Our Q4 Office & Industrial review

Hertfordshire & Northern Home Counties industrial market update.

The news is full of unknowns and economic factors all going in the wrong direction. Is it any wonder that land pricing is no longer at the heady heights of 2021 and early 2022?

Low yields and forecasted rents drove land pricing by effectively double counting growth. This situation coupled with interest rate increases, build cost inflation and the increased cost of borrowing has caused a correction and some of us would say “inevitable” as the super charged market was not sustainable.

This year industrial demand from e-commerce has decreased, 3PL’s can fulfil contacts within existing portfolios and the food and drink sector is feeling the squeeze. The market is simply back to more normal levels of demand.

Brasier Freeth has seen success this year on good quality schemes where land was purchased circa 3 years ago, planning was forthcoming and speculative development was well funded. By way of example?Ascent Logistics Park, Leighton Buzzard?was developed speculatively as an 8 units scheme from 15-125,500 sq.ft and only 1 unit of 48,639 sq.ft remains available and?Symmetry Park, Aston Clinton, Aylesbury?2 of the 3 units were let under construction, again leaving only one unit of 116,487 sq.ft available.

It is true the supply of Grade A units across all size brackets in Herts, Beds and Bucks remains constrained. The counties have stringent green belt policies and understaffed planning departments. Consequently scheme currently on site will let well but there is no doubt that it will be harder to get the numbers on new sites to stack next year without pre-lets.

But are we overreacting, surely we all got too swept up in huge leaps in the market?

Occupiers have certainly been commenting that 45-50% rent increases at review coupled with rising costs (business rates, energy, interest rates etc) were unsustainable.

Following another change of PM there is much for government to do to restore economic stability. The government has the bigger questions to resolve such as trade agreements, value of the pound on the world stage, ensuring no child goes to school hungry, energy security and how to recruit more nurses to name but a few. Industrial landlords may find that they have a part to play by supporting occupiers at this point in the cycle as well as having to accept an absence of the recent levels of rental growth.

New record headline office rents in Watford

Is WFH the future?

The workplace has changed considerably in a short space of time. While WFH is not a new thing, Covid certainly changed the dynamic as to how it is viewed by employees and employers alike. Suddenly the vast majority could be productive while away from the office and remote or hybrid working are now considered normal practice.

However, with the rise of the cost of living crisis, could we see a return to the office for the majority of employees on a part time basis at least?

Certainly, there are a number of employers who would be keen to have their employees back on a more regular basis, but employees needs have changed and it will take far more than a good supply of biscuits and coffee in the kitchen to bring them back. Similarly, it’s not just employers recognising this. If you take a stroll down Clarendon Road in Watford you will see a number of buildings having been refurbished with this very clear message in mind, and that is getting staff back to the office.

Landlords are all seeking to provide best in class accommodation and the phrase ‘flight to quality’ is becoming more relevant, particularly for more corporate occupiers. Whether it is the communal roof top terraces, break out space or the events put on by landlords, the relationship between the building, the landlord and employer is evolving. This is evident in the take up stats in the local market. Across Hertfordshire and the regions, Grade A offices have seen the biggest amount of take up and account for nearly 70% of the transactions in Watford for 2022. This rate gets higher in St Albans where a number of Grade A buildings are being released back into the market.

Consequently new record headline rents are being set in these locations with Watford at ￡37.50 per sq ft and St Albans now at ￡41.50 per sq ft. It is envisioned that while stock levels continue to remain low, this trend will be set to continue as tenants seek out the best possible space to tempt their employees back to the office.

With the cost of living increasing considerably, and the chances of a recession possibly looming, it might be that employees feel more at home at the offices that have been designed with them in mind.