Publication

Spotlight: Oxford Offices & Laboratories

The global reputation of Oxford has increased even further during the past 18 months



 

Oxford investment market overview

The Oxford office investment market experienced strong investor demand in 2021, with investment volumes reaching £805 million. This was the highest total ever recorded in the Oxford market. The opportunity to gain exposure to the growing science and innovation occupier base located in Oxford and the strong rental growth prospects for the city has appealed to investors. The prime Oxford office yield is 4.00%, which is on par with Cambridge and a 75 basis point premium to the prime regional office yield of 4.75%.

Overseas investors were the most active investor in Oxford in 2021, accounting for 77% of office investment. This was primarily driven by Singaporean investor GIC acquiring just below a 50% stake in Oxford Science Park for £395 million. Brookfield Asset Management acquired property investor and developer Arlington from TPG Real Estate. Arlington’s portfolio includes Oxford Business Park, and Brookfield is planning to accelerate development at the scheme. The business park contains 200,000 sq ft of stock available for repositioning and ten acres of consented land, which will deliver approximately 750,000 sq ft of office and laboratory space.

Occupational demand

The outlook for the Oxford office market – 2022 and beyond

Oxford has a strong year in 2021 and recovered significantly from the 2020 lull.

Oxford’s global reputation has increased significantly, and global companies, particularly within the science sectors, will have appetite to benefit from being within the Oxfordshire ecosystem.

The laboratory market in Oxford saw four deals between 18,000 and 30,000 sq ft, which shows the sign of a maturing market. These deals were signed at Oxford Business Park or Harwell Campus. There will be increased demand for laboratory space in the short to medium term.

Biosciences accounted for nearly two-thirds of the total level of take-up last year, which comes as no surprise. It is expected that the science sector, in general, will account for the largest share going forward. The key driver of this will be companies’ appetite to co-locate with the world-class academic institutions as well as their spin-out activity. A notable occupational and investment deal, acquiring 44,000 sq ft (6 acres) was the Ellison Institute for Transformative Medicine at Littlemore in close proximity to Oxford Science Park. This institute has close ties already with the University of Oxford, but this real estate deal illustrates the commitment, to the city, of a globally renowned organisation.

There is a significant amount of financial capital being raised by companies created in Oxford – this will drive the city’s economic growth in the medium and long term

Steven Lang, Director, Commercial Research

The University of Oxford, during the past couple of decades, has led the way in terms of the value of spin-out created and the amount of capital that they’ve raised. Nearly three-quarters of a billion pounds was raised by spin-out companies last year, up from £500m raised in 2020. This fundraising underwrites future occupational demand levels.

This analysis looks to the future, but today, there is a significant level of occupier requirements. In total, Savills estimates that there is a couple of million square feet from companies looking to get into the Oxford market.

There will be a much higher degree of pre-letting activity in the Oxford market during the next 12 months, specifically on the larger key schemes, including Oxford North.



Supply & Rents

The availability of office and laboratory space rose by 18% in 2021 due to ‘grey’ space released by tenants, which was predominantly Grade B quality. Total availability stood at circa 740,000 sq ft at the end of last year. This is expected to recede this year, but only show a 6% reduction by the end of 2022.

Laboratory space will remain in the shortfall category for the short term and new schemes must begin to deliver for future growth

Steven Lang, Director, Commercial Research

What is clear, as seen in other markets across the UK, is the availability of Grade A office and laboratory space, which is severely limited in Oxford in the city centre and key ring road locations. The development pipeline for this year and 2023 is very low. The strength of the science sector, driven by the global reputation of the academic institutions, as well as the city’s contribution to the global pandemic, has ensured the city is a top target location for companies, of all sizes, working within the many areas of human health. Consequently, there needs to be an appropriate quantity and quality of commercial real estate.

The city centre market, in terms of rents, will continue to rise at the same trajectory seen since 2020. The limited level of supply, but high level of occupier interest, will see rents move above £50 per sq ft this year. In contrast, the market outside of the city centre will remain relatively muted, but will see slight increases throughout the forecast period as new supply comes on stream.

A key question is when will laboratory rents move higher than the city centre office rental level

Steven Lang, Director, Commercial Research

The laboratory market will track city centre rents, but most of the space will be delivered outside of the core city centre. However, the laboratory-enabled buildings will, rightly, command a premium rent, compared to standard office space, despite being outside the city centre. Over time, Savills expects laboratory rents to rise above the city centre level – this is something that has already been observed in Cambridge.