Regional Office Market Outlook

In a recent 2016 reporty by Savills, the consultant points to a trend for demand for prime office space in regional cities to increase dramatically during 2016.

Savills say that demand is driven by local businesses, start-ups, and the rise in ‘northshoring’, where London costs are driving relocations to regional markets.

Manchester, Birmingham, Cardiff and Edinburgh saw increases of 39%,105% 41% and 44% respectively, above their ten year average annual office take-up, with Birmingham and Cardiff having record years. Bristol is tipped to see the best lettings growth in 2016.

Metropolis has seen a 20% rise in the number of regional city office requirements between 2014 and 2015.

Deutsche Bank’s move to Birmingham and HSBC pre-let of 210,000 sq ft at Birmingham’s new 2 Arena Central scheme are examples of ‘northshoring’ with companies moving staff away from London to cheaper office space in regional cities. In addition, the number of local pre-lets in regional cities is growing, such as Squire Patton Boggs’ pre-let on 27,500 sq ft at No.1 Spinningfields in Manchester and Cirrus Logic’s 70,000 sq ft pre-let at Quartermile 4 in Edinburgh.

Tenant demand has re-ignited speculative office development in regional cities, with construction up 130% on a year ago.

Savills concludes that UK wide activity points to increasing demand from sectors such as TMT which is estimated to see a c.700,000 of jobs created in the regions over the next 10 years. More office requirements from public sector agencies and Central Government are also expected

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London Lettings – February 2016

Central London office lettings picked up in February 2016 with 984,000 sq ft of office space transacted in 43 deals in during the month. The figure represented a 20% increase on the January total, but below the recent average of 1m sq ft per month.

February was characterised by 11 office deals over 20,000 sq ft, including Capita at the Copyright Building, W1; Aecom at Aldgate Tower, E1 and Zoopla at Cooperage Building, SE1.

Business services again topped the table of lettings by sector, helped by Capita’s 94,000 sq ft pre-let and more lettings to serviced office operators, this was followed by professional services boosted by Aecom. Media and property-related sectors are also performing well. Office deals under offer is holding at around 2.7m sq ft, with notable activity in Docklands and Southbank.

By area, the City accounted for only just over a 68pc of the floorspace let in February. The West End had a quiet month, aside from the Capita deal, but the Southbank saw above average activity. Current London office demand is calculated to be around 4.1m sq ft in the City and 3m sq ft in the West End.

The volume of grade A (newly built or refurbished office space) let during the month reached 338,000 sq ft (34% of the total), as transactions for newly developed or refurbished space continue to take a slightly smaller part of the total than recent months.

Some 7m sq ft of new office space is expected to complete in London in 2016. Further details of schemes and pre-lets on Cityoffices.net.

Leeds Lettings Surge

A recent office market report on Leeds by Colliers International highlighted a surge of letting activity towards the end of 2015. Office take-up for the Q4 2015 reached 267,000 sq ft (just below the quarterly record) and the total of office deals for 2015 reached over 680,000 sq ft. Around 60% of 2015 was Grade A newly constructed or refurbished space.

The most high profile transactions in 2015, most of which were tipped in advance by Metropolis, included Sky’s 97,000 sq ft deal at Leeds Dock; Addleshaw Goddard pre-let 51,000 sq ft at 3 Sovereign Square and PWC preletting 50,000 sq ft at Central Square,. Legal and financial services accounted for 33% of take-up in 2015, followed by technology and media on 23%. Prime rents are around £27 psf and predicted to rise in 2016.

The Metropolis database reveals nearly 50 outstanding office requirements in Leeds including IPF, RSM and Jet2 with substantial requirements. In total, the fifty firms are currently searching for over 400,000 sq ft of office space in the city, with another 30 firms due to make decisions ahead of lease expiries in 2016 and 2017. Lease expiries are triggering 60% of current relocations.

The availability of grade A office space, newly constructed or refurbished, has fallen to a five year low at 5% and only 7.75 across all grades. More than 530,000 sq ft of new office space is due to be completed shortly including 6 Queen Street; Central Square; Sovereign Square and 6 Wellington Place. Manchester and Leeds have the two most active office construction markets in the UK outside London.

The five new build schemes in Leeds city centre are 30% pre-let with other pre-commitments in negotiation. A number of refurbishments are also underway such as 6 East Parade (45,000 sq ft) and Concordia Works (14,000 sq ft) . Looking ahead, Cadddick Developments has secured planning for a mixed use scheme at Quarry Hill, which will include 107,650 sq ft of offices and BAM have gained consent for another phase of Latitude.