Following a record quarter at the end of last year, 2015 got off to a strong start, with regional office take-up 11% above the five year average in Q1, according to DTZ. This was the sixth consecutive quarter of above-average take-up, indicating ongoing occupier confidence in the major UK office markets outside of central London.
For the first time since Q2 2012, overall office availability increased in the regions, most notably grade A availability, which increased by over a third. This was driven by various speculative developments nearing completion in a sign of confidence on the part of developers, with over 1.3 million sq ft of speculative space due to be delivered in Manchester and Glasgow alone over 2015-17. Interest in these developments is high, with around a quarter of the space already prelet and DTZ expects further lettings ahead of completion.
Notable schemes include One New Bailey and Two St Peters Square in Manchester; and St Vincent Plaza, 1 West Regent St and 110 Queen St in Glasgow.
The recent increase is off a low base and most cities are still suffering from a shortage of availability. This is particularly the case for grade A stock, which has led to landlords taking a harder stance on incentives. Rent free periods have fallen 28% in the past year and headline rents are forecast to rise 8% on average over the next three years.
Ben Clarke, Head of UK Research at DTZ, said: “The increased speculative pipeline in regional UK office markets is good news for various key occupiers reaching lease events, but the total pipeline is still more than a third lower than completions during the pre-recession 2004-08 period. This strength in prime occupier markets is helping support investment demand, which eroded prime UK regional office yields by a further 20 basis points in Q1.”
Mark Holmes, Surveyor, Office agency at DTZ in Leeds comments:“Q1 2015 got off to a solid start with office take-up in Leeds just shy of 150,000 sq ft. This was split between 88,000 sq ft in Leeds city centre with 60,000 sq ft in the out of town market. It is expected that Q2 will be comfortably ahead of this figure with 55,000 sq ft already transacted to Addleshaw Goddard at 3 Sovereign Square and a further 65,000 sq ft in solicitors hands on other schemes, it is anticipated these will complete in Q2. We expect these transactions to put Leeds comfortably ahead of the 10 year average at the half year.
“The standout letting in Q1 was to the FDM Group who took 17,159 sq ft at 1 Whitehall Riverside on an unbroken 10 year term. This confirmed a prime rent of £26 per square foot, on a refurbished building, which we expect to improve given the continued demand for Grade A space coupled with the diminishing supply of less than 100,000 sq ft.
He added: “Given the reducing availability and continued demand we see landlords holding out for longer lease lengths, and rental incentives falling. We expect this to continue until speculative development is delivered in 2016, of which the majority is likely to be let at practical completion.”
