The Government Property Unit (GPU) leased more office space in the first quarter of 2018 than any other occupier and contributed to the public sector accounting for 30% of all regional take-up.
Cushman & Wakefield’s Marketbeat report, which monitors CBD office space, revealed that despite the GPU lettings, the regional office market had a moderate leasing performance with only Glasgow, Leeds and Manchester recording take-up in excess of the five-year Q1 average.
In total, 1.33m sq ft was let; the largest letting was the GPU’s acquisition of 187,000 sq ft ft at Atlantic Square in Glasgow followed by the letting of 157,000 sq ft at Three New Bailey in Manchester also by the GPU.
The report revealed that whilst the supply of regional office space remained stable, there remains an acute shortage of grade A space which has been exacerbated by a lack of speculative development. Of the 4.8 million sq ft of office space currently under construction, 40% is already pre-let or under offer.
Q1 2018 take-up volumes in Birmingham’s CBD totalled just under 148,500 sq ft, which is 6% below the five-year Q1 average but still ahead of the same period in 2017.
The largest transaction this quarter was to WSP, who leased just over 46,000 sq ft at The Mailbox. Supply of office space continued on a downward trend, contracting by 5% over the quarter. At the end of March, total supply stood at 1.29 million sq ft, which was down from 1.35 million sq ft at the end of Q4 2017.
There was just 450,000 sq ft of Grade A space on the market, which equated to less than one year’s Grade A take-up. This illustrates the lack of choice in the market, which has the potential to inhibit take-up activity.
Speculative development completions are expected to pick up from 2019, with just over half a million sq ft due to complete in 2019 and a further 400,000 sq ft in 2020.
Elaine Rossall, Head of UK Offices Research & Insight at Cushman & Wakefield, said: “The underlying strength of the regional market bodes well for the next 12 months and demonstrates the general resilience of the regional office markets in the face of wider economic challenges and political uncertainty.
She continued: “We anticipate that leasing volumes are likely to be moderate during 2018 and large-scale transactions are likely to be few and far between with many requirements already satisfied. The exception is likely to be requirements from the public sector which will continue be a key driver of leasing activity in the next 12 months.”
Scott Rutherford, Partner and National Head of Offices at Cushman & Wakefield in Birmingham added: “Occupiers are pushing for greater flexibility, in terms of both physical and space and in lease terms which will influence demand in 2018. We expect the flexible working sector will continue to grow in core cities this year, as operators turn their attention to new markets.”
Cushman & Wakefield’s research predicts that there will be further growth in headline rents across key regional cities but the level of increase will be at a slower pace than seen recently.