The Government Property Unit (GPU) leased more office space in the first quarter of 2018 than any other occupier and contributed to the public sector accounting for 30% of all regional take-up.
Cushman & Wakefield’s Marketbeat report, which monitors CBD office space, revealed that despite the GPU lettings, the regional office market had a moderate leasing performance with only Glasgow, Leeds and Manchester recording take-up in excess of the five-year Q1 average.
In total, 1.33m sq ft was let; the largest letting was the GPU’s acquisition of 187,000 sq ft ft at Atlantic Square in Glasgow followed by the letting of 157,000 sq ft at Three New Bailey in Manchester also by the GPU.
The report revealed that whilst the supply of regional office space remained stable, there remains an acute shortage of grade A space which has been exacerbated by a lack of speculative development. Of the 4.8 million sq ft of office space currently under construction, 40% is already pre-let or under offer.
Take-up in Leeds city centre reached just under 192,000 sq ft which was the strongest first quarter leasing activity since 2013. The largest transaction signed in Q1 2018 was to law firm, Walker Morris who committed to almost 76,000 sq ft at 33 Wellington Street.
Grade A take-up fell sharply quarter on quarter to the lowest three-monthly volume for more than fifteen years, as occupiers sought more cost-effective space. There are currently no new developments underway in Leeds city centre with the only scheme due to complete during 2018 is CBRE Global Investors refurbishment of 7 Park Row.
Ross Firth, Associate at Cushman & Wakefield in Leeds said: “Leeds had a strong start to the year with Q1 2018 take-up figures exceeding the 5 year average. This is certainly positive off the back of a record breaking year for Leeds in 2017.
“We will continue to see the supply of Grade A accommodation reduce as a number of live requirements in the market, seek to agree terms. There is no new Grade A accommodation currently under construction, with only a limited number of speculatively refurbished schemes due for completion in 2018 & 2019. As such we expect to see rental growth for refurbished Grade A accommodation and anticipate prime rents to increase further when new build accommodation is delivered or committed to.”
Elaine Rossall, Head of UK Offices Research & Insight at Cushman & Wakefield, said: “The underlying strength of the regional market bodes well for the next 12 months and demonstrates the general resilience of the regional office markets in the face of wider economic challenges and political uncertainty.
She continued: “We anticipate that leasing volumes are likely to be moderate during 2018 and large-scale transactions are likely to be few and far between with many requirements already satisfied. The exception is likely to be requirements from the public sector which will continue be a key driver of leasing activity in the next 12 months.”
Scott Rutherford, Partner and National Head of Offices at Cushman & Wakefield added: “Occupiers are pushing for greater flexibility, in terms of both physical and space and in lease terms which will influence demand in 2018. We expect the flexible working sector will continue to grow in core cities this year, as operators turn their attention to new markets.”
Cushman & Wakefield’s research predicts that there will be further growth in headline rents across key regional cities but the level of increase will be at a slower pace than seen recently.
