our view on business space

spring 2017


Change is the law of life. And those who look only to the past or present are certain to miss the future.

John F Kennedy



Occupational market follows the economy in post Brexit vote

The slowdown in both economic and occupier market activity that was expected to result following the vote to leave the EU has failed to materialise.

In our last overview, it was too early to tell how the economy and the property market would respond but the past six months have done much to confound most expectations.

Take up of business space across the Bidwells region has been stronger in the second half of the year compared to the first six months, with office and laboratory take up in Q2 2016 totalling 1.1m sq ft, 64% higher than the first half of the year, whilst industrial take up was 42% higher at 2.1m sq ft.


Supply remains a key factor in constraining activity

Despite the unexpected resilience of the occupier market, one factor which is curtailing activity in the current market is the tight supply conditions across most office and industrial markets, not only in the Bidwells region but the UK as a whole.

Supply in most Bidwells locations is at or approaching the lowest levels on record in more than a decade and the low levels of speculative development are likely to see this position maintained.

The average availability rate across all Bidwells locations at the end of 2016 stood at 8.8% in the office market and 4.6% in the industrial sector. This presents opportunities for development for those seeking enhanced returns.


Investors take stock despite strong occupier market

Investors, on the other hand, have taken a more cautious view towards the property market than the businesses that occupy the space, with investment transaction levels down by 37% in 2016 compared to the previous year’s figure.

The investment market saw activity levels remain steady both pre and post Brexit vote, with £22.8bn of activity recorded in the first six months of the year and an estimated £22.2bn completing in the second half year.

Early indications for 2017 suggest that the appetite for property may have returned, with both UK and overseas investors looking to buy into the rental growth story.


Rental growth becomes the main push to rising capital values

The easing in investment demand has seen yields drift out over the past 12 months but steady demand and shortages of stock has seen rental values rise in most markets.

Across the Bidwells region, prime office rents increased by 2.7% in 2016 but this is surpassed by 4.4% on good quality second hand space and 6.1% on poorer quality stock.

The industrial sector has had an even better 2016, with prime rental values increasing by 9.9% on average in the Bidwells locations, whilst second hand rents are up by 13.8% and 15.6% respectively for good and poor quality space.

Our current forecasts across all our markets indicate that prime rents are expected to continue to grow by 1.8% per annum in the office sector and 3.1% per annum on average across industrial locations.



Lowest level of availability in Cambridge office and labs market since 2001


Average growth in secondary industrial rents

in 2016







Economic and market overview


Economy confounds predictions

Predictions of a slowing economy slipping into recession have proved misplaced following the vote to leave the EU, with provisional estimates for the fourth quarter GDP growth coming in at 0.6% and full year figures showing that the economy expanded by 2.0% over 2016 as a whole.

Reflecting back over the year, it is now evident that the weakest quarter was in Q1 when the economy grew at 0.34% and, in reality, the worry about voting to leave the EU has been worse than the eventuality.

The coming 12 months are now expected to see growth in the economy slow to 1.3% as the process of leaving the European Union acts as a drag on activity.


Inflation returns as sterling tumbles

One of the most significant effects of the Brexit vote has been the depreciation of the pound and sterling’s depreciation has been the primary factor behind the increase in inflation. Following the decision to leave the EU, the trade weighted exchange rate index fell to its lowest level in 31 years in October 2016, but has since recovered to only 12% below pre Brexit vote levels.

The effect of increased prices on imports has pushed the Consumer Price Index to its highest level since mid 2014 and the trend is definitely upwards. Inflation is forecast to rise to 2.8% by the end of 2017 and remain above the Bank of England’s target rate through to the end of 2018.


IPD returns down to 2.8% at the end of 2016

Property market returns fell to their lowest level in over three years, when results for 2016 came in at 2.8%.

Industrial property was the outstanding sector over the year, producing returns of 6.9% and rental value growth of 3.8%.

Both office and retail property saw returns dip below the All Property average with offices producing returns of 1.5%, with rental growth of 2.5%, whilst retail showed a return of 1.2% and rental growth of 0.8% in 2016.

One of the most significant changes to the market following the Brexit vote has been the Central London office market, where rental growth eased, and indeed fell in certain sub markets, whilst returns were down to 1% from 20% at the end of 2015.


FTSE 100 moves to new high following the decision to leave the EU

The FTSE established a new high at the end of 2016, surpassing the previous high set at the start of the millennium.

The strong market saw the return on equities reach 16.8% by the end of 2016.

The run on equities has continued into the first few weeks of 2017, pushing returns to 20.7%.

Gilts ended 2016 with returns standing at 10.1%, leaving the property market as the weakest performing sector.



Consensus forecast

for UK GDP growth



Total return on resurgent equity market for calendar year 2016



 Page 3




Prime rents

Prime rents continued to set new highs in both Cambridge and Oxford. Rents in London’s West End eased for the first time in seven years.




Take up

Take up recovered in the second half of the year, with activity in the Cambridge office and labs markets proving to be the most buoyant.




Demand has eased following the strong period of take up over the past few years but is expected to pick up in 2017.




Supply falls to its lowest level in eight years. Speculative development remains focused towards Cambridge and Oxford.



Prime yields

Prime yields in most locations recovered the ground lost in the first half of the year as investors returned to the market.




Growth in prime office rents in Oxford over past two years





Total returns (%12/2016)

Returns continued to fall back from the peaks of 2014/15 as the contribution from yield improvements eased and rental growth was focused on stronger markets.






Prime rents

Prime industrial rents continued their strong growth, averaging 9.9% across all locations over the past 12 months.




Take up

Take up in the second half of the year was 33% above activity in the first six months as a number of large transactions completed




Demand has eased slightly as a number of requirements have been satisfied over the past 12 months.




Supply in all locations is now at its lowest level in a decade, with the average availability rate across the Bidwells locations standing at 4.6%.



Prime yields

Yields moved back to their pre Brexit vote levels as investors continued to favour industrial and distribution as their sector of choice.




Decline in industrial supply across Bidwells locations over past five years





Total returns (%12/2016

The contribution from yield improvements has begun to ease but all locations are now benefitting from strong rental growth. The strongest performing market is Norwich, where rents have grown by 13% over the past 12 months




*Total returns are based on movements in prime rental values and prime yields. Source: Bidwells Research




Specific research on key locations, focusing on Cambridgeshire, Oxford, London, M1 South and Norfolk/Suffolk.




M1 South







Help us find an exact match for your search. Do you mean?

    or close this panel to search again