CAMBRIDGE SPRING 2015

CAMBRIDGE CONTINUES TO REINFORCE ITS POSITION AS AN ECONOMIC POWERHOUSE ON THE NATIONAL AND INTERNATIONAL STAGE. Fuelled by the University of Cambridge, not only does the city’s reputation for excellence see it foster and retain indigenous research and business talent but it also attracts the brightest and the best from overseas. The view is that it is international corporate interests who will, increasingly, shape this growing city and set the tone of its property market.

Cambridge’s gross value added (GVA) forecasts highlight the city will out-perform the UK national annual figure for each of the next ten years. The city’s rate of GVA growth is also predicted to steadily increase over this period, highlighting the continued out-performance of the Cambridge economy when compared to the national level.

The 2015 Centre for Cities Outlook reported Cambridge to be the most innovative and educated city in the UK with 68.7 patents granted for every 100,000 population and the highest percentage of residents with high level qualifications.

Alongside the dominant sectors of biotech, education and Information & Communications Technology (ICT), tourism plays an important role in the region’s economy. Cambridge is the tenth most popular city in the UK for overseas tourists. Cambridge rail station is the 12th busiest of all UK stations outside London, busier than Sheffield, Newcastle, York and Bristol reinforcing the attractiveness and commutability of the city.

take-up in the office and laboratory markets in 2014

the largest transaction to complete during 2014

average size of a transaction in 2014

office and laboratory space availability, a 32.5% increase from 2013

of all known active requirements, by volume, registered during 2014 are for

20,000 sq ft and above

2015 prime city centre office rent and £29.00 psf for the business park market forecast

956,057 sq ft

356,000 sq ft

23,367 sq ft

820,172 sq ft

£35.00 psf

51%

Botanic House

A CB1

B Cambridge Science Park

C Cambridge Business Park

D St John’s Innovation Park

E Biomedical Campus

F Cambridge Research Park

G Vision Park

H Capital Park

I Granta Park

J Chesterford Research Park

K Babraham Research Campus

L Cambourne Business Park

M Peterhouse Technology Park

N West Cambridge Site

O Haverhill Research Park

CAMBRIDGE ZONES

A14

A428

J14

J13

J12

A1303

M11

A603

A603

A1309

A1307

A10

A14

A11

A1303

A10

M11

COTON

B1049

CHERRY HINTON

MADINGLEY

GIRTON

HISTON

MILTON

FEN DITTON

RAILWAY STATION

CITY CENTRE

ZONE 1

ZONE 2

ZONE 3

ZONE 4

A

E

G

J

I

O

H

F

K

M

N

L

Zone 5 - Peripheral locations

Zone 1 - The prime central area

Zone 2 - The peripheral city centre zone

Zone 4 - The wider area business parks

DBC

Zone 3 - The northern cluster

Take-up of units 5,000+ sq ft Take-up of units from 0+ sq ft Take-up of units 5,000+ sq ft, excluding the Cambridge Assessment transaction

THE OFFICE MARKET

Office and laboratory take-up in 2014 totalled 956,057 sq ft1. The annual total was significantly boosted by Cambridge Assessment agreeing to take a building of 356,000 sq ft which accounted for 37% of the year’s take-up.

This transaction clearly skewed the 2014 annual statistics, with Q4 2014 letting activity totalling 463,657 sq ft, more than double the next highest quarterly rate of 205,979 sq ft recorded in Q2. Similarly, Zone 1 accounted for 43.1% of all transactions during 2014, well above its comparable level of 35% recorded in 2013.

The Cambridge Assessment “super deal” is not a unique occurrence in the Cambridge office market, indeed the AstraZeneca transaction at the Cambridge Biomedical Campus heavily influenced market activity in 2013.

Take-up of office and laboratory units of 5,000 sq ft and more totalled 724,634 sq ft in 2014; 4.8% higher than the 2013 level. However, this overall relatively healthy figure disguised the dependence of the Cambridge Assessment transaction and if excluded, letting activity, as highlighted in Figure I, was 46% lower than the 2013 total take-up.

The average transaction size completed during 2014 was 23,367 sq ft, 35% higher than its 2013 comparable figure. However, excluding the “super-deal” the average size of transaction totalled 12,279 sq ft; a 29% decrease from the 2013 level. This stark difference highlights the fragility of the market with one transaction skewing the overall profile of the market significantly.

That said, Cambridge Business Park is now fully occupied and prime rents rose to £26.00 psf at the Park during 2014, illustrating the strength of demand for key locations. Meanwhile, letting activity within the wider business and science park market has remained muted which further highlights the general sentiment of the market.

Figure 1 Cambridge Office Take Up

Figure 2 Cambridge Office 2014 Take-Up by Zones

AVAILABILITY – BUILT STOCK

Availability of the office and laboratory built stock of 5,000 sq ft and above stood at 820,172 sq ft, an increase of 32.5% from its 2013 level. This significant rise in supply was evident across all size bands of the market, although the availability of buildings between 15,000 and 20,000 sq ft saw a particularly sharp increase of 125% with seven buildings falling within this size band and only two lettings completing during 2014.

There are now 11 available buildings over 20,000 sq ft, all of which are located on business and science parks and therefore only appropriate for a limited number and profile of occupiers. Although on initial inspection there is a rise in availability, the range of good quality stock in prime locations remains extremely limited. However, the supply of such product will be improved due to an increase in development activity during 2015.

A number of significant developments, both speculatively and pre-let have commenced construction in 2015. One The Square, totalling 140,000 sq ft and owned by Brookgate has started construction and quoting rents are £34.50 psf. The scheme, much of which is rumoured to be in the process of being pre-let to a number of parties, is due for completion in November 2016.

In addition, 22 Station Road is also under construction and Mott Macdonald and Birketts LLP have pre-let the majority of space and CPC2 Capital Park started construction at the end of January with completion due by the end of November 2015. In addition, plots 3000, 4000, 5000, 6000 and 8000 at Cambridge Research Park are available to pre-let on a design and build basis.

“THE CAMBRIDGE ASSESSMENT “SUPER DEAL” IS NOT A UNIQUE OCCURRENCE IN THE CAMBRIDGE OFFICE MARKET.”

Zone 1 43.1% Zone 2 14.8% Zone 3 10.2% Zone 4 30.3% Zone 5 1.7%

Source: Carter Jonas

Source: Carter Jonas

2012 2013 2014

sq ft

1,000,000

800,000

600,000

400,000

200,000

0

1 take-up includes all lettings from 0 sq ft upwards and within 15 miles of Cambridge

“A NUMBER OF SIGNIFICANT DEVELOPMENTS, BOTH SPECULATIVELY AND PRE-LET HAVE COMMENCED CONSTRUCTION IN 2015. ”

CB1 Development

DEVELOPMENT PIPELINE

The development pipeline, which comprises schemes with planning consent, totalled 2.8 million sq ft at the end of 2014, remaining stable from its 2013 level.

Key schemes providing pipeline development land, albeit limited in some situations, include: CB1, Station Road, Cambridge Biomedical Campus at Addenbroke’s Hospital, Cambourne Business Park, Cambridge Research Park, Chesterford Research Park, Granta Park, Haverhill Research Park and Phase VI, Cambridge Science Park.

Despite the increase in currently available product, occupiers seeking space within the city are becoming increasingly restricted in their choice of potential buildings. Although an increase in development activity is a positive step, the choice of stock for businesses actively seeking accommodation will not increase considerably.

ACTIVE REQUIREMENTS

The volume of known active requirements registered in 2014 totalled 963,204 sq ft, a 36% reduction from its level in 2013. Active demand peaked in Q3 amounting to 447,599 sq ft although fell away sharply to 187,700 sq ft in Q4.

More than 51% of all known requirements, by volume, were seeking space over 20,000 sq ft, 7% looking for accommodation between 15,000 – 20,000 sq ft and 20%

Figure 3 Prime Achieved Cambridge Office Rental Levels

looking for 5,000 sq ft or less. The remaining 22% were equally divided between 5-10,000 sq ft and 10-15,000 sq ft reflecting the diverse range of occupiers actively wishing to locate or relocate in Cambridge.

The reduction in the volume of registered requirements comes as a surprise to the headlines which suggests Cambridge continues to thrive and becomes increasingly attractive to an ever diverse range and profile of companies. However, due to the ever decreasing volumes of good quality available stock, companies are being forced to consider either to remain in their current accommodation and reconfigure whilst seeking a long-term relocation option such as a pre-let.

RENTS

Prime achieved rents remained at £33.00 psf in the city centre and business parks at £26.50 psf in 2014 and although did not exceed levels set in 2013, closely matched those set in both markets. Both markets are predicted to witness rental growth during 2015.

Despite no headline rental increase, 2014 became a landlords’ market with incentives tightening based on a 10 year term certain to 10 months at year end, opposed to 12 months in 2013.

Positive momentum is forecast to strengthen during 2015, and headline or quoting rents by the end of 2015 are predicted to reach £35.00 psf in Zone 1, £21.00 psf in Zone 2, £27.50 psf in Zone 3, £25.00 psf in Zone 4 and £19.00 psf in Zone 5.

Source: Carter Jonas

£ per sq ft

2009200820072006 2010 2011 2012 2013 2014 2015

0

10

20

30

40 City Centre Business Parks

* Forecasts based on best achieved rents

OFFICE INVESTMENT MARKET

2014 proved to be an extremely active year in terms of investment activity within Cambridgeshire, particularly in the business park market. With the London market widely regarded as being overheated, attention has turned to key regional locations and Cambridge, in particular, continues to be recognised as a safe haven.

With the increased appetite for stock in the regions coinciding with an upturn in the market, vendors have been taking the opportunity to sell at premium values with a notable release of stock following many years of extremely restricted supply.

Table 1 2014 Key Cambridge Investment Transactions

Address Sector Price (£m) Net Initial Yield (%)

Purchaser

One Station Square Office Development 80.0 n/a Orchard Street Investment Managers

Capital Park Business Park 55.0 6.1 TIAA Henderson RE

Cambourne Business Park Business Park 36.0 6.75 LaSalle Investment Managers

Cambridge Research Park Business Park 21.0 n/a Rockspring Property Investment Managers

Unit 310, Cambridge Science Park Business Park 18.65 6.36 CCLA Investment Management Ltd

Mill Court, Great Shelford, Wrenbridge Business Park 6.22 8.5 Wrenbridge

Vision Park, Discovery House Business Park 2.85 6.75 RO Regional Properties

“BOTH THE CITY CENTRE AND BUSINESS PARK OFFICE MARKETS ARE FORECAST TO WITNESS RENTAL GROWTH IN 2015”

Table 1 below illustrates some key transactions to complete within Cambridgeshire during 2014. The largest forward funding acquisition was of One Station Square for £80 million by Orchard Street Investment Managers.

The depth and strength of the investment and development market was reflected in the flurry of transactions, predominantly in the business park sector, where yields circa 6-6.5% were commonplace.

One The Square, CB1

The requirement to pre-let, including Microsoft, Mott MacDonald, Birketts LLP and Cambridge Assessment, in order to secure accommodation is acknowledged by the large–scale occupiers. However, this has yet to filter down to the medium and small companies requiring space. With every forecast pointing to the growth of Cambridge, the lack of allocated land, coupled with ‘planning-lag’, adds even more pressure to an already tight market.

The numerical bulk of deals are made below the headlines. The top 15% of the market in numbers, the glamour deals, where business property is secured for high profile companies will always command attention.

The remaining 85% of the market are the transactions which form the bulk of agents’ mainstay activity. 2014 did not see the de-facto churn, which can realistically be expected of a market post-recession, without agents’ intervention.

Conventionally, occupiers forming the bulk below the headline deals are in properties from 1,000 – 10,000 sq ft. While these occupiers are not normally found in the Grade A sector of the market, they do provide its ballast.

It is big which is beautiful, and viable, now in boomtown Cambridge. Whereas ten years ago 20,000 sq ft was considered a big deal, now pre-let transactions of 40,000 sq ft or above are not considered unusual. Large corporates on the international scene are gearing up to make or grow their presence in the city and 2014 has seen a number of these influential businesses in play.

AstraZeneca (AZ) was recently granted planning permission and unveiled designs for its new 650,000 sq ft headquarters at the Cambridge Biomedical Campus with a view to its occupation in 2016. It has also taken an additional 10 acres and, it is reported, with an option on more land at the emerging site. Based at Granta Park, AZ’s R&D wing, Medimmune

has purchased a cancer imaging company for circa £98 million. The commitment of such a truly global corporate to Cambridge reinforces the city’s position as the premier R&D location within the UK and indeed on a global scale.

The past year has seen international corporate names make their presence felt in the city. Bluetooth technology provider CSR plc committed to an additional 95,000 sq ft across Cambridge Business Park where it already has its global HQ, making it the largest letting in a decade to a single office occupier in Cambridge. CSR then entered into the final stages of an agreed £1.6 billion offer by Qualcomm.

Chinese technology and electronics giant, Huawei has bought Science Park-based and ‘Internet of Things’-specialist Neul Ltd for a rumoured £16.4 million.

The end of 2014 saw confirmation of Apple’s first property presence in the city in the shape of 90 Hills Road. It also saw Spotify, which has had a call centre presence in the city since the early part of the decade and Amazon, being hotly tipped to be adding to their existing, but relatively low key, presences in Cambridge.

Jesus College, one of the Cambridge Colleges which has had no science park land interests in the city until now, has revealed plans for ‘Cambridge South’ as a new 17-hectare science park, homes, school and country park scheme on land bounded by the M11 motorway to the south of the city.

Work is underway in building Academy House on Hills Road. With 29,012 sq ft in total, the railtrack side building is the first speculatively built Grade A office in the city centre for two years although was pre-let during the construction process. It is the presence of these new names and the growth of established players which are influencing the property market in the city. However, with 2015’s speculatively built offices being pre-let, new occupiers seeking space will need to act fast.

DESPITE AN OVERALL INCREASE IN SUPPLY LEVELS IN 2014, THE SHORTAGE OF BUILT GRADE A ACCOMMODATION HAS BEEN THE AGENTS’ LAMENT SINCE 2012. DESPITE INCREASED DEVELOPMENT ACTIVITY, THIS IS UNLIKELY TO CHANGE IN 2015.

BIG NAMES ARE CHANGING THE GAME

“THE TOP 15% OF THE MARKET IN NUMBERS, THE GLAMOUR DEALS, WHERE

BUSINESS PROPERTY IS SECURED FOR HIGH PROFILE COMPANIES, WILL ALWAYS

COMMAND ATTENTION.”

“HEADLINE QUOTING RENTS ARE PROJECTED TO INCREASE TO £35.00 PSF IN THE CITY CENTRE AND £29.00 PSF IN THE BUSINESS PARK MARKET IN 2015.”

Ibis Hotel, CB1

2015 FORECASTS• A substantial increase in the volume of both new and

refurbished space delivered to the market will be evident

• Headline quoting rents are projected to increase to £35.00 psf in the city centre and £29.00 psf in the business park market in 2015. Rental growth will be seen throughout the market

• The new stations at both the city centre and Chesterton sidings will be the catalyst for rental growth

• Appetite for investment properties with active management potential will continue to increase as rental growth projections continue to rise

• Refurbishment and reconfiguration of poorer quality stock will increase, due to very limited availability and continuing demand in the size bracket

• The University will increase direct development of its land holdings

The information given in this publication is believed to be correct at the time of going to press. We do not however accept any liability for any decisions taken following this report. We recommend that professional advice is taken. Carter Jonas LLP uses the information it holds about you for marketing purposes and to administer, support, improve and develop our business. We may send them by post, telephone or fax, email or SMS. If you would rather NOT receive further information by any particular format, or at all, or if your details need updating, please contact marketing@carterjonas.co.uk. We will not disclose personal information to any third parties without your permission to do so, unless we believe that we should do so to comply with the law.

Report Compiled By:

Will Mooney, Partner, Commercial 01223 558032 will.mooney@carterjonas.co.uk

Catherine Penman, Head of Research 01604 608203 catherine.penman@carterjonas.co.uk

Sebastian Denby, Graduate Surveyor 01223 346640 sebastian.denby@carterjonas.co.uk Additional contacts:

William Rooke - Development/Investment 01223 315716 william.rooke@carterjonas.co.uk

Duncan Wisbey - Professional Services 01223 346624 duncan.wisbey@carterjonas.co.uk

Steven Harvey - Agency Services 01223 346619 steven.harvey@carterjonas.co.uk

John Russell - Property Management 01223 315716 john.russell@carterjonas.co.uk

ABOUT CARTER JONASCarter Jonas commercial has dedicated, specialist teams in five major locations throughout England offering strategic and consultancy advice in the key commercial sectors of Landlord Services, Tenant Services, Agency, Business, Science and Industrial Developments, Valuations, Investment and Asset Management and Planning & Development. Carter Jonas is therefore well placed to offer regional and national advice on all matters relating to commercial property to both corporate, private and public sector clients.

01223 3157166-8 HIlls Road, Cambridge CB2 1NHcambridge@carterjonas.co.ukcarterjonas.co.uk/commercial

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