Spotlight on Watford – The anomaly in the NW M25 office market

In our latest office market update we focus on Watford – the anomaly in the current north-west M25 office market.

The market for office accommodation in the region is muted with little activity both in terms of disposals or acquisition of space in the occupational sector and relatively little activity in the investment sector. Supply is for the most part restricted due to the impact of Permitted Development Rights, the absence of new build projects, coupled with relatively strong levels of take up prior to the end of 2016. Balanced against this in many locations demand has been relatively constrained as a consequence of uncertainty about economic direction and trading conditions. As yet this approximate balance and the absence of competitive pressure on both the demand and supply side has kept rents relatively stable.

Gloom and doom aside, Watford is one location that has bucked this trend and like the town’s football team, the time has come for it to enjoy its moment in the spotlight.

Our Business Space Team has taken a look at office market activity in the town including the first real speculative development in 16 years and how it is meeting the needs of the millennial workforce …….

Watford – Home of TJX New HQ

In the last 24 months two substantial lettings took out most of the remaining office stock in Watford leaving just 17,000 sq. ft. available in a single building on the edge of the main commercial district. Going forward, within the town there is development taking place in the form of TJX’s new bespoke HQ opposite Watford Junction which will be linked into two adjoining buildings, both of which TJX have interests in.

Speculative office development

Elsewhere, demolition of Gresham House (53 Clarendon Road) has set the stage for delivery of Watford’s first new town centre speculative office building (disregarding 36 Clarendon Road which was let shortly after commencement of construction) for sixteen years. Interestingly the originally consented scheme for this site incorporated a substantial residential element, but its new owners felt a wholly commercial scheme was more suited to the site and would capitalise on the current and predicted lack of supply of new grade ‘A’ stock in the medium term. Whilst this building will provide welcome supply in early 2021 it will not address the current space famine.

100,000 sq. ft. refurbished space by 2020

Some short-term relief may be available in the form of 40 Clarendon Road which is being refurbished by Columbia Threadneedle and will deliver 50,000 sq. ft. of new ‘A’ grade space into the market towards the end of 2019. In the normal course of events this building would represent a small fraction of a single year’s demand and is therefore unlikely to provide a long-term solution. In addition, LGIM are planning a full-scale refurbishment of 38 Clarendon Road which would deliver a further 50,000 sq. ft. in 2020. There are strong indications that either one of the imminently available buildings will attract a high-quality new tenant to the town or that there will be an early commitment to take space in 53 Clarendon Road.

Demand for Grade ‘A’ space will exceed supply

Various other schemes are also proposed within Watford but most are a combination of offices and residential in formats that do not readily lend themselves to speculative development. It is difficult to see these schemes going forward in their current shape without a major commitment from an office occupier.

Whilst ultimately TJX may release some existing occupied space into the market, this is unlikely to be for some considerable time and a proportion of this space is legacy accommodation which will be difficult to configure to meet the demands of the speculative office market. Accordingly, the shortage looks like continuing into the foreseeable.

If Watford’s limited prospective new and refurbished stock performs well, it is likely that parties will come forward for the proposed office/residential schemes and perhaps re-configure them to more fully meet speculative office market requirements.

Watford – perfect match for millennials

The signs are good as the position of Watford in the North West M25 office market is extremely strong given unmatched public transport, a very extensive employee catchment covering large sections of North London, a good retail and leisure offer (recently improved) plus a business friendly and development orientated local authority. Other towns within the area have a market town feel which is appealing to certain elements of the working population but does not fulfil the requirements of millennials, in addition some of these locations also have residential values which make office development very much a second choice. Fortunately, Watford has a better balance between residential and commercial values, a protected commercial core and the prospect of a reasonable stream of good quality modern development going forward.

Whilst some of the new development coming forward is challenging accepted views on factors such as parking provision, they are designed for the modern working population and look to the future rather than the past – much like Watford itself.