95,3 sq ft in the previous year. The improvement in activity over the year saw 212 take-up move above the 1 year average level for the town, which stands at 12, sq ft per annum. Good quality, second hand space was the main focus of activity, accounting for 63% of the year s take-up. The most significant transaction in 212 was the 14, sq ft letting to US conferencing company, InterCall, at 5 Arlington Square in Q1, where a rent of 2 per sq ft was achieved. Take-up in 212 was dominated by new entrants to Bracknell, with 57% of overall activity being inward movement to the town. Q1 213 saw a continuation of the trend set over the previous 12 months, with 34,4 sq ft of take-up in transactions above 5, sq ft. The most significant letting in Q1 213 has been the 24,85 sq ft letting to Lloyds Register, also at 5 Arlington Square. Take-up sq ft Q year average Prime headline rental values have remained stable at 2 per sq ft since the end of 21, with signs that this represents the bottom of the rental cycle. Prime rents in Bracknell are now 2% below their recent peak value in 28 and, more significantly, they represent good value when compared to other office locations in the Thames Valley. Prime investment yields moved in by 25 basis points in Q2 212 and have remained at 6.75% through the early part of 213. There have been several investment transactions over the past 12 months, although most of these have seen properties change hands at double digit yields. The five principle deals have totalled in excess of 45.8m. Bracknell: prime yields Q1 213 Availability in Bracknell has reduced over the past 15 months, falling by 14% to stand at 1.1m sq ft at the end of Q The most significant reduction in availability has been in good quality, second hand space, which has fallen by 55% from a peak of 762,5 sq ft at the end of 29 to 346,7 sq ft at the end of March 213. This illustrates the trend in occupiers targeting good quality, second hand space rather than grade A stock, because of the competitive terms available. Grade A availability has edged down marginally but still represents more than 5% of overall stock on the market. Three new schemes make up the majority of grade A space on the market, the largest of these being Maxis, which provides 198,7 sq ft of new floor space in two buildings. Other major grade A accommodation is available at Capitol on Berkshire Way, which provides 183,525 sq ft of grade A stock, and 72, sq ft at Bracknell Boulevard on Cain Road. These three buildings account for 75% of grade A availability. Availability sq ft 1,75 1,5 1,25 1, Q1 213 The supply of good quality accommodation represents 8.7 years supply of stock based on last year s take-up levels (compared to 14.7 years supply based on 211 take-up levels), with grade A availability representing 4.6 years supply based on last year s take-up level. 212 Prime headline rental values are expected to remain steady at 2 per sq ft for the next 12 months, although the high levels of availability will see a significant level of softer deals being negotiated as landlords strive to secure tenants for their buildings. Growth is expected to return to the market in 214, with rents reaching 24 per sq ft by the end of 217. Prime rents are forecast to grow by 3.7% per annum over the five year period, indicating the depressed levels of current rental values (f) 214 (f) 215 (f) 216 (f) 217 (f) 8 Lambert Smith Hampton Lambert Smith Hampton 9

6 Guildford Guildford Take-up in Guildford has climbed back up to the 1 year average in 212, with activity levels almost double the figure recorded in 211 with total office take-up of 92,5 sq ft. Activity for the year was dominated by the letting to Detica at Surrey Research Park, which saw the BAE Systems subsidiary take an additional 6, sq ft. The other significant transaction was the 13, sq ft letting to Baker Tilly at IM Properties refurbished offices at 1 London Square. The occupational market started slowly in Q1 213, with only one transaction above 5, sq ft completing. However, several larger lettings are due to complete in Q2. Total availability moved up slightly in the early part of 213, rising to 335,4 sq ft at the end of Q1. Availability in the town centre remains tight, with just 99,32 sq ft on the market and 35% of this in poorer quality, second hand space. The first new office development in Guildford in three years is due to commence in Q3 213 at Standard Life Investment and Bell Hammer s 3 Chertsey Road. The market will then be able to gauge the demand for grade A town centre stock when the 3, sq ft of space completes in Q Prime headline rents have remained stable in both the town centre and out of town markets for the fourth consecutive year, although the marketing of the new space at Chertsey Road will provide the opportunity to test current rental levels. Paul Dowson, Director Tel: +44 () , pdowson@lsh.co.uk Matthew Finch, Associate Director Tel: +44 () , mfinch@lsh.co.uk A lack of development activity continued throughout 212, with no new supply of grade A space coming to the market since 21. The redevelopment of 3 Chertsey Road is to commence in Q3 213, with Standard Life Investments and Bell Hammer providing a 3, sq ft headquarters building. This is due to complete in mid 214. In light of the shortage of new development, the main additions or improvements to supply will be achieved through refurbishment. Under construction sq ft Q1 213 Take-up in Guildford returned to the 1 year average level of activity, after poor take-up in the previous two years, with a total of 92,5 sq ft recorded in 212. Activity in 212 was dominated by the 6, sq ft letting to Detica at Surrey Research Park in Q1, accounting for 65% of the year s total transactions above 5, sq ft. Aside from this, there was only one other notable deal where 13, sq ft was let to Baker Tilly at 1 London Square. Take-up in Q1 213 remained slow, with only one transaction above 5, sq ft completing the 5,2 sq ft letting to Kongsberg. Q2 is expected to show an improvement in activity with 2, sq ft transacting at Ranger House and 21, sq ft under offer at 1 London Square. The majority of current activity is being driven by occupiers facing lease events and therefore looking for alternative space, with occupiers taking the opportunity to downsize or expand their premises. Take-up sq ft Q year average Smaller transactions (<5, sq ft) in Guildford are generally focused on second hand space and, with a lack of availability of grade A stock in the town centre, some occupiers are now struggling to satisfy their requirements. Prime headline rents in Guildford have remained stable at 27 per sq ft since 29, although the lack of grade A space has meant that there has been little evidence to test this rental level. Out of town, the prime rents have also held steady, although the availability of good quality, second hand space has resulted in secondary rental values remaining under pressure. Tenant incentives are still a feature of the market, although the most favourable terms are available on second hand space where there is a greater element of choice. Prime investment yields have remained at 6% since Q1 212, with Guildford still attracting interest from institutional investors seeking opportunities in towns with a tight supply of grade A stock. There have been several investment transactions over the past 12 months, with the largest of these being the 13.7m purchase of Ranger House by Surrey County Council in April 213. The property was bought from PM Mercury Holdings, which had acquired the property as part of a portfolio in November 212. Guildford: prime yields Q1 212 Availability edged slightly higher in Q1 213, rising by 11% to 335,4 sq ft. The lack of grade A space continues to hinder the market, with occupiers having to focus on better quality, second hand space in order to fulfil requirements. Some of the better quality stock is at 3 Guildford Business Park and 1 London Square, which have both been extensively refurbished. The out of town market provides the majority of available office space, accounting for 7% of overall supply. The out of town market is the main source of larger buildings for occupiers. Availability remains tight in the town centre, with only 99,32 sq ft on the market at the end of Q % of this is in poorer quality, second hand stock. The overall availability rate in Guildford moved to 9.8% at the end of Q1, but this figure is expected to reduce with several larger transactions due to complete in Q2. Availability sq ft Q1 212 Current office availability levels equate to 3.6 years supply of stock, based on both last year s take-up levels and the 1 year average take-up level for the town. This figure is expected to fall well below 3 years supply during the course of 213. Prime headline rents have remained at 27 per sq ft for the fourth year but the shortages of grade A stock are likely to exert upward pressure over the next few years, with rents expected to rise to 29 per sq ft by the end of 214. Further growth in 215/16 will see prime rents in Guildford return to their previous peak level of 3 per sq ft. The overall growth in prime rents over the next five years is expected to average 2.1% per annum, with the majority of upward movement seen in the early part of the forecast period (f) 214 (f) 215 (f) 216 (f) 217 (f) 1 Lambert Smith Hampton Lambert Smith Hampton 11

7 Heathrow Heathrow The Heathrow market has seen take-up levels exceed the 1 year average for the last three years. With Q1 213 recording 153,4 sq ft of activity, the current year is also expected to exceed the trend level of activity. Heathrow has attracted several larger lettings over the past few years, with 212 and the early part of 213 being no different. The largest transaction in 212 was the 114, sq ft letting to IMG Worldwide, while 213 has seen BP take 135, sq ft at Bedfont Lakes. Availability fell by 12% to stand at 1.2m sq ft at the end of March 213, with grade A supply falling by 38%. Most of the grade A accommodation is located at Stockley Park, with Bedfont Lakes now fully let, a notable exception being the 66,776 sq ft at Investream s Trinity Square. The supply of grade A space now represents only 1 months supply of stock, based on 212 take-up figures. The availability rate has fallen to 15.2%, and if poorer quality, second hand space is excluded, the availability rate reduces to 13.8% of built stock. Tony Fisher, Director Tel: +44 () , tfisher@lsh.co.uk Jon Rea-Palmer, Senior Surveyor Tel: +44 () , jreapalmer@lsh.co.uk There continues to be no new development activity in the Heathrow area, and with Bedfont Lakes now fully occupied the majority of opportunities for well-specified, refurbished space are at Stockley Park. An estimated 5, sq ft is available for pre-let at Stockley Park Phase III, but construction will not start on a speculative basis. Current availability at Stockley Park stands at 171, sq ft, down from 3, sq ft at the end of 211. Under construction sq ft Q1 213 The past three years have seen strong office activity for the Heathrow market, with take-up exceeding the 1 year average of 21, sq ft per annum. Take-up in 212 was 229,4 sq ft, with two transactions accounting for 71% of the year s transactions. Overall, transactions on Stockley Park accounted for 87% of the letting activity in 212, with the largest letting being the 114, sq ft let to IMG Worldwide at 5 Longwalk, Stockley Park. The other major letting of the year was seen at 4 The Square, with Hasbro taking 49,97 sq ft. Activity in Q1 213 has been boosted by BP s relocation from its offices at Stockley Park in addition to some departments from its facility at Sunbury to 135, sq ft at Bedfont Lakes. The move means that Bedfont Park is now fully let. Activity in Q1 213 totalled 153,4 sq ft, and the full year take-up total looks set to exceed the recent peak in activity recorded in 21. Take-up sq ft Q year average Occupier activity has continued to be focused on the better quality accommodation at Stockley Park and Bedfont Lakes, with Bath Road seeing only limited activity. Prime headline rents edged up to 28.5 per sq ft by the end of 212, the highest level achieved since 22. However, quoting rents for other grade A buildings on Stockley Park are already at 32.5 per sq ft and there are market rumours that a letting at 4 Furzeground Way is close to completion at 3 per sq ft. Outside of the prime locations, the market has remained weak and rents have remained steady. Rental values along the Bath Road have remained at 2 per sq ft since 29. Investment market activity has been relatively buoyant over the past 12 months with 1m of transactions completed, the majority of activity being at Stockley Park. The largest transaction was the 42.5m purchase of 5 Longwalk, totalling 114, sq ft, in December 212 by Peninsula Estates, representing a net initial yield of 6.35%. The building had been let to IMG Worldwide in Q Prime yields have remained stable at 6.25% since 21, with recent transactions providing evidence at this level. Heathrow: prime yields Q1 213 Availability has fallen below 1.3m sq ft for the first time in four years, standing at 1.2m sq ft at the end of March 213. The reduction in grade A availability has been most extreme, falling by 38% over Q1 213 to stand at 192,6 sq ft at the end of March. The downturn in second hand space has been less marked, falling by 4% to 974, sq ft. The majority of grade A space is located at Stockley Park and, while buildings on the park are now some 25 years old, newly refurbished space on the park represents some of the best quality accommodation in the Heathrow market. The largest grade A building on the market at the end of March 213 is Trinity Square, where there is currently 66,776 sq ft available and on Stockley Park at 2 Longwalk, totalling 48,55 sq ft. Second hand accommodation accounts for 83% of overall availability, although 11% of second hand stock is in poorer quality space, which is unlikely to attract occupiers. The overall availability rate has fallen to 15.2%, down from 17.4% at the end of 21. However, if poorer quality accommodation is excluded, the availability reduces to 13.8%. Availability sq ft 1,6 1,4 1,2 1, Q1 213 Based on the good levels of take-up recorded in 212, current availability represents 5.1 years supply of stock, although grade A space represents only 1 months supply. Prime headline rents rose to 28.5 per sq ft at the end of 212, an increase of 5.6% over the year. They are expected to reach 32.5 per sq ft by the end of 213. The dwindling stock of newly refurbished space on Stockley Park means that the prospects for further rental growth look good and rents are forecast to reach 34 per sq ft by the end of 215. By the end of the forecast period rents are expected to reach 35 per sq ft, surpassing the previous peak rent of 34 per sq ft achieved in (f) 214 (f) 215 (f) 216 (f) 217 (f) 12 Lambert Smith Hampton Lambert Smith Hampton 13

8 Maidenhead Maidenhead Take-up in 212 was disappointing, but this was due to a slowdown of lettings in excess of 1, sq ft. Only two transactions above this level completed in the year; 36,5 sq ft relocation of Toys R Us, and the 22,5 sq ft letting to Volvo. Both of these transactions were out of town. The anticipated increase in activity in 212 due to lease breaks and expiries did not materialise, with occupiers choosing to remain in existing space often on concessionary terms while awaiting further evidence of improving economic conditions. Activity in 213 has started on a promising note, with 4,5 sq ft of lettings in the first three months of the year. This figure was boosted by the 33,7 sq ft town centre letting to inventiv at Thames House, Marlow Road. The completion of two new town centre schemes during 213 will boost the overall supply of grade A space in the Maidenhead market. The town is now well placed to provide excellent opportunities for large corporate occupiers, both in and out of town. Kames Capital s 77,95 sq ft Maidenhead scheme, The Point, is due to complete in summer 213, while Rockspring and BlackRock s comprehensive refurbishment of the 66,65 sq ft Tor building will be completed this autumn. The arrival of Crossrail in 218, and Western Rail Access to Heathrow (WRAtH) to follow shortly thereafter, will further build on Maidenhead s excellent transport links. Cliff Jackson, Director Tel: +44 () , cjackson@lsh.co.uk Mark Harris, Associate Director Tel: +44 () , mharris@lsh.co.uk The completion of the 77,95 sq ft The Point on Market Street represents the first speculatively developed office building in Maidenhead town centre this side of the downturn. The scheme has been developed by investment management group, Kames Capital, in conjunction with construction group, Capella, with completion expected in summer 213. The Tor scheme on St. Cloud Way is a joint venture between Rockspring and BlackRock, with the development being undertaken by Bell Hammer. The scheme is due to complete in autumn 213, with the original structure being subject to a comprehensive refurbishment. Under construction sq ft Q1 213 Activity levels in 212 fell below the 1 year average take-up for the town, registering 75,1 sq ft compared to the 16, sq ft trend level. This followed the strong year recorded in 211 when take-up exceeded the 1 year average by 31%. Take-up in 212 was held back by a number of larger occupiers choosing not to relocate at the end of leases or not to exercise break options, thereby saving on the costs of moving. Take-up in 212 was dominated by two larger transactions, the largest of these being the 36,5 sq ft letting to Toys R Us at Building 2 Maidenhead Office Park, while Volvo took 22,5 sq ft at Network House, Norreys Drive. These two transactions accounted for 79% of the year s take-up. Q1 213 has seen improved levels of take-up with 4,5 sq ft of space acquired. This included one large letting at Standard Life Investment s Thames House on Marlow Road, where inventiv took the whole 33,7 sq ft building. Take-up sq ft Q year average Maidenhead has a buoyant smaller lettings market, and activity in this sector has remained strong over the past 15 months with transactions adding a further 4, 5, sq ft to activity levels in 212. This figure is expected to be maintained through 213. Prime rents have remained at 29.5 per sq ft since 211, following the sharp upturn in the first quarter of the year. Rents are due to remain at this level until the second half of 213, when it is thought that 3 per sq ft will be achieved. The good level of grade A availability has meant that secondary rents have remained at 15 per sq ft. Tenant incentive packages are still a feature of the market and have remained relatively stable over the past 12 months. Prime investment yields have remained at 6% since the start of 212, with investors still seeing Maidenhead as one of the more favoured locations in the Thames Valley. There have been a number of investment transactions over the past 12 months, with the largest deal being the 32m purchase of the 74, sq ft Market House by Sidra Capital and Gatehouse Bank. The building is occupied by Adobe Systems, with the purchase price representing a net initial yield of 6%. Maidenhead: prime yields Q1 213 Availability has risen by 211,4 sq ft over the past 15 months, based largely on the commencement of two new town centre schemes: The Point and Project Tor. Grade A stock on the market now totals 414,6 sq ft, and overall availability stands at 815,9 sq ft at the end of March 213. Town centre availability now stands at 236,692 sq ft, with 89% of space in grade A stock, while out of town availability is biased towards the second hand market, which accounts for 65% of its availability. Good quality, second hand availability has also risen due to the release of the former Toys R Us space on Vanwall Business Park. Good quality, second hand space totals 386, sq ft, illustrating the strong position of the Maidenhead market to satisfy requirements for modern office space. Availability sq ft Q1 213 The current availability rate has risen to its highest level on record, standing at 17.9%, although the majority of space is in grade A and good quality, second hand space. The current level of availability represents approximately 1.9 years supply based on last year s low take-up levels, although this reduces to 5.1 years when based on the long run level of take-up. The completion of The Point and Tor provides the opportunity to prove new prime rental levels over the next few years. With prime headline rents standing at 29.5 per sq ft at the end of 212, they are expected to edge up to 3 per sq ft by the end of 213. Further growth is expected over the next two years, with rents expected to reach 32.5 per sq ft by the end of 215 a level last achieved in 21/2. Rental growth over the period through to 217 equates to 2% per annum (f) 214 (f) 215 (f) 216 (f) 217 (f) 14 Lambert Smith Hampton Lambert Smith Hampton 15

9 Newbury Newbury Fears that Vodafone may be set to leave Newbury have now subsided, with the telecoms giant reoccupying a couple of the properties that it had previously placed on the market. Availability has reduced further and now stands at 214,3 sq ft, representing 5.4% of total office stock, and this figure looks set to fall further with no signs of new development. There is still little evidence of speculative office development returning to the Newbury market, with any new office development limited to pre-let opportunities. Under construction sq ft 12 Take-up improved in 212 but the levels of activity remained below the 1 year average for the market with only 36,1 sq ft of lettings recorded. Most of the activity was focused on second hand space and on lettings of around 5, sq ft. Astor House on Newbury Business Park accounted for two of the more significant transactions the 5, sq ft letting to Canon and the 5, sq ft letting to Arieso although the latter was completed in two separate transactions. Prime headline rents increased by 3.1% to 16.5 per sq ft and look set to remain at this level until 215, when a further increase to 17 per sq ft is expected. Tom Fletcher, Associate Director Tel: 44 () , tfletcher@lsh.co.uk Several older office buildings are currently being marketed for residential development which, if sold, will further reduce office stock in the market. Moorfield is offering pre-let opportunities at Maxwell House, with the owners willing to undertake a major refurbishment of the scheme if an occupier commits to the building Q1 213 Fears that Vodafone may be exiting its headquarters in Newbury to consolidate its position in Paddington seem to have subsided following the takeover of Cable and Wireless in July 212. The telecoms giant is to re-occupy the 46, sq ft Emerald House and has retained Apollo House as a data centre, confirming its commitment to the town. Take-up in 212 showed an improvement on the previous year, although the levels of space acquired remained below the 1 year average for the town with only 36,1 sq ft of lettings recorded. Most of the occupational activity has been in smaller lettings, with Canon taking 5, sq ft at Astor House on Newbury Business Park, and a further 5, sq ft let to Arieso. Take-up sq ft Q year average Prime headline rents have remained stable at 16 per sq ft since 21, with limited good quality accommodation and weak activity levels providing little opportunity to prove new rental levels. Lease terms remain in favour of occupiers, with most landlords willing to accept shorter leases in order to secure tenants. Rents are now 11.1% below their 27 peak level of 18 per sq ft. The lack of investment market activity has meant that prime yields have remained at 6.75% since 211. Newbury: prime yields Q1 213 The early part of 213 has seen limited activity, with no lettings above 5, sq ft recorded in Q1. However, there are several requirements of 1, sq ft and above currently in the market. With Vodafone having taken back some of the space that it was marketing, the levels of availability in Newbury have continued to reduce, falling to 214,3 sq ft at the end of March 213 a reduction of 15% since the end of 212. All of the surplus Vodafone space that was put on the market several years ago has now been let. Availability remains tight in Newbury, with the availability rate now down to 5.4% of total office stock in the market. Second hand space dominates availability, accounting for 89% of the overall total, although 2% of second hand availability is in poorer quality stock. The availability rate reduces to 4.3% if poorer quality space is excluded from the calculation. Grade A supply is limited to one building of 24,2 sq ft which is privately owned and currently being marketed for rents in excess of prime rental levels. Availability sq ft Q1 213 Based on last year s take-up levels, the current level of availability represents around 5.9 years supply of stock, although this figure reduces to 3.5 years supply when compared to the long run average take-up level. Prime rents are expected to rise to 16.5 per sq ft by the end of 213, an increase of 3.1% from their current level. Despite this rise, prime rents in Newbury will remain at a significant discount to other Thames Valley centres. Further growth in 215 is expected to push prime headline rents to 17 per sq ft, although this is forecast to be the peak of the market, with rents remaining at this level until 217. Over the five year forecast period prime rents are expected to grow by 1.2% per annum on average (f) 214 (f) 215 (f) 216 (f) 217 (f) 16 Lambert Smith Hampton Lambert Smith Hampton 17

10 Oxford & South Oxfordshire Oxford & South Oxfordshire Office take-up slowed to 114,1 sq ft in 212 due to a lack of large lettings. Activity in 212 represents one of the lowest levels of Oxford take-up recorded in recent years. The majority of activity during the year was of lettings below 1, sq ft, primarily in the out of town market. Despite this, the largest transaction was in the city centre where Natural Motion took 18,855 sq ft at Ramsey House. Availability edged up slightly to 669,4 sq ft in Q1 213, with two new buildings at Milton Park going under construction. The two buildings have added 55,6 sq ft to grade A availability, which now stands at 125, sq ft 19% of overall floor space on the market. Good quality, second hand office space accounts for the majority of stock on the market, with most of this space being out of town. Greater city centre availability stands at 11,2 sq ft, representing only 15% of the stock on the market. Prime headline rents are expected to rise to 23 per sq ft by the end of 213 before returning to previous peak levels of 24 per sq ft by the end of 214. Kevin Wood, Associate Director Tel: +44 () , kwood@lsh.co.uk The two new buildings to go under construction at MEPC s Milton Park, buildings 11 and 12, will add a further 55,6 sq ft to available grade A floor space. Construction is expected to complete in spring 214, with the buildings offering 28, and 27,6 sq ft respectively. Goodman completed the construction of the new Centrica headquarters in Q1 213, with the building accommodating the head office for the British Gas business. The city centre market continues to offer limited opportunities for new schemes, with the tight planning regime maintaining the existing building stock. Under construction sq ft Q1 213 Oxford saw a significant slowing in activity in 212, with take-up down to 114,1 sq ft, less than half of the previous year s figure. The 212 total represents one of the lowest levels of activity recorded for the market in recent years, with take-up held back by the lack of larger transactions. The largest transaction in 212 was in the city centre, where games and technology group, Natural Motion, acquired 18,855 sq ft at Ramsey House with the deal completing in Q4. 25,8 sq ft of take-up was seen at Milton Park in Abingdon, over three deals. The largest of these was the Taylor & Francis acquisition of 11,8 sq ft at 3 Park Square. Despite the largest transaction being in the city centre, the main focus of activity over the past 15 months has been in lettings of below 1, sq ft in the out of town market, which provides the majority of opportunities for occupiers. The start of 213 has seen activity levels drop back further, with no transactions of above 5, sq ft completed in Q1. Take-up sq ft Q year average in the city and surrounding area continues to be dominated by the professional services and technology sectors, with the University providing the major focus for activity. Prime headline rental values moved up to 22.5 per sq ft on the back of transactions completed in 211 and have remained at that level since. The restricted supply of grade A accommodation has held back growth potential but the new properties at Milton Park may provide opportunities to prove new rental levels. Tenant incentives remain a feature of the market, with competitive lease terms available on second hand stock. Prime investment yields have reduced by 25 basis points over the early part of 213, falling to 6% their lowest level since 26. The most significant deal was the sale of the British Gas premises at Oxford Business Park. The property is let for a further 14 years and was purchased by Charles Street Building Group for 29.1m, reflecting a net initial yield of 5.95%. Oxford & South Oxfordshire: prime yields Q1 213 Availability in Oxford has remained around 65, sq ft over the past four years, just edging above this figure in Q1 213 to total 669,4 sq ft. The main impetus behind the rise in availability has been the start of construction to two new buildings at Milton Park, adding 55,6 sq ft to grade A availability in the market. Overall grade A stock now stands at 125, sq ft, with all of this being out of town. Out of town availability accounts for 85% of total supply in the Oxford market, and the majority of stock is either grade A or good quality, second hand space. There is very limited supply of stock in the city centre, although most accommodation in the greater city centre market is in better quality, second hand space. Windrush Court in the out of town market represents the largest building currently available, totalling 72, sq ft including some laboratory and ancillary accommodation. Only a few other properties are able to accommodate requirements above 2, sq ft. Availability sq ft Q1 213 The overall availability rate in Oxford rose to 9.4% of built office stock, up from 9% at the end of 211 but still significantly below the peak of 11.2% in 28. Based on last year s below trend take-up, the current supply figure represents 5.9 years supply of stock. This figure significantly reduces, falling to 1.1 years supply, when considering just grade A space. Prime headline rents have remained at 22.5 per sq ft over the past few years, with the lack of grade A accommodation restricting the ability to prove new rental levels. Growth is expected to be re-established in 213, with rents rising to 23 per sq ft by the end of the year. Prime rents are forecast to return to their previous peak of 24 per sq ft by the end of 214, remaining at that level until the end of the forecast period. The annualised growth in prime rents over the period is 1.3% per annum (f) 214 (f) 215 (f) 216 (f) 217 (f) 18 Lambert Smith Hampton Lambert Smith Hampton 19

11 Reading Reading Take-up in Reading in 212 amounted to 334,786 sq ft 4.4% up on the previous year s figure and ahead of the long run average take up level for the town, which stands at 32, sq ft. Once again, the out of town market dominated activity, accounting for 81% of total take up. The largest transaction was the 14, sq ft letting to Chinese telecoms group, Huawei, at South Oak Way, Green Park. The Huawei letting is the largest transaction in the Reading market since the downturn in 27. Activity in the town centre has been constrained by the lack of grade A floor space, particularly in buildings that can accommodate large corporates with requirements for larger floor plates of 2, sq ft and above. Q1 213 has seen activity levels remaining healthy, with 77,9 sq ft of take up recorded and occupier demand remaining strong. Availability has fallen below 2m sq ft for the first time in three years and is now 2% below the peak level recorded at the end of 21. Prime town centre headline rents remain stable at 3 per sq ft, with out of town prime headline rents standing at 27.5 per sq ft. Nick Coote, Director Tel: +44 () , ncoote@lsh.co.uk Tom Fletcher, Associate Director Tel: +44 () , tfletcher@lsh.co.uk The supply of grade A space in Reading town centre has remained restricted over the past few years, but with the 895m improvements to Reading station due to complete by 215 there are some indications that several schemes may start to come forward and seek funding. These schemes are unlikely to commence in the immediate future, so the pipeline of new grade A offices in the town centre will arise through the refurbishment of existing stock, with three schemes providing the majority of this space: Ediston Properties and Europa Capital s 52, sq ft Phoenix at Station Hill; Hermes 77,75 sq ft Abbey Gardens; and Wrenbridge and Lumina s 7,69 sq ft at Reading Bridge. There are signs that speculative development may commence out of town, with the anticipated new owners of IQ Winnersh likely to consider development. Under construction sq ft Q1 213 Take-up improved in Reading in 212, rising by 4.4% to 334,786 sq ft ahead of the 1 year average for the town of 32, sq ft per annum. The most significant transaction was the 14, sq ft letting at South Oak Way on Green Park to Chinese telecoms company, Huawei. The deal accounts for 42% of the year s total take-up and represents the largest letting in Reading since the market downturn. Activity in the town centre market has been held back by the lack of grade A accommodation, particularly in buildings with floor plates of 2, sq ft and above. Town centre take-up in 212 was 62,1 sq ft 5% down on the 1 year average for the market. The out of town market now provides the only opportunities for occupiers that are looking for larger floor plate. Although there are some plans for large scale redevelopment in the town centre, this is a challenge to be brought forward because of a lack of funding and risk profile. Take-up sq ft Q year average Q1 213 has seen activity levels remain buoyant, with 77,9 sq ft of activity recorded in the first three months. Take-up in the town centre accounted for 63% of activity in Q1, and Q2 is expected to see an increased level of activity. Prime headline rents in the town centre market have remained stable at 3 per sq ft since 21, while the out of town market has seen rents move back to 28 per sq ft for the first time since 28/9. In the town centre, the lack of grade A stock with larger floor plates may restrict growth in the short term, while the out of town market still has good availability for occupiers looking to satisfy larger requirements. Prime investment yields have remained at 6% since Q1 212, although there has been a lack of evidence from the market in transactions of prime property. The most significant transaction over the 12 months to the end of March 213 was the 19.5m purchase of Brook Drive, Green Park by Oxford Properties, which further consolidates its holdings at the park. The property at Brook Drive is occupied by Logica and the purchase price represented a net initial yield of 8.72%. Reading: prime yields Q1 213 SEGRO s forthcoming sale of IQ Winnersh will set the tone for the current investment sentiment. The downward trend in availability has continued over the past few years, with total stock on the market falling below 2m sq ft for the first time in three years at the end of March 213. Total availability reduced by 1% in Q1 213, and is now 2% below the peak level of 2.5m sq ft recorded in Q The majority of supply continues to be out of town, which accounts for 61% of total stock on the market. The Reading market has had a good supply of grade A space over recent years, with the majority of this space being out of town. Total grade A space on the market stands at 1m sq ft, with 69% of this accommodation being out of town. Town centre availability has reduced significantly over the past few years and now stands at 764,2 sq ft, 31% below the peak levels recorded at the end of 211. The levels of grade A availability still represent 41% of overall stock on the market in the town centre, but this figure is set to reduce. This highlights the difference between town centre and out of town markets, where town centre availability is dominated by poorer quality, second hand stock (44% of total town centre availability), while the out of town market has 82% of availability in either grade A or good quality, second hand stock. Availability sq ft 3, 2,5 2, 1,5 1, Q1 213 Based on letting market trends during 212, current availability represents 5.6 years supply of stock, although this reduces to just over 2.9 years when focusing on grade A and prime stock. Prime headline rents on town centre space have remained at 3 per sq ft since 21, but this figure is set to improve with the stock of grade A space now reducing, with rents forecast to reach 32 per sq ft by the end of 214. Prime rents in the out of town market have also remained stable at 27.5 per sq ft over the past few years, but this is set to change with rents expected to reach a new rental peak of 3 per sq ft by the end of 214. The differential between out of town and town centre rents has been increasing since 27 but this trend is expected to reverse over the next few years, with the out of town market offering the best opportunities for larger occupiers and the town centre constrained only by a lack of grade A stock Town centre Out of town (f) 214 (f) 215 (f) 216 (f) 217 (f) 2 Lambert Smith Hampton Lambert Smith Hampton 21

12 Slough Slough Slough saw take-up fall below the 1 year average for the town for the second year in succession, with 93,7 sq ft recorded in 212. The majority of activity focused on lettings of 9, 14, sq ft. Slough s office market over the past few years has been dominated by existing occupiers taking expansion space, illustrating an increased level of investment and commitment to the town from tenants. The take-up of grade A space accounts for almost 5% of all activity over the past 15 months. numbers have remained at 1.2m sq ft over the past few years, with availability dominated by second hand space, which accounts for 9% of total stock on the market. The availability rate stands at 31.4% of built office stock, although poorer quality stock is currently being targeted for change of use, which should reduce the overall figure. So far in 213, the main impetus behind reducing stock on the market has been from buildings being purchased for change of use. Around 46, sq ft has been purchased for alternative uses in Q1, with a further 112, sq ft currently under offer. Prime headline rents have remained at 2 per sq ft, although occupiers are able to secure favourable terms on good quality accommodation because of the current supply conditions. Richard Duncan, Senior Surveyor Tel: +44 () , rduncan@lsh.co.uk Cliff Jackson, Director Tel: +44 () , cjackson@lsh.co.uk While no new schemes are currently under construction, there are several pre-let opportunities currently being marketed. The largest of these is SEGRO s IQ Slough, which received approval from Slough Borough Council in September 211. The 1.6m sq ft project is expected to start taking shape over the next few years. Additional pre-let opportunities can be found at Huntercombe Park in Taplow, where Exton Estates and Scottish Widows Investment Partnership have gained planning permission for a 91,5 sq ft office scheme. Development Securities scheme in the town centre (part of the town centre regeneration scheme) could also provide up to 375, sq ft of offices. The new Slough Regeneration Partnership was formed in the latter stages of 212, with Morgan Sindall as the Council s chosen partner. The next phase of the Heart of Slough regeneration programme is to be the construction Under construction sq ft Q1 213 of The Curve arts and leisure centre, which will contain a library, cultural and community facility. Construction is due to commence in September 213. Activity in 212 fell below the 1 year average for the Slough market for the second year in succession, with takeup of 93,7 sq ft compared to the trend level of 19, sq ft per annum. Activity was evenly split between grade A and good quality, second hand space, with both The Curve and Landmark Place registering further lettings. In 212, the largest leasehold transaction at The Curve on Axis Park was the 14,16 sq ft letting to construction company, Mansell, in Q4. The highest terms achieved were at Landmark Place in a 9,4 sq ft letting to Nielsen Financial Services, also in Q4. All of the floor space acquired in leasehold transactions in 212 was for expansion by existing occupiers, illustrating the fact that companies in Slough are willing to increase their investment and commitment to the town. While the level of occupier demand remains muted, takeup in Q1 213 has been more positive with 35,4 sq ft of activity recorded. Take-up sq ft Q year average The largest leasehold transaction in Q1 213 was the 13,58 sq ft letting to Computer 2, also at The Curve. Occupiers have shown a strong preference for grade A space which has accounted for 5% of all lettings over the past 15 months. Prime headline rental values have remained stable at 2 per sq ft since 21, following a sharp downturn in the previous two years when rents fell back by 25.9%. The current headline rental level looks as though it will represent the bottom of the market, although generous terms are available. Incentive packages are still a feature of the market, with landlords keen to secure tenants in a market that has ample supply. There has been limited investment activity in Slough over the past 15 months, with the most significant transaction being the 9m purchase of the former O2 headquarters at 1 Brunel Way by Hermes REIM. The current lease expires in late 214 and, thereafter, 1 Brunel Way will return to the market. Prime investment yields on offices in Slough have improved over the past 12 months, reducing by 25 basis points to stand at 6.75% at the end of March 213. Slough: prime yields Q1 212 Availability in the Slough market has remained relatively stable at 1.2m sq ft since 211, with the majority of stock on the market being second hand space, which accounts for 9% of overall availability. A change of use trend has started to gather pace in early 213, with secondary office acquired for alternative uses. In Q1 213, 163 Bath Road (33,5 sq ft) and Westminster House (12,281 sq ft) were both sold for conversion to alternative uses. A further 112, sq ft is currently under offer in multiple buildings, with the intention to convert to alternative uses. Grade A availability has continued to edge downwards, falling to 12,8 sq ft at the end of March 213 from 34,4 sq ft at the end of 211. Grade A availability is now focused on one building, the 98,7 sq ft Windsor House, as the remaining space at Gallions in Wexham Springs was let in Q Despite the increased levels of activity in grade A space, Windsor House has remained vacant since its completion in 29. The building has now exchanged to a new owner in May 213, and marketing of the available space continues. Availability sq ft 1,25 1, Q1 213 The slowing occupier market has seen the years supply figure rise to 12.9 years based on the levels of take-up recorded in 212. This figure reduces to 6.4 years supply when focused on the longer term take-up trends. Grade A availability represents 1.3 years supply based on 212 take-up. Prime headline rents are expected to remain at their current level of 2* per sq ft through to the end of 213, held back by the supply of second hand space which is seen as an alternative to grade A space. Rents are expected to see modest improvements in 214, with rents moving up to 22 per sq ft as the supply of stock on the market reduces. The most significant improvement in rents is forecast for 216/17, when rents are expected to reach 28 per sq ft as new/refurbished grade A space is released onto the market. The overall growth in prime rents over the forecast period is 7% per annum (f) 214 (f) 215 (f) *NB per sq ft was secured at Gallions, Wexham Springs, in Q While this is a positive increase in headline rents, Wexham Spring s unique out of town location will not influence headline rents in Slough s primary commercial sectors over the course of (f) 217 (f) 22 Lambert Smith Hampton Lambert Smith Hampton 23

13 Staines Staines Take-up has remained below the 1 year average for Staines for the past two years. This follows a period of four years of above trend activity, which saw a significant reduction in grade A stock. Although the stock of built grade A availability has significantly reduced, there are several new schemes currently under construction that will add to supply figures. The largest of these is the 89, sq ft Strata on 1 Bridge Street, which is due for completion in early 214. Building 5 Pine Trees, totalling 57,178 sq ft, is due to complete in Q4 213 and the 6, sq ft Flow building on The Causeway completes in mid 213. Prime rents have responded to the lack of built grade A stock, rising by 1.8% to 28.5 per sq ft over 212 with further growth expected in the current year. Prime headline rents are expected to reach 32.5 per sq ft by the end of 213. Tony Fisher, Director Tel: +44 () , tfisher@lsh.co.uk Jon Rea-Palmer, Senior Surveyor Tel: +44 () , jreapalmer@lsh.co.uk 57,178 sq ft will be available at Aberdeen Asset Management s 5 Pine Trees, where the existing building is being taken back to shell and is due to complete in Q Also under construction is LaSalle Investment Management and Bell Hammer s Strata at 1 Bridge Street. The building will add 89, sq ft to built stock when completed in Q There will also be 6, sq ft available at Flow on The Causeway which is due to complete in mid 213. Aside from the schemes under construction, there are a number of prospective schemes which could be brought forward over the next few years. The largest of these is the Staines Central development, which has outline planning for 211,5 sq ft of office space across three buildings. Under construction sq ft Q1 213 Staines has traditionally acted as a draw for major corporate occupiers, with the locality providing good links into London and easy access to Heathrow. The levels of take-up in Staines remained subdued in 212, with 58,2 sq ft of activity recorded some 47% below the 1 year average take-up level for the market. This is the second successive year that take-up has fallen below the trend level of activity. Only two transactions above 15, sq ft completed: the 19,92 sq ft letting at Heritage Court to Hitachi Capital, and the 18,374 sq ft letting to Service Now at Future House. Both of these deals further reduced the levels of grade A space on the market. The first quarter of 213 has seen activity slow, with no transactions above 5, sq ft completing, although there have been several lettings of below 5, sq ft. Take-up sq ft Q year average The majority of activity in the area has been focused on grade A and good quality, second hand space, with occupiers showing a preference for prime locations particularly close to the station and along the main business district, The Causeway. Prime headline rents moved up to 28.5 per sq ft in the second half of 212 and are expected to continue to increase to 32.5 per sq ft by the end of 213. The completion of Flow on The Causeway in mid 213, 5 Pine Trees in Q4 213 and the commencement of Strata at 1 Bridge Street has released new grade A space onto the market, which will help to test current rental levels. Quoting rents for these schemes are 32.5 per sq ft Lease terms have improved significantly on grade A stock, although tenant incentives have remained relatively stable. Investment market activity has remained relatively slow over the past 12 months, with the main transaction being the purchase of Forum House on Thames Street by the Drapers Livery Company for 5.6m, reflecting a net initial yield of 7.22%. Prime investment yields have hardened by 25 basis points over Q1 213 to 6%. Yields are now back to levels last seen in 27. Staines: prime yields Q1 213 in Staines has increased over the past 15 months, rising to 54,8 sq ft. This is primarily due to the commencement of three major schemes in the area, which has added 25, sq ft of grade A space to supply figures. Total availability is split evenly between grade A space (which accounts for 55% of availability) and good quality, second hand space, although the majority of grade A space is currently under construction. Rockspring and Exton Estates Flow scheme on The Causeway will add 6, sq ft to grade A supply and is due for completion in the summer of 213. Based on weak take-up figures for last year, the dynamic years supply figure has risen to 13.5 years, but this figure reduces to 4.1 years when based on the long run take-up figure for the Staines market. The acute shortage of grade A built stock has worked against Staines, with Cameron Oil, which had previously been based in the town, choosing to take 7, sq ft in Weybridge. Availability sq ft Q1 213 Continued shortages of grade A stock pushed prime headline rents to 28.5 at the end of 212, with further growth expected as values reach 32.5 per sq ft by the end of 213. With most new stock being absorbed by the market, the upward pressure on rental values is expected to be maintained over the forecast period, with prime rents expected to reach 34 per sq ft by the end of 216. The overall growth in rents over this period is 22.8%, which equates to growth of 4.6% per annum from current levels (f) 214 (f) 215 (f) 216 (f) 217 (f) 24 Lambert Smith Hampton Lambert Smith Hampton 25

14 Uxbridge Uxbridge Since 27, take-up in the Uxbridge market has remained below the long run trend level of 2, sq ft per annum, with only 44,7 sq ft of activity recorded in 212. Only four deals above 5, sq ft completed last year, the largest of these being the 16,5 sq ft letting to Herbalife at the Atrium, Harefield Road. All activity in 212 was focused on good quality, second hand space. The availability rate moved up to 6.6% at the end of March 213 following the completion of The Stanza building. Despite this, Uxbridge continues to have one of the lowest levels of availability among the main Thames Valley centres. Take-up in the Uxbridge market has remained below the 1 year average for the town since 27, with activity in 212 registering 44,1 sq ft. This is significantly below the previous year s total of 147, sq ft. There were only four deals in excess of 5, sq ft during the year, the largest of these being the 16,5 sq ft letting to Herbalife at the Atrium on Harefield Road, while Securitas took 12,64 sq ft at Lovell House, 271 High Street. Take-up in 212 was focused entirely on second hand space, with the limited supply of grade A stock prompting occupiers to concentrate on this sector of the market. Q1 213 was particularly slow with no lettings completing in the quarter, although there are some signs that the second quarter will show improvements in activity. Uxbridge remains a key location for major Thames Valley corporate occupiers, with a number of them looking to consolidate their occupation in the Uxbridge area. The completion of The Stanza building at 97 Oxford Road has helped push total availability in Uxbridge to 561,1 sq ft, the highest level of availability since 26. The building completed in Q1 213 and is now available for occupation. The Stanza building was constructed by Rockspring and Bell Hammer, and provides 82,5 sq ft of floor space only 1 minutes walk from the town centre. Total grade A availability stands at 12,3 sq ft, with only two other buildings providing grade A accommodation; Waterside House on Cowley Business Park provides 26,57 sq ft, while Parkview on Oxford Road offers a further 11,4 sq ft on one floor. The majority of stock on the market is in second hand space, which accounts for 79% of overall availability. The overall availability rate stands at 6.6% of total built office stock, up from 5.3% at the end of 211. Grade A supply continues to be restricted, with only 12,3 sq ft on the market and 82,5 sq ft of that at Rockspring s The Stanza, which is rumoured to be under offer close to the quoting rent of 32.5 per sq ft. The only other grade A stock on the market is at Waterside House on Cowley Business Park and at Parkview on Oxford Road. The completion of The Stanza is a good opportunity to prove advancements to prime rents, with values expected to rise to 32.5 per sq ft by the end of 213. Tony Fisher, Director Tel: +44 () , tfisher@lsh.co.uk Jon Rea-Palmer, Senior Surveyor Tel: +44 () , jreapalmer@lsh.co.uk Take-up sq ft Q year average Availability sq ft Q1 213 Current availability represents 12.7 years supply of floor space based on the poor 212 take-up figure, although this reduces to just 2.8 years when compared to the 1 year average take-up figure for the town. The completion of The Stanza building has provided the perfect benchmark for other developers looking to commence schemes in the Uxbridge area. Should the letting of the whole of The Stanza building, rumoured to be in solicitors hands, complete soon, then further development in the town may be brought forward given the severe lack of grade A supply. Goodman s Uxbridge Business Park scheme is fully let, although there is outline consent for the construction of two additional buildings, Building 4 totalling 77,361 sq ft and Building 5 totalling 27,576 sq ft. However, at present these will not be started unless a pre-let is agreed. St. Modwen owns the 11 acre site at RAF Uxbridge, but the main focus of St. Modwen s mixed use scheme is residential accommodation. However, there is permission for 2, sq ft of office and retail floor space. Prime headline rents have remained at 27 per sq ft since 21 but, with Rockspring s The Stanza building now complete, any letting activity should test this rental level. The entire building is rumoured to be under offer close to the quoting rent of 32.5 per sq ft. The availability rate in Uxbridge is one of the lowest among the Thames Valley centres and this should aid improvements to rental levels over the remainder of the year. Prime investment yields have remained at 6.25% through to the end of March 213, with investors continuing to look at Uxbridge in a favourable light. The investment market has remained relatively quiet over the 12 months to the end of March 213, with only one major transaction completing the 22.8m purchase of Harman House on George Street by Mercer Real Estate Partners. Prime headline rents have remained at 27 per sq ft since 21, with only limited stock on which to prove any improvements in rental levels. The completion of The Stanza is a good opportunity to prove advancements to prime rents over the next few years. Further growth in 214/15 will see prime rents in Uxbridge increase to 34 per sq ft. Under construction sq ft Uxbridge: prime yields Q1 213 Q1 213 Several transactions have completed in Q2 213, the most significant of these being the 34m purchase of three buildings in Uxbridge occupied by Xerox by Legal & General Property. The purchase price represents a net initial yield of 8.7% (f) 214 (f) 215 (f) 216 (f) 217 (f) 26 Lambert Smith Hampton Lambert Smith Hampton 27

15 Thames Valley Office Market Report 213 Investment overview The past 12 months have seen a significant increase in demand for Thames Valley offices, but a drop in transactional volumes due to a lack of sales. 623m was transacted in the period, compared to 1.3bn in the preceding year. Stripping out the 48m Green Park sale from last year, this results in a similar turnover year on year. What is of greater interest is the geographic, pricing and buyer profile trends demonstrated by this year s activity and continuing demand. All change at Stockley Park From a geographic perspective, in the year July 212 to June 213 we have seen over 1m in five completed transactions at Stockley Park. We are aware of a further 5m at Stockley Park that is currently available or being marketed. There is a perception that the concentric occupational market recovery out of London has driven demand for the most globally-recognised business park at Heathrow. Investors are therefore now showing significant demand for the eastern end of the Thames Valley. Station scheme drives demand in Reading Other locations have seen increased levels of activity, with the changes at Reading station leading to a number of buildings north of the station changing hands in the past 12 months. These include Reading Bridge House, MMA House and Sovereign House. The influence of other infrastructure plans has, in our view, caused increased demand and activity in Slough, with demand and sales of 1 Brunel Way and Windsor House being the most significant examples. The widespread lack of development since the late 198s has put upward pressure on rental growth prospects and led to occupational supply challenges in the market. From a pricing perspective, investment demand has now recognised this issue in certain locations, with higher income growth expectations driving up prices. Details of other Lambert Smith Hampton research material can be viewed on our website at Due to space constraints within the report, it has not been possible to include both imperial and metric measurements. Lambert Smith Hampton July 213. This document is for general informative purposes only. The information in it is believed to be correct, but no express or implied representation or warranty is made by Lambert Smith Hampton as to its accuracy or completeness, and the opinions in it constitute our judgement as of this date but are subject to change. Reliance should not be placed upon the information, forecasts and opinions set out herein for the purpose of any particular transaction, and no responsibility or liability, whether in negligence or otherwise, is accepted by Lambert Smith Hampton or by any of its directors, officers, employees, agents or representatives for any direct, indirect or consequential loss or damage which may result from any such reliance or other use thereof. All rights reserved. No part of this publication may be transmitted or reproduced in any material form by any means, electronic, recording, mechanical, photocopying or otherwise, or stored in any information storage or retrieval system of any nature, without the prior written permission of the copyright holder, except in accordance with the provisions of the Copyright Designs and Patents Act Warning: the doing of an unauthorised act in relation to a copyright work may result in both a civil claim for damages and criminal prosecution. 28 Lambert Smith Hampton Investors moving along the risk curve Having seen sporadic demand for short let or vacant refurbishment opportunities a year ago, the past 12 months have been dominated by investment activity on properties which offer higher risk and return opportunities. As a consequence, the more traditional measure of capital value per square foot rather than yield is the current barometer of pricing. In respect of yields, the lack of grade A space and rarity of long let properties makes an assessment of prime yields increasingly difficult. Yields are hardening for quality property and we envisage further price increases for long let, grade A product. Increased overseas investment appetite The buyer profile in the Thames Valley has changed in line with the Central London market. The appetite of overseas investors has resulted in increased demand; deals done at 5 Longwalk at Stockley Park and The Heights in Weybridge are significant examples of this activity. The partnering of asset and development managers with overseas capital will continue, creating a depth of demand beyond the UK funds that will force price rises for income and asset management-led opportunities. We expect the next 12 months to show that the lack of land, expense of development, and maintenance of historic car parking ratios will encourage investor appetite for refurbishment opportunities, which can satisfy the increasing occupational demand on timelines that can beat ground up development. Nick Lloyd, Director Capital Markets Tel: +44 () , nlloyd@lsh.co.uk Charlie Lake, Senior Surveyor Capital Markets Tel: +44 () , clake@lsh.co.uk Addressing obsolescence for office space in the UK is undergoing a major structural change. The implementation of modern workplace practices means that it is perfectly possible for a company currently occupying a 2, sq ft building to simultaneously upgrade its space while reducing its occupational footprint by at least 2 4%. Space requirements to reduce by up to 5% in the next five years The mantra for large corporate occupiers and forward looking public sector occupiers is now better quality space, but less of it. In the last 2 years, the amount of allocated space per person in an average UK office has halved and occupiers expect this reduction to continue. Indeed, public sector occupiers surveyed for the 212 British Council of Offices (BCO) report Change for the Good Identifying Opportunities from Obsolescence (co-authored by LSH), said that their space requirements would reduce by as much as 5% in the next five years. There s too much low quality space These structural changes have coincided with a downturn in the market since the peak in Availability rates are already well above average in the UK, and the vast majority of this space (73%) is secondary or tertiary. In the Thames Valley, more than 1.76m sq ft of available space is grade C, for which there is very little market. Much of it will never be let again. The implications for the office market are clear: we have too much low quality, obsolete office space in the UK. This means offices that are either: Locationally obsolete the building is in, for example, an inaccessible out of town location where there is no occupier demand Functionally obsolete the building is not fit for purpose due to changing technology, new regulation or changing occupier demand, i.e. small, irregularshaped floorplates or cellular design Physically obsolete the building s fabric and/or M&E specification has deteriorated to the point where the cost of occupation outweighs the benefits accrued by the occupier 12% of available Thames Valley office stock is obsolete Nationally, our findings suggest that there is approximately 11.7m sq ft of obsolete regional stock currently on the market, which is more than 27% of the total regional availability. In the Thames Valley, 12% of available office stock (1.4m sq ft) is obsolete as office space and, of this stock, 1.6m sq ft (76%) is deemed suitable for residential conversion. This obsolete space is a drag on the market by artificially inflating availability figures. In turn, this is discouraging new development in locations which have high levels of secondary and tertiary availability but low levels of the type of office space that occupiers are increasingly targeting. Obsolescence is not restricted to vacant stock either. Many companies occupy buildings which do not meet their requirements and that they plan to vacate at the earliest opportunity. Survey data from the BCO report on obsolescence indicated that some occupiers have portfolios where they consider up to 6% of space to be sub-optimal. Unless measures are taken to return this space to marketable condition when it becomes available, the likelihood is that it will remain on the market. Refurbishment or conversion? For some landlords refurbishment is a viable option if the building is in the right location and the physical condition and layout allows it. However, there are other options available to the owner. Chief among these is the conversion from offices to another use class, whether that is residential, student accommodation, hotel or even place of worship. The conversion of offices to another higher value use class is not a new phenomenon. Even at the height of the boom there was a trend in some oversupplied South East markets for office to residential conversions. But, in recognition of the growing problem of obsolescence, the government has recently announced new rules, applicable in England only, that will allow office space to be converted to residential without need for planning permission. Time to convert With above average levels of availability in almost all markets, an accelerating process of obsolescence, changes in the pattern of office demand and a sympathetic planning system, now is the time for landlords and developers to look for opportunities to take obsolete buildings off the market and convert them to an alternate use. Not only will this benefit the office market, it will help with the current shortage of residential development, which is one of the government s key priorities, and has the potential to drive much-needed economic growth via the construction industry. Lambert Smith Hampton 29

16 Thames Valley Office Market Report 213 Thames Valley Office Market Report 213 The creative class : its impact on the Thames Valley Moore s Law predicted an exponential growth in the power of technology. The world is now going through an unprecedented period of change, driven by new technologies, the internet and globalisation. How is the Thames Valley responding? By taking a broader look at office market trends, we can see beyond the surface level changes and instead begin to understand the tectonic forces that are altering the commercial landscape for office occupiers and investors alike. New generation favour cities over suburbs Richard Florida, an American urban studies intellectual with a focus on social and economic theory, has extolled the idea of a new economic force: the creative class. His high profile theory is that the talented are beginning to favour cities over suburbs, a trend that is being reflected by the movement of some of the high tech industries in the US and elsewhere. Over the last year, it is also a trend that we have witnessed closer to home as many of the global hi tech giants have chosen London over the Thames Valley. In his article within this report, Mark Cote, Managing Director of T3 Advisors, highlights how locations with urban grittiness might appeal to the young workforces in tech community markets. This is perhaps another reflection of the broader creative class concept, with Thames Valley centres such as Reading and Slough gearing up to develop their urban image. Urban appeal of the Thames Valley Having analysed our own Science and Technology database, there are 964 companies with 4+ employees based in the Thames Valley. Perhaps a more resonating statistic is that 72% of the world s top 25 software companies have offices in the region. If you were wondering how this cities over suburbs theorem relates to Thames Valley offices, the picture is now clearer; this region is profiled to follow the same trend seen in the US. 5% 3% 3% 9% 1% 3% 15% 17% 2% Medical, science, pharmaceuticals & clinical trials Software, computers, IT services & online Electronics Telecoms Oil & gas technology Aerospace Engineering Publishing & media Food Other Science and technology occupational profile in the Thames Valley (964 companies with 4+ employees) 34% Trend reversal: corporates heading east It is worth considering that the likes of Google, Amazon and LinkedIn have all recently acquired major office hubs in London, apparently spurning the traditional tech corridor of the Thames Valley. Intuit, in the top 3 of the global software 1, has also just moved from Maidenhead to Victoria. While previously this sector tended to move west to the Thames Valley, there is now plenty of evidence to indicate a reversal of this trend. Tech City and the Silicon Roundabout in London are illustrations of this phenomenon. Are they a manifestation of the urbanisation of the young talent, and possibly the broader creative class? In this context, does the Thames Valley represent the new suburbia? If the surface level changes are manifested in a business locational decisions, what are the underlying drivers that might be fuelling the creative class force in this region? Company car tax is reducing the number of cars taken. Staff then want to be near transport hubs, often in urban locations. There is a renaissance of high-density residential living in city centres. Property affordability (the Friends Effect whereby singles share rentals); this is a major factor in young talent shifting to live in East London. Families want space and gardens, while singles want access to a good social life. The Thames Valley is fighting back How should the Thames Valley adapt in the face of these underlying changes? The infrastructure investment being made in the Thames Valley is a major step in the fight to reposition the region and retain hi tech dominance. Crossrail could ultimately create both a threat and an opportunity as it better connects the Thames Valley to the east-drifting London creative talent. The new Western Rail Access to Heathrow link, connecting Reading, Maidenhead and Slough to Heathrow s T5, may reflect the reality that no government can undermine a region that produces 3 billion of its GDP. Therefore, should the London airport expansion be at Heathrow, not in the environmentally sensitive estuaries east of the capital? Finally, the towns of the Thames Valley, particularly Reading and Slough, have the capability to deliver the urban environments that will enable the region to retain, attract, and accommodate the young and creative talent, rather than seeing it migrate to London. Some of this change may come about through converting obsolete offices into residential space as a part of this urban renewal, a topic also explored in this report. Understanding the creative class The simple, superseding requirement for property investors and office occupiers in the Thames Valley is to be flexible and to get under the skin of what is driving the young, creative talent. New generation changes go beyond social media and technological advances, to also understanding their knock-on effects and embracing the new ideas that come out of them. Companies and individuals must be able to navigate and embrace this world of new technologies and social media. Tools such as Twitter, Facebook and LinkedIn are good first steps in beginning to talk the language of this creative class and understand the changes to its work/life motivations. The infrastructure investment being made to the Thames Valley is a major step in the fight to reposition the region and retain hi tech dominance. 3 Lambert Smith Hampton Lambert Smith Hampton 31