It has been a busy few weeks for Oxford's real estate markets, not least thanks to an £890 million investment by the Larry Ellison Institute aimed at extending Oxford Science Park, a site acquisition for a £4.5 billion labs, offices and homes development by the Crown Estate, and the launch of the £1.2 billion Oxford North science and technology development. Martin's Properties hosted a breakfast at Bidwells' offices in the city with leading real estate investors and advisers to discuss the emerging challenges and opportunities.
CoStar News chaired the breakfast debate with the panel comprising: Paul Norman, Managing Editor Europe, CoStar News; Richard Bourne, CEO Martin’s Properties; Duncan May, Partner, Business Space, Bidwells; Dan Geoghehen, CEO, Bicester Motion; Victoria Collett, Development Director (Oxford North), Thomas White Oxford; Artem Korolev, CE0, Mission Street; Tom Kennedy, Associate Development Director, Tritax; Jennifer Waterhouse, Senior Partnership Manager, The Crown Estate; Anju Suneja, Partner, Mishcon de Reya; James Beynon, Director, Quod; Patrick Scanlon, Research Analyst, CoStar
PN - As Oxford continues to play a role on the global stage, what opportunities for investment and development does the M40 corridor offer and will ‘Oxford’ continue to grow outwards as a result?
Patrick Scanlon, CoStar: Oxford is the 23rd largest office market in the UK, but it is in the top 5 for inventory growth over the last 10 years. The inventory has grown by 2 million square feet and that is only beaten by London, Manchester and Cambridge. But it has a 9% vacancy rate. For industrial the market does not even break the top 30 when it comes to stock but that’s changing. It's the 7th most expensive for rents, with average rents of £13.50 per square feet. Oxford is one of the UK’s most expensive markets for retail, although vacancies are up and leasing has not been great.
Proximity to the M40 really does impact things quite a lot. For offices, the submarkets that the M40 cuts through had the biggest inventory growth and are amongst the top markets for rental growth in Oxford and it's where most of the new development is concentrated for industrial. The submarkets furthest away from the M40 have seen the weakest rent growth. The submarkets that cover Bicester and Banbury have had 4.5 million square feet of new industrial space built in the last 10 years, and that's more than double all of the other industrial submarkets in Oxford combined. Investors, developers and tenants are embracing the M40 corridor as an expanding market in the county.
Richard Bourne: We have different requirements for different sectors. However all of them are predicated on tight occupational market dynamics with low supply and strong demand. We also look at local factors.
Offices need accessibility by road and rail networks by foot and lots of amenities nearby for staff retention. The tenant at our offices in Buxton court renewed its lease due to the accessibility to the station and abundance of amenities within walking distance as well as the accessibility to the A34. The ring road is a nightmare for traffic at peak times so we are able to benefit.
Industrial needs multi modal transport options and accessibility to major road infrastructure. We acquired Curtis industrial estate on Botley and there is almost no competition which means we are able to attract and retain long term tenants and drive performance.
Larger occupiers generally have to move out of town to get the larger floorplates. Our main commercial assets are of smaller size and in town or edge of town. However, we can benefit from the clustering of companies that need smaller suppliers and specialist manufacturers nearby.
For self-storage we look closely at demographics and road or rail frontage for good visibility as well as specialist KPIs that we hope will enable us to achieve high occupancy.
Duncan May: Whilst we are seeing high levels of demand for offices in the city centre, other locations are being considered, but only if there are strong public transport links.
We have received requirements focused on being within a 10 minute walk of a train station. We've done lettings at Inventor for AI companies and when they took the space it was the only quality space available close to the city centre.
For big box industrial, it is about being close to the M40. You need to build what’s right for the location and where there’s demand.
RB: "But if you go down to the small side of the industrial stock and I mean the standard granular industrial they can't afford to be out at the M40."
DM: Industrial rents have increased significantly because the science & technology market has repurposed standard stock for scientific purposes, the supply of traditional stock has reduced significantly. We're seeing rents go up to £20 per square foot around Oxford.
In the tech market, demand remains for the towns surrounding Oxford. We are seeing good demand at Harwell Science and Innovation Campus who are building 350,000 square feet of accommodation and at Oxford Technology Park in Kidlington.
PN: That sounds like there's obviously a great demand to be on the M40 for industrial, but can it grow further? And it sounds like there's a lot of development already. Does there need to be any more? Is the demand going to be enough?
Artem Korolev: I think the question on growth in R&D specifically is driven in my view by two things. One is funding. The science that goes on in Oxford within the University and more widely around the cluster is world-leading, but companies built on that research need investment to scale. The majority of leasing that we've seen over the last five plus years here has been driven by companies scaling up organically within Oxford, rather than new entrants. So I think the recovery of venture capital is going to be a really key bit of it. We're seeing an emergence of that at the moment. The second is creating a favourable environment from a national and local standpoint for larger corporates to benefit from the innovation ecosystem present in the city, by collaborating with academia and existing companies or retaining them after M&A of Oxford-based companies.
PN - The recent announcements around AstraZeneca and Merkel - is that damaging? Are you concerned?
AK: It is too early to say what pharma ends up doing in the UK, but we need to do everything we can to keep these pharma companies. I think having these pharma companies with bases in the UK has positive spill-overs to their wider innovation ecosystems. They invest, partner with early-stage businesses, undertake clinical trials, engage in M&A and are a source of people leaving to set up new businesses. Oxford has historically lacked bigger innovation focused corporates expanding here, Cambridge has done it a bit better – but ultimately creating a more favourable environment for such companies in terms of drug pricing, tax incentives, investment environment mainly needs to be addressed at a national level.
DM: And we need to mention the Ellison Institute and what impact this will have on sites, bringing 7,000 people to its institute. This will be a world class centre of excellence and companies want to be close to it.
There are big names who are coming here, such as Moderna taking 140,000 square feet at Harwell and Mercedes-Benz - acquiring Yasa Motors - taking a 90,000-square-foot at Bicester Motion. The Ellison Institute will become a sharpen the focus of the world when it's up and running and that will only help to bring more companies here.
Tom Kennedy: The occupiers that we have knocking on our door and who we are going to see the council with for our second phases, as we did with Siemens, to unlock our whole site, are those such as Siemens that are focused on advanced manufacturing and the reason they are attracted to Oxford is because of that higher skilled workforce. There is still a lack of knowledge around what a warehouse is. They are also targeting the quality of the fit outs and tech involved inside for HQs - Siemens took circa 111,000 square feet in its warehouse for office space. Tritax will have done some of the largest office lettings within its big boxes for maybe the last 10 years in some areas. Our challenge is to show the planners that the jobs we are providing are skilled, rather than mainly unskilled industrial assembly line jobs.
RB: The definition of life sciences has become a bit of a generic word that takes in much more in life sciences. There is a lot of investment into tech and AI and modern innovation in the UK, clustering around centres of excellence, and it's no secret that Oxford is and has historically been one of the key focus areas.
Dan Geoghehen: Strategically Oxford has a plan. The Oxford to Cambridge corridor is now back on the government agenda and there is a big focus on how to unlock the area from Cambridge to Oxford. There's a feeling that Cambridge is a step ahead. So what can Oxford city do? Oxford city has its own constraints in terms of planning and its history and its ownership. So it has to move outwards. Infrastructure has got to meet the requirement and move out. When businesses get to a certain size, where do they go? In presentations I joke that we are very grateful to the Romans for building the M40!
But there is a strategic drive that we could be missing. Companies want to cater for future growth, but this isn’t five years ahead like historically, it’s for next year and short term as visibility is not the same. And that's what they can commit to. We as an industry have to be able to react much more quickly.
Businesses are coming to Bicester Motion because we have talent in the area. The origin of F1 was originally Bicester, and we've welcomed Sauber here. They're here because they're effectively opening their honeypot and sticking it next to a beehive. They want to attract people to and for the Audi Formula One project to really compete on a world level, and obviously now it is becoming increasingly big and they want to compete on a global level, as a tech driven business. It is about people and where they want to work, and be part of something that has a vision, where they can collaborate. So it's got to be high quality. The advantage I think of where we are in Oxfordshire is there is a plan and if there isn't a plan, they're talking about making a plan.
PN: You sound positive about how things are heading at a national and local government level.
DG: With government it's a little bit talk versus delivery and if the delivery comes. We've been here before but we are hearing of very positive moves to unlock the value, but there are challenges around power and infrastructure. Will it actually happen this time, what about power and infrastructure?
RB: The Oxford station works which should also improve links to Cambridge has caused chaos for the retail and leisure in the city centre - it's just stopped all the access through from the west side into the city. It’s already been two-and-a-half years and its potentially going to be another year to complete.
PN: And what are people seeing in terms of investors wanting to come into Oxford?
Anju Suneja: I am seeing similar themes from the clients I work with acting for developers, emerging companies and occupiers. So much thought and care is going into attracting and retaining talent. When acting for occupiers, the main focus is about infrastructure links. Occupiers are also looking for the flexibility to expand or contract so we are seeing more short-term leases. We are also seeing excellent collaboration between landlords and tenants. And to Tom's point the HR director is coming to the building inspection and that's a big shift; it's great.
DM – Occupiers unfortunately have been suffering from a toughening funding market which has inevitably caused a delay in relocations and expansions. As a result, companies that achieve smaller funding rounds than expected are committing to shorter leases and considering cheaper options outside the city. Those companies achieving successful funding rounds remain clearly focused on the premier Oxford facilities.
AK – The type of space required is also strongly linked to the funding environment. For example, six or seven years ago we were looking at building GMP-type space for companies. Essentially this involved a hybrid building with a two-storey space with labs and offices at the front and a volume at the back, which was delivering much higher rent than industrial in places like Stevenage. As funding got more challenging for the companies, their business model evolved and they focused on outsourcing this type of activity rather than building their own facilities. The question is as the tap turns back on, are they going to shift more in house. If it does, there will be an impact on the industrial market.
PN: Where has funding gone/come from in the life science sector? Clearly it is still there in the motorsport sector.
Jennifer Waterhouse – With our partners Pioneer Group and OSE, The Crown Estate is repurposing the former Debenhams into commercial labs. The companies occupying this space will be from OSE’s portfolio. At present, there is no commercial space for start up companies in the innovation sector due to a severe undersupply in incubator space, particularly in the city centre.
James Beynon – Some diversification is key on the M40 for industrial and logistics to continue their growth. Another big issue is where do people live? We need new homes but they need to be affordable, so where can they go? This brings its own challenges. If you want to deliver employment growth, you need to support that in the population with affordable homes.
Every Local Authority has an affordable housing policy but this can often be challenged on viability grounds. Planning is layering on additional cost through the sustainability requirements, fire safety, BNG and other challenges on already rising construction costs so viability is more stretched than ever, and affordable housing is often the matter that is conceded as a result.
TK – The infrastructure needs to be upgraded as people don’t live in the city and so commute.
Victoria Collett – The Oxford Growth Commission is going to help with the transport. It's the OxRail 2040 consultation that is happening at the moment, which you can comment on until tomorrow. And I would encourage everybody to comment on it. It's a very high level consultation, but still I think it's really important that big businesses do lend their support to it. It is going to really radically change Oxford and finally put Oxford at the centre of a transport network instead of at the end. And I think the conversation around East West Rail has not been super helpful. Because it puts us at the end and we're not at the end of anything, we're right in the middle of everything. The 2040 plan is going to have us, Oxford, at the centre of a Metro style rail system and I think that will be hugely influential just visually to change the narrative around where Oxford and Oxfordshire sits and the Cowley branch line is a really important part of that. I was really encouraged to hear that they're not only looking for the funding to actually build the stations of the Cowley branch line. But also they understand that it's the connections into the rail that's really important. For lots of housing in Oxfordshire it's not easy to get across the county via transport and that’s the problem – the link. Oxford has everything going for it and the wheels are in motion but we need to keep the pressure on and at the same time be positive in the meantime and so not talk down the area.
RB – There are differences between different authorities across Oxfordshire. We have been 12 months trying to get planning on one particular site in Oxfordshire which is a derelict site at the gateway to the town centre. And it's just painful. The local authority are not proactive trying to push development through and bring investment into that location. You would have thought they would be really keen to get this derelict site at the gateway into the town built on. If we want investment and development in this challenging market and to grow the national GDP, it needs the support of the planning authorities. Oxford in the centre seems advanced and a lot more forward thinking. But on the outer locations and the Oxford to Cambridge link it is not the same and if we are going to get a joined up approach they need to start aligning and there has to be more support for that.
PN: What locations stand to do best in the core and in wider locations, and which sectors where?
TK: The M40 corridor and the junctions we are on for industrial obviously! And also moving into Bicester, so both junctions are bang in the middle of London and Birmingham and have the employment of Oxford on their doorstep and the attraction of Oxford.
We know there is demand from occupiers and businesses either wanting to come into the area or growing already here. We are doing everything we can to unlock this. The main challenges are power and gaining consent. There are lots of hurdles to jump over with the council who say they want growth and development but it is a slow process. We have seen this previously at development forums. Multiple developers in the room wanting to invest in Oxfordshire but all have the same hurdles. A major hurdle in building a datacentre is power, the requirement is huge.
DG: Bicester obviously. We are there for a reason. We're 90 minutes from 50% of the UK population. You've got an infrastructure system that can tap into both commuters and leisure. Also two stations and two junctions off the M40. Infrastructure wise it’s a success story, we just need to demonstrate how to get people into Oxford. There there are four trains an hour. They're 12 minutes £3 each way from Bicester Village station into Oxford. There have been 6,500 houses built in the last 10 years. So the model works pretty well. In terms of hospitality and tourists if you can have an infrastructure system that can tap into both commuters and leisure then - for instance Bicester village and Bicester Motion - then they can leverage from each other. Key is to collaborate not compete. Time rewards when it comes to property.
VC: I see developing in Oxford as a peer network, we should all promote it together rather than compete. The pie is big enough for all and we should all grow it together. And the University is getting involved in that too and it is really helpful to have their voice added. Being cloistered literally they are now looking outwards working with developers and businesses to enhance to make the most of what we have got in Oxford.
AS – My clients are focused on logistics, life sciences and data centres in that order. It wouldn't surprise you if I say the challenges are the same ones already mentioned around planning and power.
DM: Oxford has the advantage of being a Science & Technology location, not just life sciences giving Oxford a wider spectrum for investment and companies looking in the area.
RB: It takes an ecosystem of assets and sectors to support each sector anyway. We are not focusing on one or the other but looking at key locations with a supply demand imbalance and filling the gap. We have talked about taking rents from £17.50 per square feet to £37.50 per square feet at our office buildings in Oxford and from £6.50 per square feet to £15 per square feet at our industrial buildings. We have got a great asset management team but it is about supplying a product or offer that is catering for demand that is there - either in town or edge of the city. We were talking about how the shift back into offices is coming. Things are always changing. In the last five years post Covid, everything has been thrown up in the air.
It is settling down now and that creates opportunity. We are now growing a new self-storage platform, which is leveraging from the residential market. A lot of housing nowadays is quite small and does not have a lot of storage or garage space. But as I said earlier we have different factors and criteria for different locations and sectors. We are focusing on the South and South West corridor from Didcot to Bristol, Bath and beyond.
JB: There is generally a lot of market interest in Oxford here with locational requirements in different sectors in different areas opportunities arising from that. Plans are in for a new town with 9,000 homes, green spaces, schools. And whether it's big box industrial schemes or small-scale storage each has its own place in the market. Oxford is uniquely positioned to adapt to these opportunities. The big challenge is the time it takes, and sorry to whinge, starting with the planning process. If devolution is to work successfully, I think having a combined authority will help overcome these hurdles. We have seen in north Yorkshire how it can be challenging in the initial phases, including setting the initial authority structures and subsequently moving onto plan preparation stages which set the policy foundations for growth, but in the longer term there are clear merits to be had.
DG: With a site like ours you just have to start earlier. We know it will take 3 years to get planning, which is why we started 3 years in advance. We have got over half a million square feet of consents in hand, which are adaptable, so we are ready to go. It's our job to truncate the time frame. Hopefully the authority will help. But I agree it will get worse before it gets better. We just have to understand the process and build it in until it gets better, banking permissions for the future. There is talk about broadening and loosening the LDO [Local Development Order] framework which would be a good strategic move for sites of a certain size but if you have 25,000 square feet on the edge of town it's reactive not proactive and that’s difficult.
DM: On the industrial demand for big boxes remains strong along the M40 corridor.
Demand for typical industrial units in outlining towns remains strong and positive rental growth has been seen. Tech demand is focused on locations that offer higher quality environments, with good connectivity and good amenities. Demand for labs remains in those established locations that can offer the quality of space coupled with ability to grow, and a strong community.
AK - We are a specialist investor, so will continue to work on delivering and operating space for innovation intensive businesses. In Oxford we will be focused on building out more of the West End which we believe will become the prime location in our sector, shifting the centre of gravity for the innovation ecosystem of the city.
JW – We are focused on the city centre, repurposing the former Debenhams into commercial labs. Our biggest challenge is to build as sustainably as possible. We have extremely high sustainability aspirations from the build to the fit out. TCE has invested in this sector for the long term, so we want to ensure we create incubator space that works for generations to come and supports the wider Oxford ecosystem.
RB: Partnerships are important in Oxford as most of the city centre freeholds are still owned by the council or colleges.
AK: This means specialist operators can build longer-term partnerships with their customers and act as a facilitator as they scale their business.