Office costs nudge upwards

Across the 54 TOCS (Total Office Cost Survey) locations, the average cost of occupying a new build office in the UK increased by 1.2% over the 12 months to June 2021, effectively reversing the fall seen over the year previously. The average increase for 20-year old office buildings was slightly lower, at 1.0% over the period, and was not enough to reverse the 1.7% fall seen in the 12 months previously. 

Of the 22 separate cost metrics, movements in rents and incentive packages typically form the main determinant of changing occupier costs, and this was very much the case for the 2021 survey. Despite the considerable disruption to market activity posed by the pandemic, net effective rents for new build offices increased by 2.3% on average, with 31 of the 54 markets seeing some degree of growth over the year.

Rental levels were also relatively resilient for 20-year old buildings, despite being arguably more exposed to long term structural changes in demand fuelled by the pandemic than new buildings. That said, rental growth was weaker compared with new build, with net effective rents for 20-year old buildings rising by a more modest 0.9% over the year.

FM costs broadly stable, with exceptions

Despite rising inflation across the wider economy in the summer months, outside of rental changes, costs across the majority of other cost inputs were largely flat over the year to June 2021. Of the 17 facilities management (FM) related cost inputs covered by TOCS, only three saw significant change.

The only downward movement among the facilities management (FM) related costs was technically driven. The 2021 survey entailed a key change to the working definition of the TOCS office building, with the number of fixed desks reduced from 500 to 350 to reflect the reduced demand for individually assigned desks and a greater emphasis on agile working. Consequently, telephone costs reduced by 25% from last year’s survey due to the reduced capital requirement for fixed phones.

Two of the management related costs increased significantly in the 2021 survey, namely insurance and energy costs. Energy costs rose sharply, increasing 18% for new buildings and 22% for 20-year old buildings, reflecting a recent spike in wholesale prices in the energy markets, in particular gas prices. While insurance makes up a fraction of total occupier costs, it increased by 20% in the 2021 survey, more than reversing the fall in 2020 and reflecting the impact of the pandemic on claims, rising build costs and higher aversion to risk among insurers. 

South East is home to the biggest risers

While total costs edged up on an average basis, there were notable contrasts between locations reflecting variable movements in rental levels. For a second successive year, Oxford saw the sharpest increase in total occupier costs for new build offices, rising by 8.6%, followed by Southampton (5.0%) and Cambridge (4.9%). In Oxford, The Jam Factory has helped to propel pricing in the city centre over the past two years, with net effective rents rising by 44% over the period.

Meanwhile, at the other end of the scale, six locations saw total occupier costs for new buildings contract to some degree over the year to June 2020. In the majority of cases, this was the result of a softening of rent free incentive packages rather than a direct impact to headline rental levels. Currently characterised by significant levels of supply, Hammersmith in West London saw the largest fall in occupier costs of the 54 locations, down 4% over the year to June 2021.

West End’s relative cost premium continues to erode

The prime core of London’s West End remains by far the UK’s most expensive office location, with the annual cost for a new office in Mayfair standing at £18,910 per workstation, 137% above the UK average and 57% ahead of next most expensive location, the City of London.

That said, for a fifth successive year, the latest survey reveals that the gap in costs between the UK’s principal regional cities and central London has narrowed from an all-time high in 2016. This reflects the continuation of rental growth in the UK’s major regional cities, alongside relatively stable rents for new build offices in the capital. 

By way of illustration, the average cost of a typical workstation across the ‘big six’ cities - comprising Birmingham, Leeds, Bristol, Manchester, Edinburgh and Glasgow - stands 37% below London’s Midtown district, narrowing from a peak of 44% in 2016’s survey. Nonetheless, the cost appeal of the regional cities over central London remains strong; prior to the global financial crisis in 2008, the discount was only 25%.

Meanwhile, Cambridge has cemented it position as UK’s most expensive office location outside London, having moved ahead of Maidenhead in 2019. The renowned university city has seen several successive years of strong rental growth, with annual costs in a prime new build office amounting to £9,700 per workstation. 

Covid-19 and future cost implications

Initial landlord fears that a glut of grey space (surplus tenant space) would hit the market in the wake of the pandemic are yet to materialise across the UK generally. The key markets of Central London provide a clear exception, however, albeit its impact on occupier costs thus far has only really been reflected in a softening of incentives for 20-year old buildings. 

As 2021’s survey has shown, the prospect of a permanent shift towards greater remote-working in the wake of the pandemic is yet to be clearly reflected in total occupier costs, certainly for new build offices. Indeed, tight levels of high quality supply that characterise many locations, alongside a growing occupier focus on quality over quantity, indicate that real terms occupier cost reductions will be focused around older, secondary office buildings over the coming years.

For many occupiers, the pandemic has propelled workspace considerations to the top of the boardroom agenda. Landlords are responding, offering flexibility and a range of solutions like never before.

Download the full Thames Valley and South East Office Market Report 2021

Rethinking the workplace
The experience of the pandemic is pushing a wave of office occupiers to rethink their workplace strategies. The shift to more agile working practices that was already in train will be propelled forward in the wake of the pandemic, translating into shifting space requirements.

Yet, while business confidence is rapidly improving, many occupiers are understandably less certain over what exactly their post-COVID workspace ultimately looks like.  How much remote working is expected and how much space will be needed as a consequence? How should space be configured for optimal productivity, staff wellbeing and economic efficiency?  

While there is no one-size fits all solution, early indications from prevailing active demand reveal that many occupiers are seeking to exchange quantity for quality. The size of the requirement is typically 10% to 15% smaller than previously to allow for greater agility, traded off against a better and more varied working environment. 

A great time to strike

Alongside changing demand for workspace, a reluctance towards long-term commitment is fostering a wave of demand away from conventional offers towards more flexible, ‘ready-made’ solutions. Until recently, serviced offices provided the only real option for occupiers seeking flexible solutions. But this is changing, with fitted and managed space set to provide an increasingly attractive alternative to conventional solutions. 

The next 24 months arguably provide occupiers with a huge opportunity to strike a deal. While headline rental levels for quality space are unlikely to appeal to bargain-hunters as previous downturns may have done, expect landlords to go ‘the extra mile’ to secure tenants, through a combination of generous incentive packages, flexible terms and better provision of on-site amenity. 

Hello Hybrid
It is early days, but landlords are responding rapidly to the changing dynamics in the market wrought by the pandemic.  The meteoric rise of serviced office solutions over the past five years, alongside fears of increasing grey space (surplus tenant space) entering the market is pushing landlords to adapt from convention and be more instantly accommodating of prospective occupiers.

Fitted and managed space are two rapidly emerging forms of workspace solution that represent a hybrid between serviced offices and the dominant form of landlord offer, conventional leased space. The characteristics of the four different workspace solutions are depicted in the table below.

In the South East, choice of serviced offices varies widely between locations, with regard to quantum, prevailing vacancy and quality. Heathrow currently has the most extensive serviced office provision of any South East market, equivalent to 14% of existing stock, while for the vast majority of markets elsewhere it equates to below 5% of stock.

Fitted for purpose
Fitted space shares several of the attributes associated with serviced offices, in particular the relative speed to occupy, the ability to ‘plug and play’ through the provision of furniture and equipment etc. and, crucially, the avoidance of up front cap-ex costs for fitting-out in exchange for additional operational expenditure.

Nonetheless, the two solutions are fundamentally different. Unlike serviced offices and much like conventional leases, fitted solutions allow the occupier to retain full control over the space and command sole access of the leased space within the building, such as kitchens, break-out areas and meeting rooms.

Despite the obvious attractions, the availability of fitted options is, evidently, currently at the early stages of growth. Our analysis of current availability across the South East reveals that quality fitted space (either Cat B or Cat A+) typically accounts for under 5% of supply in the majority of the key markets, while only Reading really stands out for the quantum and range of fitted options in the region, with 226,000 sq ft available across 11 buildings. 

Yet, given current demand, it stands to reason that flexible solutions will expand rapidly over the coming years. Notably, 70% of the deals in Reading town centre during Q1 saw occupiers opt for fitted space, providing clear indications that occupiers desire this product where it is made available. 

Moreover, our analysis of active demand reveals that almost a quarter of current agent-led requirements in the region are actively seeking out fitted solutions, rising from only 2% at the end of 2019. It stands to reason that, moving forward, a large proportion of refurbishments will be undertaken with a view to providing some of the space as a fitted solution.

Managing just fine
While the fully managed workspace solution is not a new phenomenon, the increasing demand for plug and play space amongst larger occupiers is helping it to gain an increasing traction in the market. This hybrid model offers the best of both worlds, whereby a third party provider takes the lease and assumes full responsibility for it, while the occupier still has the power to curate the fit-out to its own exact requirements and enjoy sole use of the space.  

More often than not, the managed space operator will be an established player in the serviced office market, notable examples being Instant, WeWork, Regus and Portal. While transactions of this nature are currently limited, increasing examples are taking place in the wake of the pandemic. In the South Coast market,for example, 2021’s largest deal to date saw Instant Office agree to a 27,000 sq ft managed lease with a confidential occupier at Frobisher House.

Paying for the privilege
The two emerging hybrid models outlined above understandably come at an additional cost within the rental payments compared with conventional leases. While the rental premium associated with fitted space largely offsets the cost burden of fit-out and dilapidations into the rental payment, managed space providers more clearly demand a premium to reflect their need for profit. However, just as drivers are increasingly opting to lease rather than buy their cars, the additional cost can be justified for the simplicity that comes with a managed solution.

As businesses emerge from the trauma of the pandemic, this is an exciting time for occupiers to demand more from landlords. The South East market is in the early stages of profound change, and occupiers seeking greater flexibility and reduced obligations will, in time, have a plethora of options to meet their post-pandemic demands.

 

Download the full Thames Valley and South East Office Market Report 2021

As the property industry comes to embrace the UK’s net zero carbon commitments, John French, Director of Sustainability at Cambridge Innovation Parks Ltd (CIPL) talks to LSH’s Head of Sustainability, Frankie Bryon, about his work to drive innovation and challenge convention in commercial construction.

Download the full Thames Valley and South East Office Market Report 2021

The pandemic seems to have galvanised the property industry with regard to the sustainability agenda. Why do you think this is?
Yes, that certainly seems so. I think with any traumatic experience, it is an opportunity to recover in a better way. The motto of ‘build back better’ could not be more apt for the property sector; there appears to have been tangible shift in the mindset of investors and corporate occupiers to divest themselves of high- carbon assets and embrace the sustainability agenda in the wake of the pandemic. The key now is to channel this more positive mindset into action and ultimately, value. 

With the built-environment accounting for 40% of UK carbon emissions, how much of a challenge is the property industry facing to meet government’s net zero target by 2050?
From a purely operational perspective, I have every confidence that moves towards decarbonising the UK energy grid will drive zero carbon, and well in advance of 2050. The growth of renewable power supply, both on and off site, alongside upgrades to the UK’s nuclear energy infrastructure should see to that, while the increased deployment of smart tech within office buildings will drive greater efficiency. 

The central challenge is driving down carbon emissions across the building’s entire life-cycle. We are not going to get to zero-carbon by 2050 without a step change in low-carbon construction by the private sector - up to half of a building’s emissions derive from its construction and eventual demolition. Carbon  offsetting is too easily seen as the get around to this problem, but this is not scalable to the extent that’s required. 

It is in this area of low carbon construction and design that we are taking great strides in driving innovation and seeking to engender change in the industry. 

You’re said to be behind the UK’s greenest ever building, reflected in over 30 awards and accolades including from the likes of RIBA, RICS and the BCO. What key attributes elevated the project to achieve this recognition?
Yes, in 2015, after seven years of careful planning, the University of East Anglia (UEA) opened the Enterprise Centre at Norwich Research Park. As well as being an attractive space for its occupants, it is an exemplar in low-carbon development and the UK’s first building to receive both BREEAM Outstanding accreditation at the master-planning, design and fit-out phases and Passivhaus certification for its use of zero-carbon architecture. 

This building has a whole host of attributes that contribute to its low carbon footprint, although chief among these is that 70% of the materials comprise bio-based materials. Its frame is made largely of wood sourced from the nearby Thetford Forest and its walls include hanging strips of thatch, massively driving down its embodied carbon when compared with conventional commercial buildings involving steel and concrete. 

Developers may be raising an eyebrow at talk of timber-framed offices. What do you say to the doubters?
If we are going to get serious about net zero, the use of timber has a massive role to play. Contrary to popular belief, timber-framed buildings can be built to scale using modern methods of construction and can be built to stand the test of time. All of our thinking around net zero assumes a minimum life-span of 100 years, and this is perfectly achievable if the wood is appropriately sourced and treated. 

Challenging convention is admittedly a huge challenge, and this is what we are striving for. It is imperative that the bio-based supply chain is stimulated to respond in a way that is affordable, traceable and sustainable. The UK is actually blessed with potentially huge sources of timber, not only by luck in Thetford but in the other parts of the UK, particularly so Scotland. We recently launched a Timber Challenge with the BRE and 3PM, challenging construction companies and contractors to innovate in the production and provision of off-site timber construction.

What about your current projects? Can you tell us a little bit about what’s in the pipeline at the Waterbeach site?
In my current role at Cambridge Innovation Parks, we’ve been working on two low carbon buildings to the North of the Waterbeach site, planned for delivery in 2021 and 2022 respectively. The first, of 9,000 sq ft, will have a hybrid steel-and-timber structure, while the second building, of 40,000 sq ft, will involve modularised sawn-timber. Crucially, important lessons have been learned from the UEA project. Significant innovation has been necessary to deliver the wide spans and airtight outer layer, while complexity of energy flow is pushing engineers to their creative best. 

There is more to come as well. At the West of the Cambridge site, we have prepared a masterplan which will make use of sustainable energy and infrastructure solutions. We are looking to include autonomous off-grid facilities too, involving PV and battery storage. 

While these new-build projects are at the cutting edge of sustainability aspirations, what are your thoughts around about the renovation of existing buildings?
Eighty percent of UK buildings that will exist in 2050 have already been built. Therefore, sustainable retrofitting of existing stock will be absolutely crucial to meet climate change targets, and ensure buildings are fit for purpose in the future. While building new may be easier, we have to do better with what we have already got.

One Regent Street, Cambridge is one such project which endeavours to maximise sustainability gains within an existing structure. This is the world’s first sustainable office retrofit and entails the conversion of a 1930s built telephone exchange into the new headquarters for The University of Cambridge Institute for Sustainability Leadership (CISL). 

What sort of measures are being taken with this project, and how does it differ from a new build?
We describe One Regent Street as a ‘deep green retrofit’. It is projected to result in an 80 per cent saving in whole life carbon emissions compared with a standard office refurbishment. As a world first, The Entopia Building aims to achieve multiple certifications, including BREEAM (Outstanding), the Passivhaus ‘Enerphit’ standard (designed specifically at refurbishments) and Well (Gold) certification. 

One Regent Street embraces the Circular Economy approach and has incorporated a range of re-used items including steel girders for the roof terrace frame that supports the solar panels, reused galvanised raised floor throughout the building and the central core of the electrical supply is being tested and reused rather than being replaced. Light fittings were sourced by ISG from another building which were unused and destined for landfill. 

Viability is often cited as the ultimate barrier to progress. What is your perspective through your wealth of experience?
Build costs for highly sustainable office buildings are deemed to be higher than conventional, but it’s a complex issue that our work is helping to address. Higher costs partly reflect the need for progress in the low carbon supply chain and, over time, we can expect greater efficiencies and economies of scale to bear down on costs.

Another key factor is a lack of familiarity with highly sustainable projects. Often, a contractors’ high cost estimate better reflects the ‘unknown’ or perceived risk in such projects, rather than the actual input costs themselves. 

But, if you can get the right team in place, costs can be managed into commercially viable projects. At the Waterbeach site, for example, the build cost equates to a pretty reasonable £240 per sq ft, only a 10-15% or so premium over the conventional steel and concrete approach. Remember too that these are great spaces in their own right. These are inspirational working environments and they convey messages about commitment to sustainability, so we might reasonably expect occupiers to pay a higher rent for the privilege and benefit from lower running costs in the long run. 

Download the full Thames Valley and South East Office Market Report 2021

 

Significant reform to Atkins’ workspace strategy over the past decade has been key to its operational resilience amid the COVID-19 pandemic. While Atkins has coped with the recent challenges, what could the experience mean for the future of the office?

Significant reform to Atkins’ workspace strategy over the past decade has been key to its operational resilience amid the COVID-19 pandemic. While Atkins has coped with the recent challenges, what could the experience mean for the future of the office?

In this special guest written article, Denise Burgess, Corporate Real Estate & Workplace Services (CREWS) Director for UK and Europe at Atkins and SNC Lavalin, discusses the implementation of its workspace strategy and offers her unique perspective on what the future may hold.

Building a high quality workplace

As with so much of the services sector, the global financial crisis of 2008 was an extremely challenging period for us. However, the events set in motion a new direction in our strategic use of office space around the UK. Now, over a decade on, we face a new set of challenges, as we seek to navigate the disruption from the COVID-19 pandemic. Thankfully, as the crisis unfolded, the advances in our working practices over past decade put the business in a resilient position.

Rising to the challenge

Back in 2008, at the height of the financial crisis, Atkins’ UK network of office space was not representative of one of the world’s most respected design, engineering and project management consultancies. The challenge was, in essence, to propel Atkins’ UK workspace into the 21^st Century. The push for change was threefold; to improve the quality of our workspace, empower our employees to work more flexibly and to meet our targets on sustainability.

The journey has not always been easy, but we are proud of the progress we have made in delivering on these goals, while maintaining cost effectiveness at all times. In the space of the last 12 years, Atkins has delivered the following headline improvements in its operational estate:

• 48% of UK workspace classed as ‘very good or good’ quality in 2019, up from 20% in 2008.  We’re improving but still have a long way to go!
• 38% reduction in total UK-wide floorspace since 2008, amid a 5% expansion of UK headcount.
• £45m of capex invested into workspace improvements over this period.
• 12% real terms reduction in property costs including capex spend since 2008. 

Instilling flexibility. Empowering staff choice

Instilling flexibility into our working practices has been pivotal to this journey. Analysis from the research we undertook back in 2008 revealed huge scope for driving greater efficiency in our use of space. Then, individual desks were allocated to staff with under 50% typically UTILISED at any given time, whereas pre-COVID this increased to over 90% in our more agile offices. Our AGILITY has significantly shifted from a 1:1 desk to head count ratio down to an average of 80%, and less than 60% in our flagship offices.

These greater efficiencies have been achieved through the adoption of a more agile working policy. Our staff have more flexibility in determining where they want to work, as their own needs dictate. Our office environments are set up to enhance the most valuable aspects of social interaction, alongside the provision of a range of work settings. Spaces designed for collaboration, including formal and informal meeting environments, now make up 30% of our total UK footprint, with ‘solo space’ (desks and quiet pods, etc.) making up only 40-50% (historically desking would have been nearer to 75%).

Delivering a 21^st century office

The adoption of our agile working policy involved a number of significant changes to the physical layout and indeed the feel of our office space. These changes have been implemented and governed with reference to our Workplace Guide, an evolving document which sets the required standards across our UK office network.

A key enabler of change in our Workplace Guide has been the complete removal of nominated fixed desks. Prior to COVID-19, our staff no longer had their own desks and, as such, would instead spend their desk time within designated ‘office neighbourhoods’. To give greater support to this approach, we are currently installing an in-house developed global desk booking app.

This more communal approach had implications for other, once standard, features of a typical official environment. The new policy saw the removal of pedestals and desk phones, in exchange for new facilities, such as staff lockers and neighbourhood boards, where staff can share their aspects of their personal lives, such as club memberships and family photos, if they choose. Other key changes include the provision of gender neutral washrooms and showers and the introduction of welfare rooms; essentially ‘work free’ spaces to cater for personal needs.

Location, location, location

Our policy has also brought about changes to the locational characteristics of our UK office footprint. Over the past decade we have increased the focus of our UK workspace into urban centres, allowing our staff to make better use of public transport infrastructure. Our larger UK offices are now all situated in central locations and serve as ‘hubs’ for visiting staff and clients from across the country.

Positively, our greater focus on urban centres has promoted lower reliance on car-based commuting; a key aspect of our sustainability goals. Our offices have their own Travel Plan which is used to determine the allocation of a limited number of parking spaces. Blue badge holders are automatically entitled to a space, while a points-based system is used to allocate the remaining spaces to promote green travel, critical business/caring requirements and shared/pooled car commuting. 

Winning hearts and minds

As with any form of large-scale change, thorough engagement and consultation with our staff has been absolutely crucial to achieving our goals. Understandably, for a proportion of our staff, certain key changes such as the removal of nominated desks and pedestals took time to get used to. Throughout the implementation of our policy, we have always sought to promote the wider benefits that such changes help to bring about, whether that be the greater work-life balance from more remote-working, the more choice in working environments and the synergy benefits stemming from wider interaction among staff.

Atkins’ senior leadership team was absolutely crucial to achieving our goals. Having our workplace policies announced and implemented from the very top of the business has played a pivotal role in gaining cross-staff support for the changes we have sought to make. The old mantra of ‘to practice what you preach’ is key to the success we have had in driving change and is a vital ingredient to any business embarking on a similar journey.

Coping with coronavirus

March 2020 saw the world turned upside down by measures to contain the coronavirus pandemic. While the period since has been challenging, the implementation of our agile working policy over recent years meant we were well prepared to have our staff work from home, en masse. Thanks to the technologies we have invested in and the mobile IT equipment our staff have at their disposal as part of our flexible work policy, the sudden transition to mass remote-working was largely trouble free.

As with so many businesses up and down the country, Atkins is now gradually managing the safe return of its staff back into the workplace. At Atkins, our approach to bringing the office back into active use involves a simple rota system. At the time of writing, our staff are allocated into three groups, whereby those in groups ‘A’ and 'B’ are welcome to come to the office in a weekly rota system, and those in the C group are requested to continue working remotely until conditions change.

Accelerating change in the workplace

It is still early days, but it seems inevitable that the impact of COVID-19 will accelerate the changes towards more flexible working practices across the services sector. In one key respect, Atkins has been ahead of the curve. Greater emphasis on the quality of workspace over simply quantity, while enabling more agile working, is likely to rise up the agenda of many CEOs over the next two years.

That said, Atkins is not resting on its laurels. During lockdown, we conducted a wide-ranging staff survey to ascertain the views of our UK employees around continuous home-working. The results were striking. Armed with all the tools for productive home-working, our staff were remarkably positive about the experience, with the majority in favour of working even more of their normal working week from home in the future. Pre COVID-19, our employees were in the office four to five days a week and post COVID-19 the survey found they would prefer to be in the office two to three days a week.

Future gazing and the office of the ‘new normal’

Despite the survey results, one thing is absolutely certain. The office is not a dying concept. Our staff would welcome more home-working, but the office still has an absolutely crucial role to play in forging relationships, building career experience, generating ideas and winning business.

Our staff survey revealed the reasons for accessing the office were; scope for social interaction, collaborating with / learning from colleagues and access to better desk/chair/monitor, printing/scanning. But, our staff liked being at home for more of their typical week due to the lowering of commuting hours, reduced personal costs, better productivity and better work-life balance. Coronavirus certainly doesn’t spell the death of the office, but rather an acceleration of an evolution that was already in train.

The results from our survey imply a more marked transition to the quality over quantity mantra in our office workspace. If our staff wish to work more from home, it suggests an even greater emphasis on collaboration space can be designed into our offices. In some instances, our offices could be ‘deskless’ and consist entirely of collaboration space. These would be places to meet colleagues and clients or undertake structured learning, leaving ‘focus time’ to be undertaken remotely.

One key area of consideration moving forward surrounds workplace densities. Could it be that the era of increasing workplace densities begins to reverse on the back of increased home-working and social distancing measures? Time will tell, but evidence suggests the removal of fixed desks and provision of more collaborative spaces is associated with lower densities.

As we adjust to the new normal, Atkins will continue to engage with staff and adjust our workplace for the benefit of our employees and the business.

About Atkins

Atkins is one of the world’s leading design, engineering and project management consultancies. With over 18,000 employees operating from 150 locations worldwide, it has a significant corporate real estate portfolio.

 

The pandemic could trigger significant shifts in demand for office and residential space across the South East. With this in mind, we have assessed key locations in the region for their resilience to change and, ultimately, their potential to benefit from new spatial dynamics.

Download the full Thames Valley and South East Office Market Report 2021

Using a mixture of economic and market-based statistics, four separate assessments have been produced to evaluate the prospects of 35 key locations. These assessments comprise; Office Market Dynamics, Residential Growth Prospects, Connectivity and LSH’s well-established Vitality Index.

Notably, while some locations feature highly across several rankings, no single town or city is ranked in the top ten of all four measures. This demonstrates that each location has its own particular strengths and weaknesses that will affect its prospects and direction of travel in the post-COVID era. 

Office Market Dynamics
The Office Market Dynamics ranking assesses the current balance of supply and demand within each market, based on rental growth rates and availability. The size of the office stock is also considered, to gauge whether it provides the critical mass needed to support future growth in demand.

Cambridge and Oxford are the top two locations in this ranking, reflecting the current strength of demand from science and technology occupiers in both markets. The presence of world-class universities, clusters of knowledge-based industries and successful science and business parks puts both cities in a prime position to benefit from the acceleration in life sciences funding and investment that has been triggered by the pandemic.

Other highly-ranked locations include Croydon, which has seen strong occupier demand and rental growth in recent years. As Greater London’s largest suburban office market, Croydon is well placed to benefit if centrally-based occupiers adopt more decentralised office models. 
 
Milton Keynes and Brighton are also ranked highly, with both being among the most dynamic South East office markets in recent years. Demand in both locations is boosted by growing clusters of high value technology occupiers.

  
Pictured: Cambridge

Residential Growth Prospects
The Residential Growth Prospects ranking incorporates indicators of population size and growth, housing completion rates and the size of the current residential development pipeline. Large, growing towns are ranked highest, as they will have the greatest capacity to support workforces that may increasingly seek to work at home or live close to their workplaces.

With a fast-growing population and one of the largest residential pipelines in the South East, Milton Keynes is the top-ranked location on this measure. Sitting at the heart of ‘Oxford-Cambridge Arc’ growth corridor, the town is set to see continued rapid expansion. In its recently published ‘Strategy for 2050’, the local council said that it expects half a million people to live in Greater Milton Keynes by the middle of the century. 

Maidstone comes in second place, with one of the region’s largest residential pipelines relative to its current population size. The top five is completed by Croydon, Welwyn Garden City and Watford, which are all expected to see strong population growth in the next decade.

 

Connectivity 
Connectivity is likely to be a key factor if the pandemic pushes firms to adopt flexible office models where employees’ working lives are split between their homes, central office hubs and local satellite or serviced offices. Towns and cities with busy train stations, short commuting times to London and relatively inexpensive office rents, may be the most viable locations for satellite and serviced offices.

Croydon is ranked top for connectivity, with a short 15-minute train journey to Central London. Prime rents are less than half the level of the City, making Croydon an attractive location for firms looking to spread their London office footprint. 

With a commuting time to London of close to 20 minutes, Watford also scores highly for connectivity. The rest of the top five are Chelmsford, Milton Keynes and Welwyn Garden City, each of which is a relatively low-cost office location within a 40-minute train journey from the capital. 

Vitality Index
The final component of the ranking is LSH’s proprietorial Vitality Index, our annual health check on UK locations which spans economic, business, lifestyle, health and environment indicators.

Woking came top of the 2021 index nationally, scoring particularly highly across health and environment indicators. The Surrey town was also one of the highest-ranked locations for a number of economic and business measures, including wage growth and commercial property investment.

Other South East locations ranked highly by this year’s Vitality Index include St Albans and Staines, which both scored highest across health and environment indicators; Guildford, whose strengths were primarily in lifestyle factors; and Watford, whose economic and business environment was highly rated.

Locating future growth
While each of the rankings is designed to assess a different aspect of the markets, if they are looked at in the round, Milton Keynes and Watford are the best-ranked locations, as the only towns to boast top five positions in three of the four rankings. Croydon, Brighton and Welwyn Garden City also stand out, with relatively high places in multiple rankings. However, all of these locations have at least one ranking in which they are relatively weak, bringing down their overall performance.

Several locations achieve a high overall ranking, despite not featuring in the top five of any of the individual rankings. Reading, at 7th overall, is the best of these ‘all rounders’, but Southampton and Uxbridge also display a well-balanced performance across the rankings.

Broadly speaking, the most highly ranked locations overall are either population centres in and around Greater London, which are well placed to benefit from any rippling out of office and residential demand from the city centre; and large town and cities located further out, with the necessary size and infrastructure to function as coherent economic entities in their own right. Both types of location have the potential to gain from shifts in spatial demand accelerated by the pandemic.

Source: LSH Research

Download the full Thames Valley and South East Office Market Report 2021