Is quality the key to gaining competitive advantage in today’s office market?
Across Hertfordshire, the take-up of industrial and office space has painted very contrasting pictures during the first half of 2019. While office transactions are considerably down across the region and take-up is below previous years, industrial take-up has continued to be strong. However, continued low supply levels across the region are set to have a negative effect on the overall 2019 end of year figures.
Our Business Space Team explores if there are there any underlying factors behind the declining take-up.
One of the major talking points is the Watford office market. Transactions during 2018 totalled circa 280,000 sq. ft., circa 50,000 sq. ft. above the 10-year average, however, for the first six months of 2019 this figure stands at just 26,000 sq. ft. Continue this trajectory throughout the rest of the year and Watford is on course for take-up of only 23% on the 10-year average.
While the statistics make for negative reading, they possibly don’t give the complete picture. Transactions are down by a third, which illustrates a reduction in demand, but the real difference is in the average size of the transaction which has considerably reduced. In 2018, there were sizeable lettings to Regus and ASOS accounting for nearly 50% of transactions for the year. By contrast, this year the largest transaction to date has been under 10,000 sq. ft. This is not to say that the larger occupiers have gone to ground, but more of a reflection on the lack of good quality, well-situated available stock in the immediate locality.
In the wider office market, there is a similar story to be told. The lack of good quality office space is in short supply with take-up down on previous years. It is anticipated that Hemel Hempstead will see take-up significantly below the 10-year average with under 12 months’ supply available in the likes of Welwyn Garden City and St Albans.
On a more positive note, the industrial market remains resilient with activity remaining strong. Prologis Park in Hemel Hempstead (pictured) has seen considerable success with over 200,000 sq. ft. let in H1 with a further 190,000 sq. ft. under offer. Equally in St Albans and Watford, around half its industrial supply has either gone under offer or concluded during 2019.
The noteworthy factor that relates to the majority of these transactions is that the modern products, which generally have a higher specification, are faring better than their older equivalents. We have already mentioned Prologis Park, but Trade City in Watford and Parkbury in St Albans which are also of high quality have seen strong demand and vacancy rates at low levels.
It is an interesting thought that where there is a good quality product, demand remains strong and a fairly linear theme across the region and sector. Therefore, the under-supply of Grade A office accommodation may in some way reflect on the poor take-up levels. Examples of this are Croxley Park where a new 60,000 sq. ft. speculative office building was built and occupied within 12 months of practical completion. This theory will soon be tested further with the extensive refurbishment to 40 Clarendon Road and development of 53 Clarendon Road which are currently ongoing in Watford in addition to 45 Grosvenor Road in St Albans.