Take-up across 11 regional markets rose to almost 1.38 m sq ft, the highest since Q3 2012 and 16% up on Q1 2013. Knight Frank’s research shows that the Birmingham market experienced a 128% increase in take-up during H1 2013, compared with H1 2012.
The quarterly ROMP research shows that key markets, including Birmingham, Leeds, Manchester, Aberdeen and Bristol, all had remarkable half year take-up levels, with an overall 1.8% increase compared with H1 2012.
Occupier demand is relatively robust, with a growing list of sizeable requirements, mainly from the big occupiers in the legal and financial sectors. While there was a healthy level of activity, similar to previous quarter, transactions continued to be predominantly characterised by smaller deals.
Ashley Hudson, head of Knight Frank’s Birmingham office, said: “Indications earlier in the year of increasing occupier activity in Birmingham have been borne out in recent months, with a significant jump in take-up in Q2.
“Sentiment is undoubtedly improving and leasing volumes for 2013 should reach a five-year high, with major corporates clearly back in the market. Deutsche Bank has finally committed to Five Brindleyplace, taking the full 134,000 sq ft at the Hines and Moorfield redevelopment and relocating around 2,000 people to the city from London.
“Birmingham’s take-up amounted 223,611 sq ft – almost double the Q1 total and the highest quarterly figure since Q3 2010. However, the Deutsche Bank deal accounted for around 60% of this and with Five Brindleyplace now taken, this leaves Two Snowhill as the only new build office option in the city centre. Indeed, availability has fallen sharply and there are questions for the city as to the source of the next wave of supply.”
Across the 11 markets, availability of Grade A space slipped to 2,831,975 sq ft in Q2 2013 – 15% down on Q2 2012. In Birmingham, a 44% fall in availability has been recorded, which reflects the continuing erosion of Grade A space due to the absence of new completions/development activity.
Headline rents and incentives have been largely stable, while further significant growth in regional headline rents is unlikely over the remainder of 2013, net effective rents may harden as Grade A supply continues to decline.
Investment turnover for offices outside London and the South East was subdued in Q2. The latest figures from Property Data suggest c.£346m turnover, 42% down on Q1.
Nonetheless, strong investor interest in prime office stock in the regions has been maintained, despite a shortage of suitable product (prime and long-income assets) remains a major barrier to activity. In the secondary spectrum, investor interest is highly selective, confined to good quality secondary stock where there is potential to add value through asset management.
Generally, prime yields were largely stable in the regional cities, albeit Q2 saw signs of improved sentiment for prime stock. Aberdeen, Birmingham, Bristol, Cardiff, Edinburgh, Glasgow and Leeds saw prime yields move in by 25bps.