Our latest blog analyses activity which drove an increase in office and lab rents last year in Cambridge; looks ahead to further growth this year; and discusses the key considerations for large company R&D activity, based on Bidwells latest research undertaken by YouGov.
SCIENCE AND TECHNOLOGY COMPANIES REQUIRING CERTAINTY ARE FOCUSSING ON PRE-LETS
Our latest analysis of the Cambridge office and laboratory market finds that 0.6 million sq ft of new space will complete during the first half of 2019. This is the highest level of new supply in over a decade. This perhaps sounds alarm bells given the apparent slowdown in demand for labs and offices combined to 1.154 million sq ft at the end of 2018.
The reality of the market paints a different picture. The vast majority (85%) of space is pre-let or already under offer. This, in theory, leaves a total of 91,000 sq ft available during 2019. Given our understanding of current requirements, we expect more than 50% of this space will be let shortly after practical completion.
Increase in prime office and lab space rent in 2018
This pre-letting activity, combined with a slight increase in take-up in 2018 compared with 2017, underpinned a further increase in rents. During the second half of 2018 the prime office rent rose to £41.50 psf, with increases also seen for all grades of second hand space. The prime rent for laboratory space also rose in 2018 to £34.50 psf.
The importance of location
These latest lettings figures are consistent with the findings of research undertaken by Bidwells on the location and property requirements of major R&D companies. The research, undertaken by YouGov on our behalf, underlines the importance of location. The ability to recruit highly skilled staff, combined with the requirement to be near the centre of research ideas and innovation are the determinants of location for such businesses. With a global outlook these companies will consider location from an international perspective and therefore are compelled to be exacting in their requirements.
These requirements need to be taken seriously. 52% of the global R&D companies participating in our survey expect their R&D budget to grow over the next five years, while 30% think it likely they will take new floorspace, predominately due to expectations of business growth. The availability of property to grow a business was considered extremely important, considerably more so than the cost or lease terms of that space.
This clearly has implications for location decision-making on top of concerns over access to skills and innovation which preoccupy all knowledge based businesses. Given the recent tightness in the Cambridge office and laboratories market, particularly in the accessible in demand locations, it is therefore unsurprising that such companies are opting for pre-lets.
With the business priority to keep pace with expectations for “continuous innovation” as noted by many of our respondents, taking the risk on the market to supply the goods, particularly for specialised laboratory space, is increasingly not an option.
Looking ahead
This long term perspective towards occupational requirements of incoming and expanding companies, combined with pressures from the ecosystem of new businesses in Cambridge’s science and tech sectors in particular, will place further pressure on rents. While the wider economic and political backdrop clearly remains uncertain, we expect these underlying market pressures to underpin prime rental value growth of between 2-3% in 2019.
