According to Knight Frank’s latest ROMP report, pressure to spend among investors and evidence of the accelerating recovery in the occupier markets propelled Q3 turnover to its highest level since Q3 2007.
· Investment in the regional office markets reached £1.30bn in Q3, the highest seen in a single quarter since Q3 2007. Total volume for 2014 to date stands at £3.1bn, already eclipsing the annual total for each of the last six years.
· Manchester was a focus of investment activity, with two major transactions comprising Schroders’s purchase of City Tower, Piccadilly (£132m) and Legal & General’s purchase of 1 Piccadilly Gardens (£75m). However, Birmingham saw Q3’s largest deal, with M&G’s £140m purchase of Two Snowhill.
· Despite a substantial weight of money continuing to target regional office stock, pricing was broadly stable in Q3. Across the ten key regional markets, prime office yields held firm, with Birmingham and Manchester continuing to command a premium over the UK’s other core markets, at 5.25%.
· Meanwhile, the recovery in the UK’s key regional markets is proceeding apace. For the ten cities combined, Q3 2014 take-up was its highest in four years and 40% above the 5-year quarterly average.
· Aberdeen and Glasgow were the standout performers in Q3, despite the uncertainty surrounding the recent referendum. Aberdeen saw two substantial pre-lets, namely Aker at Phase 1 Aberdeen International Business Park (335,000 sq ft) and Wood Group at Site 38, Hareness Road, Altens (215,000 sq ft).
· Prime headline rents remain under upward pressure. Two markets saw headline rents increase during Q3, with Glasgow rising to £29.50 psf and Leeds to £26.00 psf.
Henrie Westlake, head of Leeds office, Knight Frank, commented
“Q3’s impressive turnover reflects an increase in buying opportunities, as some investors have sought to capitalise on significant price increases over the past 12 months. With evidence of rental growth returning, investor appetite is likely to focus more readily on well–located, short income stock where income can be enhanced through active asset management”.
David Porter, head of Manchester office, Knight Frank, commented; “Collectively, 2014 is set to be the most active year for the key regional markets since 2008. Aberdeen has already achieved a record year, while Manchester is certain to break the 1m sq ft mark for 2014. Rental growth is expected to take place across the majority of markets over the next 18 months, with new development completions securing higher prime rental levels in Bristol, Birmingham and Manchester”.
