OXFORDSHIRE. carterjonas.co.uk 1

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1 OXFORDSHIRE 2017 carterjonas.co.uk 1

2 WELCOME TO OUR 2017 OXFORDSHIRE COMMERCIAL EDGE REPORT WHICH PROVIDES AN ANALYSIS OF THE COUNTY S OFFICE AND INDUSTRIAL MARKETS FOR 2016, TOGETHER WITH COMMENTARY ON THE RETAIL AND INVESTMENT MARKETS. IT ALSO DETAILS OUR FORECASTS FOR THE YEAR AHEAD, PROVIDES A PLANNING AND BUILDING COST PERSPECTIVE AND PUTS A SPOTLIGHT ON THE STUDENT SECTOR. Our analysis is derived from in-house data, for buildings over 5,000 sq ft, excluding lease renewals, and recording new build transactions at the time of agreement. The report is an overview to which further detail can be provided on request. As highlighted in our previous reports, Oxfordshire has a strong multi-sector economy, which provides resilience to fluctuations in the wider economic picture. Perhaps not unsurprisingly, given the uncertainty surrounding the EU referendum in 2016, Oxfordshire experienced fluctuating fortunes in terms of transactional activity over the year, as detailed within this report. However, the final outcome for 2016 was positive in terms of recorded numbers and the main underlying indicators saw the completion of a number of infrastructure projects, relatively small in the wider context, but adding some important pieces to the local commercial jigsaw. In addition to the road improvements at Milton and Chilton, which open up both Harwell and the Milton Park/Didcot areas to further expansion, the other notable infrastructure improvement was the completion of the new Oxford to London Marylebone rail link, with the opening of the last section connecting Oxford Parkway in the north of the city and central Oxford. One of the county s main Brexit related challenges remains employment and the effect on attracting skilled European staff particularly within the county s High Tech firms, with most recent statistics showing 46,100 employees working under this banner. Key scientific and research stakeholders, such as the Diamond Light Source at Harwell, are lobbying Oxfordshire MPs for certainty on employment rights as part of the Brexit deal. In common with the UK as a whole, Oxfordshire continues to wrestle with the question of new build housing allocation, with Oxford itself having earned the title of the UK s least affordable city to live in. This position is currently exacerbated by conflicting interests and policies between Oxford City Council and the surrounding districts, with the picture further muddied by the debate over whether to merge districts or create a single unitary authority. 2

3 ECONOMY KEY STATS 391,264 sq ft Office take-up in 2016, down from 405,000 sq ft 620,000 sq ft Office availability, down from 658,000 sq ft per sq ft Prime rental office achieved in Oxford city centre 1,500,000 sq ft Industrial take-up, up from 932,000 sq ft 1,400,000 sq ft Industrial availability, down from 2.2 million sq ft per sq ft Prime industrial rent achieved at Oxford Industrial Park Oxfordshire s economy has continued to flourish, despite the uncertainties surrounding the UK s vote to leave the EU last June. As at November 2016, the county had very low unemployment, with a claimant count of just 0.6%, compared with a figure of 1.1% for the South East and 1.8% nationally. New infrastructure continues to play an important role in the growth of the wider region, with a government study in 2015 suggesting that the so-called brain belt expressway between Oxford and Cambridge would bring significant economic benefits to the area. The report also suggested that the road could reduce journey times between the M4 and M1 by forty minutes at peak times and could also boost the potential labour pool for Oxfordshire by around 470,000. In Oxford itself, December 2016 saw the completion of Project Evergreen 3, which has enabled a direct train to run from Marylebone Station in London to Oxford city centre, via the new Oxford Parkway station which opened in There are early masterplans for the redevelopment of Oxford station and work is underway to attract public funding for the scheme, which includes a new station building with multiple entrances, a new rail track and shops. Oxford City Council is also working with Nuffield College on the redevelopment of the Oxpens site between Oxford station, the Westgate Centre and the river. The scheme is significant for the city, with the opportunity to deliver 300+ houses, over 100,000 sq ft of office and R&D space and a 155-bedroom hotel as well as various shops and restaurants. Growth forecasts for Oxfordshire s economy remain robust, with GVA expected to grow by a total of 27% in the next decade. carterjonas.co.uk 3

4 NOTWITHSTANDING THE BREXIT VOTE AND RELATED EMPLOYMENT AND RESEARCH FUNDING CONCERNS, ACTIVITY WITHIN THE KNOWLEDGE BASED SECTORS IS SEEMINGLY GROWING RATHER THAN CONTRACTING TAKE-UP Take-up figures have been relatively stable in comparison with 2015, with a total of 391,264 sq ft transacted despite the uncertainty surrounding Brexit. We consider this to be an extremely positive outcome given the relative lack of stock. Notable transactions included the long-awaited AC Nielsen pre-let at Oxford Business Park totalling 45,000 sq ft, as well as a pre-let of 53,700 sq ft at 95 Milton Park. In the second hand market there have been notable transactions at Banbury Business Park, with Dematic leasing 49,000 sq ft, and at Unipart House in Oxford, with The Oxford University Hospitals Trust leasing 31,500 sq ft. Both transactions represent the competitively priced end of the market. Notwithstanding the Brexit vote and related employment and research funding concerns, activity within the knowledge based sectors is seemingly growing rather than contracting. Hotspots remain Oxford city centre and Milton Park, where a dearth of availability has led to a rising rental tone. However, it is worth noting that Abingdon - so long the bridesmaid to Milton Park - is also experiencing activity at the smaller end of the market on both the Business and Science Parks. At the time of reporting 4

5 55 Western Avenue, Milton Park Figure 1 Oxfordshire Office Take-up Source: Carter Jonas sq ft ( 000s) Figure 2 Oxfordshire Office Take-up by Town (% share) Source: Carter Jonas sq ft ( 000s) Oxford Banbury Abingdon Witney Kidlington Chilton Wantage the level of meaningful discussions on the county s principal science locations points to a continued level of activity in the short to medium term. RENTAL LEVELS There is a mixed picture in terms of the rental tone. On the one hand, locations such as Oxford city centre and Milton Park have seen rental growth, rentals on other business locations have largely stabilised, rather than grow, in part due to the lack of reported transactions. The second hand market in Abingdon has seen a good level of success, with the rental tone increasing by circa 25% over the last two years, as a result of both landlord investment and growing demand for stock, albeit primarily in the sub-5,000 sq ft bracket. Going forward, rental growth is expected to continue, with the larger new build schemes identified in our pipeline section all likely to be seeking rentals of between and per sq ft. At this stage and in line with previous reports, we anticipate that a new build scheme in the city centre would command rentals of per sq ft or above and would act as a catalyst for wider rental growth. Figure 3 Oxfordshire Office Rental Levels Source: Carter Jonas per sq ft Primary Secondary Abingdon Bicester Banbury Didcot Oxford Thame Witney carterjonas.co.uk 5

6 TAKE-UP Activity in the industrial market has been extremely encouraging, with approximately 1.5 million sq ft transacted in 2016, a strong increase on the 2015 figures. RENTAL LEVELS Rental levels within the industrial market have, on the whole, continued to increase during the past 12 months as the supply of good quality stock diminishes. Banbury has once again been the focus for larger deals, with lettings to Hello Fresh and Amazon jointly totalling 405,000 sq ft, vindicating the decision of DB Symmetry and First Industrial to develop speculatively. In the wider market there has been a spread of activity across the county, with three lettings at Oxford Industrial Park totalling 95,000 sq ft, representing some of the highest quality units. There is now a general shortage of stock in the county s main commercial locations, with overall availability down by 36% on 2015 to 1.4 million sq ft. THERE IS NOW A GENERAL SHORTAGE OF STOCK IN THE COUNTY S MAIN COMMERCIAL LOCATIONS In most of the county s market towns the rental tone for mid-range second hand stock has increased above 6.00 per sq ft, although there are some exceptions. In Oxford rental levels continue to harden, with Oxford Industrial Park rents now at per sq ft. 6

7 Banbury Cross Industrial Park Figure 4 Oxfordshire Industrial Take-up Source: Carter Jonas sq ft ( 000s) Banbury Bicester Abingdon Figure 5 Oxfordshire Industrial Availability Year End 2016 Source: Carter Jonas 2.8 % Oxford Didcot Witney Thame Kidlington Others 27.8 % 69.4 % Grade A Grade B Grade C Figure 6 Oxfordshire Industrial Rental Levels Source: Carter Jonas per sq ft 10 Primary Secondary Central M40, Banbury: as built and proposed 0 Abingdon Bicester Banbury Didcot Oxford Thame Witney carterjonas.co.uk 7

8 THE WESTGATE SCHEME S OCTOBER COMPLETION DATE REPRESENTS THE MOST SIGNIFICANT CHANGE IN OXFORD S RETAILING SCENE IN DECADES WITH THE RESULTANT RIPPLES LIKELY TO BE FELT IN THE CITY CORE FOR SOME YEARS TO COME. The biggest change to the Oxford retail landscape, as mentioned in our 2016 report, is the joint venture between the Crown Estate and Land Securities to redevelop the Westgate shopping centre, providing 840,000 sq ft of prime retail space. The scheme is due for completion in autumn this year and will be anchored by a 142,000 sq ft John Lewis store. Demand for space in the scheme has been strong, with a reported 70% of space already taken up (as at early 2017), with retailers including Victoria s Secret, Pink, Charles Tyrwhitt and River Island. Reports suggest that Apple may also potentially take space, although this is not confirmed. Notably, the Westgate redevelopment will create opportunities for occupiers to take space where previously there was not enough capacity to do so, with many of these occupiers being new to Oxford. Whilst this should partially allay fears that the remaining city retail scene would be adversely affected by the new development, equally we do expect some re-balancing, a process that may take a number of years. Elsewhere in Oxford, there is a relatively buoyant level of interest from incoming retailers, with new leases granted to Leon and Wasabi in However, other activity has been curtailed by the relative lack of supply. Westgate rentals remain unreported. Otherwise, the prime rental tone remains relatively strong, with zone A rents reaching 300 per sq ft for Cornmarket and around 230 per sq ft for Queen Street. The High Street has a mixed tone, falling away from Jack Wills at 220 zone A, close to the junction with Cornmarket. Demand for Oxford remains strong, with 110 current unsatisfied requirements likely to result in rental levels being maintained, even though there are a number of other retail developments in the pipeline. In addition to the Westgate centre, Land Securities and the Crown Estate also acquired the Castle Quarter development, situated opposite, for 47.2 million in However, plans for the scheme have not yet been announced. New River Retail, the owners of two schemes in Oxford, have announced plans for the 60 million redevelopment of the Templars Shopping Centre in Cowley, to include a new hotel, restaurants and 200 residential apartments. The second scheme 8

9 Westgate Oxford CGI DILAPIDATIONS Terminal dilapidation claims are damages sought by landlords against tenants for not complying with their repair, redecoration and reinstatement obligations in the lease. The frequency of dilapidation claims within the commercial property market has increased due to diminishing lease terms and a prevalence of break clauses being exercised by tenants. The RICS published findings for average settlement figures in 2010 based on a dataset of projects between 2007 and The RICS survey revealed average settlement figures of 9.54 per sq ft for offices and 7.27 per sq ft for industrial. & Carter Jonas has undertaken a comparative study of projects between 2015 and 2016, which showed an average of per sq ft for offices and 6.65 per sq ft for industrial. Our analysis is derived from in-house data across our office network including Bath, Cambridge, Leeds, Oxford and London. Our findings show that office settlements have increased by approximately 11% between the two studies, lagging behind the 15.6% inflation of the Tender Price Index during this period, as identified by BCIS. in the city, Gloucester Green, is some way off and is unlikely to commence in the short term, as it is linked with the future relocation of the central bus station. In our 2016 report we identified the redevelopment of the West Way Centre in Botley and can confirm that planning consent was granted for a smaller development in September 2016, albeit with what appears to be a long lead time before work commences. Outside of Oxford, the expansion of Bicester Village is well underway, with completion due in Autumn this year. The 28-store extension has in turn required investment in both road improvements and a significant contribution towards the redevelopment of the newly renamed Bicester Village mainline station. OXFORD IS EXPERIENCING AN INCREASE IN THE LEVEL OF LANDLORD CLAIMS In contrast, industrial settlement figures have decreased by 8.53% over the same period. We believe this can be attributed to the increase of protective measures such as Schedules of Condition engrossed to leases, which mitigate any future claims by limiting a tenant s liabilities. Oxford is experiencing an increase in the level of landlord claims, predominantly as a result of the loss of rent claims following recent case law. However, settlement levels on or below the national average continue to be achieved. carterjonas.co.uk 9

10 Student housing used to be classed as an alternative sector for property investment, but it is now considered to be part of the mainstream. During 2016, approximately 2.6 billion was invested in the sector, the second highest total after In Oxfordshire only two notable student schemes changed hands during the year, namely Stonemason House for 4.5 million and Beech House being forward funded to a reported end value of 23 million. The latter transaction involved Unite UK forward committing to Frontier s 175-bedroom scheme close to Oxford Brookes University. Oxford City Council has placed restrictions on the number of students from the University of Oxford and Oxford Brookes University living in the local community, which has limited the amount of purpose-built accommodation. Nevertheless developers have continued to pursue schemes, both in and outside the local community, with many such developers switching away from pure residential based schemes where Oxford s S106 and CIL contributions together with affordability requirements can be prohibitive. While full-time student numbers for both universities have only increased by around 3.7% over the last five years (to 33,335 in 2015/16), and notwithstanding the number of schemes undertaken in recent years, it is widely acknowledged there is still a shortage of student accommodation in Oxford, with this sector competing head to head with residential and other uses for ever decreasing opportunities. A number of schemes aimed at boosting provision are at the planning stage or have commenced in recent years. Future development of student accommodation is assumed at both the Oxpens and Island sites in the city centre, albeit at this stage masterplans are still awaited. Meanwhile, as evidenced by cranes in the city centre, several of the colleges are building accommodation within their own grounds. 10

11 Beech House, Headington Old Road Campus, Oxford RESEARCH FUNDING IN THE CONTEXT OF BREXIT Against the background of reduced public funding for higher education and the likelihood that the UK will leave the EU, Oxford University generated positive headlines in 2016 by achieving the number one position in the Times Higher Education rankings. Indeed, it was the first time that a UK university has taken the top position in this particular ranking. THERE IS STILL A SHORTAGE OF STUDENT ACCOMMODATION IN OXFORD, WITH THIS SECTOR COMPETING HEAD TO HEAD WITH RESIDENTIAL AND OTHER USES FOR EVER DECREASING OPPORTUNITIES However, with the likelihood that the UK will leave the single market, there are concerns about whether the UK will continue to participate in programmes such as Horizon 2020 the EU s flagship research and innovation programme which provides significant funding for research and facilitates the movement of research professionals around the EU. This is particularly important for the University of Oxford which, according to an interview with the Vice-Chancellor published in the Financial Times in 2016, receives 12% of its research funding from the European Research Council, amounting to 67 million in There are naturally concerns about how the UK might replace the potential loss of public funding, in addition to losing talented professionals. Despite these concerns about public funding, the university s company which commercialises its ideas and technologies Oxford Sciences Innovation (OSI) - continues to attract private capital. To-date, OSI has founded around 20 spinoff companies, including Oxford Flow, Vaccitech and Oxford Nanoimaging. In a new funding round at the end of last year, OSI raised an additional 230 million primarily from Asian investors such as Singapore s Temasek Fund and the Oman Investment Fund - bringing its total pot to 580 million. The growth of OSI is also reflected in its own space requirement, having pre-leased approximately 14,500 sq ft at Keble College s new scheme. In addition to this funding of spin-out companies, the university continues to attract investment at its Old Road medical research campus. The latest investment is from Danish healthcare company Novo Nordisk, which has announced a ten-year collaboration with the university and a 115 million investment in order to find new ways of fighting Type 2 diabetes. The new laboratory building is currently under construction, having previously received 12 million of government funding. This level of investment demonstrates the high regard around the world for the quality of the University of Oxford s research and innovation. Indeed, it will play a key role in ensuring its continued academic and commercial success through the creation of more high value jobs. This, in turn, will continue to attract the best and brightest talent to come and live and work in the region.. carterjonas.co.uk 11

12 & Oxfordshire is recognised as a prosperous county with a thriving economy and a high quality commercial environment in its own right. The county is renowned for its high tech industries, research facilities and world-class universities. It also forms a key part of the Oxford Cambridge growth corridor and has been identified by the National Infrastructure Commission as a potential UK Silicon Valley. Oxfordshire s economic potential is clear, but realising this potential in full will require a coordinated approach to housing delivery, economic development and supporting infrastructure. Plans are being progressed to bring about a step change in housing delivery across Oxfordshire, with some 100,000 new homes required between 2011 and These new homes are needed to accommodate population growth, to address acute affordability issues and to ensure that there are sufficient local workers to support forecast jobs growth. premises for economic development. The Oxfordshire Local Economic Partnership is promoting the creation of 85,000 new jobs in the county by 2031, supported by initiatives such as the Science Vale Enterprise Zone and the Oxfordshire City Deal. Planned employment growth focuses on the science-based knowledge industries and research facilities along the Oxfordshire Knowledge Spine. Despite some concerns around investment decisions in the wake of Brexit, businesses continue to see Oxfordshire as an attractive location. Investment in the county s infrastructure is critical to support all the planned new development. Traffic congestion is a particular concern, including along primary routes such as the A40 and A34. All the local authorities in Oxfordshire have introduced, or intend to introduce, a Community Infrastructure Levy, which will assist in funding transport improvements and the delivery of new community infrastructure. INVESTMENT IN THE COUNTY S INFRASTRUCTURE IS CRITICAL TO SUPPORT ALL THE PLANNED NEW DEVELOPMENT Affordability in Oxford itself is a particular problem, with the green belt around the city, along with flood risk and heritage constraints, serving to limit the options for significant new housing development within the city s administrative boundaries. Some 14,850 new homes needed in Oxford will therefore be built in the surrounding districts, with the Oxfordshire Growth Board taking the lead on agreeing distribution. New Local Plans are being progressed by the District and City Councils which, as well as planning for new housing development, seek to ensure the availability of a range of land and Larger projects, including those designed to improve strategic accessibility, will require funding assistance from central government. The National Infrastructure Commission is currently working on a strategy to improve east-west transport links. The East-West Rail project will reinstate the railway line between Oxford, Milton Keynes and Cambridge, with an initial phase to upgrade the line between Oxford and Bicester, a new station at Oxford Parkway and the connection of this line to the Chiltern line. This has already been completed. Central government is also considering plans for an Oxford-Cambridge Expressway, which proposes building a relief road around Oxford, diverting traffic travelling from the south to the Midlands. In summary, the scale of the challenge is clear. Plans are being made to deliver the new homes and infrastructure needed to support future economic growth, but joined-up thinking will remain key to realising Oxfordshire s full potential. 12

13 Plot 12 Oxford Science Park Oxfordshire s development pipeline remains largely unchanged over the last year, with only the new 30-acre Junction 11 site at Banbury being the main addition. The net addition for the year was approximately 20 acres, having allowed for both additions and deductions. A number of sites have progressed their planning status, of which the following are notable examples: Albion Land and DB Symmetry have gained consent for their respective Bicester industrial schemes, jointly totalling 1,175,000 sq ft Graftongate and joint development partner Clowes have gained consent for the redevelopment of Didcot A Power Station, with a mixed use scheme providing 1.45 million sg ft of space for employment, housing, hotel and convenience store uses St John s College has increased its proposed employment capacity at the Northern Gateway Oxford site to 970,000 sq ft, although it has been reported that the planning process is being delayed by transport concerns In terms of speculative development proposed and started in 2016, industrial was limited to two buildings, totalling 173,000 sq ft, at DB Symmetry s Central M40 scheme at Banbury. Two small unit schemes have commenced at Grange Court, Abingdon Science Park and Windrush Park, Witney, jointly totalling 46,000 sq ft. In relation to the office and R&D market, 2017 promises to see the largest quantum of new speculative development in the last ten years, with three schemes at Milton Park, Harwell and Oxford Science Park having been commenced, comprising around 206,500 sq ft in total. Looking forward, one of the most eagerly awaited announcements involves the master plans for Oxford s West End, where Nuffield College and Oxford City Council are the principal land owners. Figure 7 Oxfordshire Development Pipeline (capacity of consented sites) Source: Carter Jonas sq ft 2.5m 2m 1.5m 1m 500k 0 Didcot Oxford Banbury Bicester Abingdon Harwell Office Industrial Kidlington carterjonas.co.uk 13

14 Malmaison, Oxford Castle The UK as a whole recorded a sharp fall in commercial investment activity last year, with transaction volumes down from a record 71 billion in 2015 to around 50 billion in However, Oxford had a busy 2016 in terms of investment activity, with reported transaction volumes reaching 176 million for the full year, covering a range of property sectors. The largest deal of the year was Pramerica s 67 million acquisition of Templars Shopping Park from KKR/ Quadrant at a reported yield of 4.99%, while the Westgate Oxford Alliance consolidated its holdings in the city with the 47.2 million acquisition of the Castle Quarter, a site close to the Westgate Shopping Centre comprising the Malmaison Hotel, a number of bars and restaurants and 40 apartments. Figure 8 Key Oxfordshire Investments 2016 Source: Carter Jonas Date Building Buyer Vendor Price ( m) Q Templars Shopping Park Pramerica REI Q Oxford Castle Land Securities/ The Crown Estate Q Oxfam HQ, Oxford Business Park Sutton Borough Council KKR Financial Holdings/ Quadrant Estates Trevor Osborne Property Yield (%) Aviva Investors Q Cornmarket Private Investor AXA REIM Q St Aldates BA Pension Fund Goldman Sachs/ Square Metre Properties In line with the trend for local authorities to secure long term income by investing in property, Sutton Borough Council acquired Oxfam s headquarters at Oxford Business Park for 29.9 million, reflecting a yield of 5.28%. Q Stonemason House Empiric Student Property Housing association

15 141 Park Drive, Milton Park Against a worldwide backdrop of economic uncertainty caused by a range of factors, it is becoming increasingly difficult to make meaningful forecasts. Notwithstanding this, with Oxfordshire s diverse economy offering some buffer to a downturn and the current shortage of supply, we feel it is reasonable to make the following predictions for 2017: Increased growth in the life sciences sector in the county s main science parks, aided by a recent government announcement of 4.7 billion of funding for this sector, in turn countering some of the concern created by Brexit Rental growth within these key locations, spurred on by the speculative development being undertaken and a relative lack of stock Announcement of the key city centre masterplans at Oxpens and the Island site Further political debate surrounding the merging of district councils and the creation of a Unitary Authority carterjonas.co.uk 15

16 36 OFFICES ACROSS THE COUNTRY, INCLUDING 12 IN CENTRAL LONDON LONDON OFFICES Bangor Basingstoke Bath Birmingham Boroughbridge Bury St Edmunds Cambridge South Cambridge North Cambridge Central Edinburgh Harrogate Kendal Leeds Marlborough Newbury Newbury - Sutton Griffin Northampton Oxford Peterborough Shrewsbury Suffolk Wells Winchester York National HQ One Chapel Place Barnes Barnes Village Fulham Bishops Park Fulham Parsons Green Holland Park & Notting Hill Hyde Park & Bayswater Knightsbridge & Chelsea Marylebone & Regent s Park Mayfair & St James s Wandsworth Waterloo CARTER JONAS Carter Jonas LLP is a leading UK property consultancy working across commercial property, residential sales and lettings, rural, planning, development and national infrastructure. Supported by a national network of 36 offices and 700 property professionals, our commercial team is renowned for their quality of service, expertise and the simply better advice they offer their clients. Find out more at carterjonas.co.uk/commercial THIS PUBLICATION IS PART OF THE 2017 COMMERCIAL EDGE RESEARCH SERIES. Report Compiled By: Jon Silversides Head of Oxford Agency jon.silversides@carterjonas.co.uk Darren Yates Head of Research darren.yates@carterjonas.co.uk Key Contacts: Scott Harkness Head of Commercial scott.harkness@carterjonas.co.uk Roberta Hartley Management roberta.hartley@carterjonas.co.uk Richard Waterson Public Sector richard.waterson@carterjonas.co.uk To request a copy of any of the other documents in the series, please visit carterjonas.co.uk/commercialedge With thanks to MEPC, Frontier Estates, Magdalen College, DB Symmetry and The Westgate Alliance for Images used Mayfield House, 256 Banbury Road, Oxford OX2 7DE oxford@carterjonas.co.uk Michael Prosser Investment michael.prosser@carterjonas.co.uk Richard Love Architecture & Building Consultancy richard.love@carterjonas.co.uk Peter Fry Valuations peter.fry@carterjonas.co.uk Follow us on Twitter, LinkedIn and Instagram Carter Jonas The information given in this publication is believed to be correct at the time of going to press. We do not however accept any liability for any decisions taken following this report. We recommend that professional advice is taken.