The UK office market has had a strong start to 2013, with leasing volumes well above long term averages, according to latest research from CBRE.
Early analysis of data for the first half of the year indicates that a total of just over 3.8 million sq ft has been acquired for occupation across the South East and nine cities monitored, an increase of 16% on the second half of 2012. 2013 has the potential to be one of strongest years for occupier activity since the recession started.
Within the South East the last six months have seen the second highest volume of take-up for a half year since 2008. There is now a particular focus on the best quality space with strong interest in a number of new developments in the West London area likely to lead to a number of high profile deals over the second half of the year. Current demand pattern’s reinforce Blackstone’s decision to proceed with the speculative construction of their latest and largest phase at Building 7, Chiswick Park which will provide just over 333,000 sq ft on 12 floors and is due for completion in December 2014.
Outside of the South East the regional cities have had a strong boost, with take-up 22% higher than the long-run average. In particular there have been strong upturns in take-up during the first half in Leeds, Edinburgh, Manchester and Bristol. Leeds in particular stands out in the first half with deals over 60,000 sq ft involving a pre-let to KPMG and deals on existing, previously unoccupied space by Dart Group and Yorkshire Building Society. In Birmingham Deutsche Bank have committed to a re gear of 68,000sq ft at 1 Brindleyplace and are believed to have leased a further 134,000sq ft in 5 Brindleyplace, from Hines Moorfield.
Andrew Marston, Director of UK Research, commented “Stronger regional economic growth prospects, particularly within the service sector, is now beginning to be reflected in an upturn in enquiries and deals done in the South East outside Central London and many of the UK’s largest cities. Crucial to this renewal has been the return of larger transactions.”
Demand for Grade A space across all markets continues to squeeze supply with a restricted completion pipeline. Only two major schemes completed in the first half of the year, 2 Snowhill in Birmingham and Atria in Edinburgh, both of which are already part pre-let. Many of the regional markets continue to have significant quantities of poor quality secondary / tertiary stock, which for the English cities, may provide an opportunity under the Government’s new permitted development rights for conversion from office to residential, though this too depends on sales pricing and the demand for rented stock.
Andrew Marston added “The consequence of the improvement in market conditions is that supply levels, particularly of Grade A space, are declining, with most cities now having less than 500,000 sq ft remaining and limited choice for those seeking the best quality space.”
“Nevertheless, there are opportunistic developers looking to push the button on speculative development in order to take advantages of future Grade A supply shortages. As a result new schemes have started in both Bristol and Glasgow, with smaller refurbishments being considered elsewhere.”