Regional cities’ take-up increased 63% in Q2, with most markets recording an increase in lettings, according to the latest DTZ Property Times UK Regional Offices report. This increase was mainly due to large deals in Cardiff, Leeds and Nottingham.
The main driver of the increase was a 190,000 sq ft pre-let, following the granting of planning permission to Admiral Insurance for a new HQ in Cardiff, to be ready for occupation in 2014. Other notable rebounds from a quiet Q1 include Leeds, where take-up was at its highest for almost four years, and Nottingham, where the increase was due to a 59,000 sq ft transaction by legal firm Browne Jacobson.
The report reveals the lower-sized end of the market is still most active and there is an ongoing strengthening of demand from smaller professional firms. Some of these firms remained on flexible lease terms during the downturn, and are now seeking to take advantage of the current market conditions to upgrade to better quality space as they reach a lease event.
Regional cities’ availability remained unchanged at 13.5 million sq ft in Q2. Grade B space increased slightly as more space became formally marketed, but Grade A availability continued to be eroded by take-up. It fell to below four million sq ft in Q2 for the first time since Q4 2008.
Alex Easton, Associate Director at DTZ in Cardiff, commented: “Although the office market will remain difficult for the remainder of 2011 and into 2012, the Cardiff market remains resilient. This is reflected by better than expected Q2 take-up, which included 46,320 sq ft let to Serco / Listening Group at Hodge House on St Mary Street. This trend is likely to continue into Q3, with a number of sizeable transactions in solicitor’s hands, including close to 10,000 sq ft at Robert Hitchins’ Fusion Point 2 and Inexus close to committing to JR Smarts’ Driscoll Buildings at Capital Quarter, Tyndall Street.”
He continued: “Prime grade A city centre availability continues to diminish following the recent 6,500 sq ft letting to Brewin Dolphin at 5 Callaghan Square. With no new development starts in the pipeline, incentive packages will now fall back and opportunities will present themselves for those schemes now facing limited competition, including quality refurbishments.
“A further highlight this quarter was planning approval of Admiral’s new HQ which is likely to ‘spike’ 2011’s total city centre and out of town take up to a record level of around 600,000 sq ft, although the underlying figure is likely to be in line with 2010, at approximately 420,000 sq ft.”
The report highlights that the market continues to be changeable and conditions are set to remain challenging for landlords. However the market presents opportunities for incumbent tenants to take advantage of prevailing market conditions as and when lease events occur.
Martin Davis, Head of UK Research at DTZ said: “Total annual take-up volume is forecast to be slightly lower than in 2010. This is due in part to the current phase of the lease event cycle for some markets, and an absence in 2011 of the exceptional number of large requirements satisfied in recent years. This last factor stems in part from the fact that the Grade A floor space to accommodate such transactions is becoming more limited.”