Reading: a new city in the south east of England? - Savills
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Savills World Research
UK Cross Sector
Reading
savills.com/research
Spotlight | 2017
Reading: a new city in
the south east of England?
Summary Reading has a strong tech economy and enviable location. But, to grow into a city, it needs more
space. We examine its potential, and the options for urban development and growth beyond its boundaries
Reading’s International Reading punches Reading is a key Old and obsolete
employment market companies and above its weight component in the office stock has been
is the same size as the digital and from an employment wider regional largely absorbed
many regional cities. tech sector are perspective, but is economy. We believe through permitted
Its infrastructure and continuing to set constrained in terms that the traditional development. This
rail network supports up headquarters of housing delivery golden triangle of has delivered more
a large and vibrant in Reading’s town by its tightly drawn knowledge economies than one-third of new
economy. See p2 centre, thanks to boundaries. This of Cambridge, Oxford housing stock. New
the delivery of modern restricts the town from and London can be homes in the town
office stock with a achieving its potential. extended to form a centre are particularly
highly accessible See p6 knowledge kite. See p3 appealing to young
location. See p2 people working in the
tech sector. See p4
OVERVIEW
Punching above
its weight
With modern office stock and high accessibility, Reading’s employment market and
corporate investment outperforms many major UK cities, including Oxford and Leeds
T
here are several reasons why Reading operates and out-of-town locations. Reading exceeds total
like a regional city market. It has excellent office investment in larger regional cities such as
transport links to markets across the country Glasgow, Bristol, Leeds and Cardiff, highlighting
and fast journey times to central London. its strong performance and high-quality office stock.
Crossrail will improve journey times and connectivity
even further when it becomes operational in 2019. Global appeal
International corporations continue to locate in
Modern office stock Reading. The town’s talented catchment workforce
Despite Reading’s modest population of 163,000, the and large business parks attract these occupiers as
town’s strong office provision has enabled businesses they favour campus-style working environments.
to grow and expand without leaving the area. Historically, large out-of-town business parks have
Reading is the dominant office market in the outer attracted traditional technology and pharmaceutical
south east, outperforming many other large office occupiers. Here, business parks with greater amenities
markets. The long-term average office take-up is more have performed best at attracting such companies
than 400,000 sq ft and the town has an estimated and this will remain the case going forward.
office stock of around 10 million sq ft. Following amenity improvements, 76,000 sq ft
Reading ranks fourth for office investment flows, was let at Arlington Business Park in the first half
highlighting the town’s appeal and its ability to offer of 2017. Prior to those improvements, there had
prime office investment opportunities in town-centre been limited transactional activity in recent years.
Office appeal Despite its smaller population, office investment in Reading (2006-2017)
is higher than many larger cities, reflecting the quality of the office stock and occupiers
£6,000
Office investment 2006-2017 (£m)
£5,000
£4,000
£3,000
£2,000
£2.7 billion
£1,000
£0
Manchester
Leeds
Cardiff
Cambridge
Oxford
Birmingham
Edinburgh
Bristol
Reading
Glasgow
Source Property Data
2 savills.co.uk/research
OVERVIEW
In town, there is a growing trend for serviced providing an appropriate stock of property to cater
office operators leasing space that meets the for company needs.
co-working culture. This targets Reading’s strong The flow of global corporate investment helps us
start-up community – particularly in the tech identify the strength and location of commercial real
and software sector. estate. Reviewed alongside property demand and
According to the Tech Nation 2017 report, supply, this provides a guide to the market potential
there were, on average, 605 start up births per year in the short to medium-term.
from 2011-2015 and more than 40,000 digital jobs We have reviewed 212 corporate investment deals
based in the town. With this thriving tech scene, in Reading since 2012, including venture capital (VC)
co-working operators accounted for 24% of take-up and mergers and acquisitions (M&A). Within the
in the first half of 2017. M&A market, there have been deals worth £10 billion:
People working in Reading are a rich mix of 87% involving companies headquartered in the UK
international and domestic workers. Some 29% of and 13% with headquarters in the US. The strength
tech businesses say they employ people from outside of the M&A market is an indicator of the more mature
the EU, the highest figure in the UK. This provides companies present, and the US prevalence in Reading.
Reading with a degree of insulation from Brexit and During the same period, there was £2 billion of
underlines its identity as a leading technology hub other types of corporate venture capital investment.
in a global context. These are more reflective of the start-up community
We believe the traditional golden triangle of and an indication of future growth. The corporate
knowledge economies – Cambridge, Oxford and strength of Reading lies in the IT and B2B sectors
London – can be extended to Reading to form and the corporate transactions reflect this. A more
a knowledge kite. This is based on the advanced detailed breakdown of the deals shows that the software
knowledge economy that exists in Reading and the sector accounts for 37% of the overall five-year total.
thriving technology sector. How Reading performs, corporately, is impressive
Furthermore, as highlighted by the National compared with key cities across the UK. In terms
Infrastructure Commission, the improved East West of the IT sector, Reading is in third place. Only
Rail Link will provide a greater service between Cambridge (£24 billion ARM acquisition by SoftBank
Cambridge and Oxford, and also connect them to and Alibaba Group) and Bristol (£12.5 billion
Reading. This will ensure Reading remains a key acquisition of EE by BT) are ahead. Reading also
component in the regional and wider economy. performs well in the B2B market – lying third behind
Manchester and Edinburgh.
Leading target for investment This demonstrates that Reading has a significant and
The past 20 years has shown that Reading has the diverse offering for employees and exceeds the level of
ability to attract global companies. To support this, corporate investment activity in most major UK cities.
the commercial property market has responded by Overall, it will remain a leading corporate location.
Attracting investment Ranking third for both IT and B2B company investment since 2012, investment
in Reading exceeds the level of corporate venture capital investment activity in most major UK cities
£1,400
Corporate investment 2012-2017 (£m)
£3.3 billion
£1,200
Reading is 3rd
£1,000 for IT and B2B
investment
£800
£600
£400
£200
£0
Cambridge
Bristol
Reading
Edinburgh
Manchester
Oxford
Birmingham
Cardiff
Leeds
Glasgow
Key IT companies
Businesses providing services to other businesses (B2B): professional services, construction and transportation
Source Company data
savills.co.uk/research 3
DEVELOPMENT
Primed for city status
Reading may be meeting its current targets, but it must develop more living
and office space in and around the town centre to meet its potential as a city
O
n the face of it, Reading is achieving its The result is that locals are competing for housing with
housing targets. In the year to March 2016, large numbers of people who commute to the capital.
750 homes were added, up from 264 and 360
in the two previous years and above the Office supply needs to expand
town’s target estimate of 699. But with strong and There is clear demand for new office stock in the
growing employment, our research suggests that town centre, highlighted by interest in Thames
Reading needs many more than this target to reach Tower, R+ and The White Building.
its full potential as a city. A total of 110,000 sq ft had been let at these three
In the past few years, delivery has been boosted new buildings by the end of the first half of 2017.
by office to residential conversions in the town centre. Strong demand for new, high-quality office space
In the year to March 2016, 254 homes had been in the town centre has resulted in record rents. The
converted from offices, providing 34% of new supply. letting performance of this new stock is encouraging
The strength of office to residential conversion is and we forecast rents to reach £40psf by 2020.
a good indicator of rental demand for inner city For Reading to cement its status as the leading
stock, as much of this enters the buy-to-let market. office market in the south east and be recognised
However, office space for conversion is a finite as a regional city, more development in the town
resource and cannot be relied on for sustainable centre will be needed.
levels of new supply. Our analysis indicates a shortage of town centre
office space by 2019. As such, Reading may not be
Central Reading revitalised able to satisfy large requirements in the Thames Valley.
Many new homes built in the last three years have Occupiers here are more footloose than in other office
been in the town centre, evidence of the revitalisation markets and they will move if they can’t satisfy their
of this part of Reading. Here, recent sales have exceeded requirements in one market.
£500psf, much higher than the average of £385psf. For Reading to capitalise on demand from central
Compared with London, £500psf is relatively affordable London, it is crucial there is high-quality stock
and sits in the mainstream part of the market, where available in the town centre. It is unlikely central
there is a severe supply demand imbalance in the capital. London occupiers will consider out-of-town locations.
Prime rental office outlook Strong demand for new, high-quality office space in Reading
town centre has resulted in record rents. We forecast these to reach £40psf by 2020
Prime rents Average grade A rents
Maximum rent per sq ft per annum (£)
Source Savills Research
4 savills.co.uk/research
DEVELOPMENT
Residential supply Many of the new homes built in Reading in the last three years
have been in the city centre, evidence of the revitalisation of this part of Reading
Emmer
Green
Caversham
Tilehurst
Woodley
Lower Earley
Whitley
Key
Average house price Number of new build sales (three years to June 2017)
(year to June 2017) 1-10 10-20 20-40 40-60 60-80
Below £200,000
£200,000-£400,000
£400,000-£600,000
£600,000-£800,000
£800,000+
Source Savills Research using Land Registry
savills.co.uk/research 5PLANNING
Meeting growing
demand
Despite its strong tech economy, enviable location and transport links, Reading is
constrained by its housing stock. We highlight untapped potential both in town and beyond
T
o accommodate its growing housing need Build to rent is not just an urban phenomenon.
and emerge as a true city, Reading requires We have seen many successful family housing models
more homes of all tenures. These homes which use a build-to-rent delivery and funding
should meet a range of demands, including approach. Both Sigma and Mill have acquired house-
private rent, affordable, and open market sale. builder stock on mixed-tenure developments and
House prices, affordability, and demand for Help deliver family housing stock for the rental market.
to Buy, all point to the need for more mixed-tenure Housing associations are also delivering rented
developments. The delivery models of housing stock on large housing developments. This build-to-
associations such as L&Q and Places for People aim to rent solution will be focused around the delivery of
meet a range of housing need, from build to rent and professionally managed, good-quality family housing
shared ownership through to open market sale and that is less amenity driven and in locations where
affordable homes, and Reading needs to see more families want to live.
of this type of housing delivery.
Demand for Help to Buy
Private rent on the rise As well as homes for rent, Reading is in desperate need
With strong economic growth and good transport of homes for open market sale. With the average house
links to London, there is high demand to support costing nine times annual earnings (up from six times
this tenure for rented housing in Reading. in 2013), it has become less affordable for local people.
Almost one-third of households rent privately in First-time buyers have been supported by Help to
Reading, which is significantly above the national Buy. They make up 93% of those using the scheme in
average and more in line with central London, which Reading since it was introduced. In the town centre,
points to the need for more rental supply. Rents have new supply has sold to investors leaving little stock for
been growing despite an increase in stock following first-time buyers. Additional supply is needed to meet
the rise in stamp duty in 2016. The success of the the local owner-occupier market.
office to residential conversion market also indicates
demand for urban living and rented housing.
Driven by international occupiers and the push
into the tech economy, we believe there is untapped Almost one-third of households rent
demand from ‘urbanite techies’ for purpose-built
rented housing. As yet, Reading has not seen the privately in Reading, significantly
delivery of any new build-to-rent schemes, while above the national average and
there is a strong market for this type of product
in the town centre. This group is likely to be young more in line with central London
and prefer to rent.
6 savills.co.uk/researchPLANNING
Beyond the boundaries There is the potential to deliver more than 20,000 homes in
and around Reading, but it means working collaboratively with neighbouring authorities
South Oxfordshire Emmer Green
and Playhatch
250
homes
Reading
Theale
and Calcot
300
Whitley
homes
2,000+ 450
homes homes
Winnersh
South of the
M4 area
West Berkshire Grazeley* 15,000 3,000
homes* homes Wokingham
Key AONBs and open green space Green belt Flood risk area Surface water area A and B roads
Motorways Key rail stations * Proposed Under construction Detailed consent In planning
Number of homes 200 400 600 800 1000 Planned and/or consented homes
Source Savills Research
Locating new land for new homes areas could provide 5,000 more homes Most of these areas cross into
To grow into a city, Reading needs more in the area. A further three smaller sites; neighbouring districts. Although West
space – not just urban sites, but also to Emmer Green & Playhatch, Theale and Berkshire, Wokingham and Reading
expand outwards. However, the district Calcot and Winnersh have sites for 1,000 have enough land in their five year land
of Reading is constrained by flooding risk to the north, west and east of the town. supply, South Oxfordshire does not. This
and areas of outstanding natural beauty Grazeley is a proposed garden district can work with Reading to provide
(AONBs). If it is to deliver significantly more settlement which could accommodate up homes to the north of the town subject to
homes, Reading needs to look beyond to 15,000 homes to the south of Reading. significant infrastructure improvements.
its boundaries. This means working with It is at a very early planning stage and, To unlock large-scale development north
neighbouring authorities. if progressed, is a potential option for of Reading, new or improved transport
There are two key areas for the meeting the housing needs of the West links will be needed. Areas to the south
development of new homes: Whitley and of Berkshire Planning authorities that can access the M4, but the congestion
South of the M4 area (which includes comprise Wokingham Borough, West on the A34 into Reading will need to be
Shinfield Meadows). Between them, these Berkshire and Reading Borough Councils. resolved to accommodate the new growth.
savills.co.uk/research 7Reading in numbers
9x 1/3 £33.50psf
Price of the average Reading house The proportion Average grade A rent
compared with average annual earnings of private rental
households in
Reading. This is 79,400
34% 93% well above the Number of
The proportion of The proportion national average office-based
new build housing of first-time employees
delivered through buyers that have 5,000
office to residential
conversions in the
used Help to Buy
since it was
Number of new 3rd
homes being built Reading is in the
year to March 2016 introduced at two sites on the top three UK cities
outskirts of Reading for both IT and B2B
– Whitley and South
£64,076 of the M4 area
sector investment,
since 2012
Gross value added (GVA) per employee
in Reading. For Bristol, Birmingham
and Manchester, GVA is £52,860, £322,000 £640m
£49,463 and £47,487, respectively The average house Office investment
price in Reading volume in 2016
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Research
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020 7016 3882 020 7016 3779 020 7409 8768 020 7409 8738
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Reading office
Phil Brown Rebecca McAllister Ed Keeling Abby Malton Andrew Cox Jon Gardiner
Head of Office Head of Planning Head of Development Head of Residential Account Manager Office Agency
(Planning) 01189 520 534 01189 520 507 Development Sales (Estates team) (Greater London & South East)
01189 520 506 rmcallister@savills.com ekeeling@savills.com 01189 520 523 01189 520 512 020 7409 8828
pbrown@savills.com amalton@savills.com akcox@savills.com jgardiner@savills.com
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