Refurbishment change

A recent report from Savills highlights the changing nature of office schemes in regional cities.

Rising construction costs and slim margins are pushing developers towards refurbishments and the new trend is for a higher quality of refurbishments according to Savills. Nearly 40% of the pipeline of office schemes in regional cities will be delivered in the form of refurbishments.

A sustained level of demand for space in many of the regional cities alongside a lack of new office schemes, is boosting demand for refurbished office space. Landlords are turning to refurbishments to capture lettings from professional occupiers including lawyers, accountants and engineering firms.

As an example, Helical’s ongoing refurbishment of Churchgate House in Manchester which has transformed the building from part-occupied and unattractive to now being fully let. Occupiers have been attracted by a new reception incorporating touch down space, collaborative working areas and a high quality cafe.

Aviva is refurbishing 11 Portland Street, Manchester, which will provide single floors of up to 20,000 sq ft. The major refurbishment incorporates an entirely new principal reception area which has been repositioned to the corner of Portland Street and Aytoun Street.

Savills expect Bristol to be the next city to see a step change in demand for refurbished office space, driven by both a shortage of new build office space.

Metropolis has published business leads on 160 planned office schemes in London and regional cities over the last six months including details of developers and architect contacts, as well as timescales and any pre-lets. In addition Cityoffices.net includes details of all pipeline schemes, with full contact names and numbers.

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The Magnificent Seven

A recent report from Savills reveals that for a fourth consecutive year, UK regional city office take-up has surpassed the long term average of 9.1m sq ft. Total take-up in 2016 reached an impressive
9.6m sq ft, despite a year of political uncertainty.

The final quarter of regional office take-up in 2017 reached 2.4m sq ft, the strongest quarter since Q2 2015. Roughly the same level of occupational demand was recorded during the first half and second half
of the 2016, with no post referendum slowdown evident.

The most active of the seven major UK cities in 2016 were Bristol and Cardiff, which recorded take-up improvements of 42% and 10% on 2015’s levels respectively, with Cardiff achieving its highest level of take-up in 15 years. A key driver of occupational demand in these cities was the Government Property Unit (GPU) requirements for consolidating public sector bases into regional hubs. Savills expect the GPU to be the key contributor to acquisitions over 100,000 sq ft in 2017 in cities including Birmingham, Manchester, Leeds, Edinburgh and Belfast, during 2017.

The most active business sectors during 2016 were the insurance and financial services sector, accounting for 1.2 million sq ft (15%) of space taken, which marked a record year. Key deals include: Swinton
Insurance taking 165,000 sq ft at 101 Embankment, Manchester, whilst MotoNovo Finance took 72,000 sq ft at One Central Square, Cardiff.
The tech sector remained an important contributor to take-up during 2016 and accounted for 20% of the number of transactions. This sector has traditionally contributed to the smaller end of the market, but also included Co-op Digital acquiring 45,000 sq ft of accommodation in Manchester, while Micro-chip designer, Cirrus Logic’s 70,000 sq ft letting at Quartermile, Edinburgh marked the largest regional tech deal last year. Edinburgh witnessed the highest proportion of tech take-up of all the UK cities.

Metropolis ran 53 medium and large office requirements for Birmingham in 2016, totalling 1.4m sq ft; the totals for other cities were Bristol 66 requirements and 1.6m sq ft; Cardiff 35 requirements and 1.1m sq ft; Edinburgh 65 requirements and 1.5m sq ft; Glasgow 51 requirements and 1.4m sq ft; Leeds 74 requirements and 2m sq ft; Manchester 90 requirements and 2.5m sq ft.
A shortage of Grade A floorspace in city centres,  prompted occupiers to look out of town as total fringe/out of town take-up reaching 2.8 million sq ft, eclipsing the record level set during 2014. Occupiers were also attracted out of town offices due to availability of larger floorplate stock and cheaper rents, particularly in the Manchester and Glasgow markets. Glasgow was boosted by the University of the West of Scotland’s 225,000 sq ft pre-let of the Eco Campus.

Overall, 44% of the 3.6m sq ft of regional office space currently under construction across the UK regions has been pre-let. Examples include PwC’s part pre-let of One Chamberlain Square in Birmingham
There are 8 million sq ft of known lease expiries over the next five years, there also remains underlying demand for new space, with the likely strongest performers for 2017 predicted to be Leeds, Cardiff and Bristol. There is a shortage of Grade A space, particularly in Bristol and Manchester. Top regional rents remain low relative to Central London.

The Metropolis view is that demand is holding up well in regional cities with 130 new requirements added to the database for the seven largest cities outside London in Q1 2017.

Cityoffices – A February 2016 Taster

Below is the February 2016 taster for http://www.Cityoffices.net – the sister leads provider to the market leading Metropolis Property Research.

With the office construction sector booming in London (current survey work by Cityoffices shows the number of active London schemes to be nearly 100) there is a huge volume of tenders being sought and awarded as every role from architects, planners and engineers to service consultants, letting agents and acoustic consultants are being appointed on a daily basis.

Looking back over February 2016 this Cityoffices bulletin looks at recent news of some of the schemes (there are dozens of applications and over 200 planning consents in the pipeline) which have progressed in the last month and some of the schemes which developers are likely to progress in the next 2-3 years. Upto 25 London stories are posted each month. The London news stories and many regional updates in February, are backed up with full project details, including teams and contact names,where appointed, on the database. This month included:

In London:

  • A consent for a refurbishment on a 200,000 sq ft City of London building;
  • A Midtown planning consent to form a 90,000 sq ft scheme;
  • A new application for a 20,000 sq ft office refurbishment in the West End;
  • A new scheme at a site on London’s Southbank;
  • A pre-let of an under construction office building in London, SE1;
  • A full office deal analysis for January 2016, including details of a wide range of recent lettings.

Outside London:

  • Construction start on a 260,000 sq ft Birmingham scheme;
  • A new application for a site in Bristol, where work could start this year;
  • A refurbishment underway of a 50,000 sq ft Cardiff office building;
  • News of some lettings agreed at a just completed scheme in Glasgow;
  • Construction start on a new office block in Edinburgh;
  • Progress on a major Leeds office refurbishment due for summer 2017 completion;
  • Application for a second phase at a fully let Manchester office scheme;
  • A Newcastle scheme secures a tenant

These are just a sample of the many office projects that Cityoffices reports on each month and backed up with full histories and contact names and numbers where available. No other information provider can match a fraction of Cityoffices’ coverage.

If you would like to know more about annual Cityoffices subscriptions from only £750 – email Andy King at andy@metroinfo.co.uk

The 2016 UK Office Market Outlook

A report out this week from consultant CBRE on the outlook for the UK office market in 2016, suggests that despite some slight economic slowing, that most office sectors will see further growth over the next 12 months.

The report forecasts that although central London will continue to be the major engine of UK office market growth, the pace of that growth will ease slightly in 2016, due to a softening of UK growth. The report suggests that a dip in new office completions in London in 2016 will push up rental growth, however an increased pipeline of completions in 2017 will give office tenants more choice in the medium term.

Outside London, the report suggests that the South East will see more activity in 2016, after a sluggish 2015. Recent, mainly pre-let driven, quarterly take-up records set in Bristol, Manchester, Leeds, Aberdeen and Birmingham are unlikely to be repeated and the churn of secondhand office space is likely to become the mainstay of regional office take-up again, albeit alongside a lower level of pre-let deals.

The report spotlights that the areas where office demand is currently highest include West London and Thames Valley. Central London demand remains around 10m sq ft. It also forecasts an increase in speculative office development in regional centres. Schemes are tracked on the Cityoffices website.

Current Metropolis statistics show close to 1,000 unsatisfied office requirements across the UK of 2,000 sq ft+. In addition, there are over 500 lease expiries approaching in London alone, where companies have yet to make up their minds on whether to stay or go.

Based on similar audits of office requirements in recent years, office demand looks stronger than for a number of years.

Metropolis Office Requirements – H1

Over 450 companies vie for London space

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Metropolis research identified over 17m sq ft of UK office demand in the first half of 2015. Just over 9.2m sq ft of this demand was for office space in Greater London, with over 450 companies searching for London space. In the rest of the UK Metropolis uncovered 400 requirements for new space representing 8.1m sq ft of office demand.

Central London office demand reached 8m sq ft, 3.8m sq ft (47.5%) of which was focused on the City of London. EC2 was the most popular postcode for companies planning a move,  with 1.4m sq ft of demand emerging in H1.

A significant proportion of total City of London demand (11%) came from two new law firm requirements, each firm looking for 200,000 sq ft. A new 150,000 sq ft requirement from an insurance group was also worthy of note. Demand from the banking and finance sector reached 1m sq ft, 26% of total City of London demand.

Demand for space in the West End, where rents can reach £125 psf, hit 1.8m sq ft. The largest West End requirement (150,000 sq ft) came from a social media group looking for offices in SW1. Just over 400,000 sq ft of office space (26% of total demand) was required by the banking & finance sector, 79% of which (315,000 sq ft) came from hedge funds and private investment firms.

Mid Town office demand reached 0.9m sq ft, pretty evenly split between WC1 and WC2. About 100,000 sq ft of Mid Town demand came from the technology sector and 90,000 sq ft from the media sector. Demand from law firms was just over 120,000 sq ft and demand from the banking and finance sector totalled 110,000 sq ft.

The largest office requirement in the South Bank (SE1) was a 140,000 sq ft search by an engineering and construction firm. Other requirements of note include a US insurance firm switching a 60,000 sq ft search from Maidenhead to London SE1, and a TV Broadcaster looking for 30,000 sq ft to house its news department.

Two big requirements dominated demand for office space in the Docklands: a German investment bank back office requirement for 350,000 sq ft and an information company requirement for 300,000 sq ft, with a sub-let mooted.

 

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The Top 5 Regional Cities

Manchester – The largest requirement, 400,000 sq ft, was a search by a government department considering space near Piccadilly Station in Manchester. Just over 250,000 sq ft of Manchester office demand came from the legal sector and 300,000 sq ft of demand was attributed to the insurance sector.

Edinburgh – Similar to the picture in Manchester, Edinburgh demand was dominated by a large government requirement for office space (300,000 sq ft), although this requirement could move to Glasgow. In terms of private sector demand, notable requirements included a 100,000 sq ft search by a US Bank and two significant searches from law firms seeking a move in central Edinburgh, one for 50,000 sq ft and the other 30,000 sq ft. There was also significant demand from the accountancy sector, with four firms searching for just over 130,000 sq ft.

Birmingham – A retail bank was linked with the largest office requirement in Birmingham: 170,000 sq ft,  a search now satisfied by space at Miller Developments Arena Central scheme.  Other significant requirements include a potential 100,000 sq ft search from a law firm and a 50,000 sq ft search from a business education group.

Reading – The largest requirement for Reading offices came from a network broadcaster looking for 150,000 sq ft, closely followed by a utility company searching for 140,000 sq ft. Both requirements also consider other Thames valley locations such as Bracknell, Farnborough and Slough.

Bristol – Bristol office demand was dominated by insurance company requirements, with the sector accounting for 56% of total demand (280,000 sq ft). Other notable requirements include an 80,000 sq ft search from a Bristol based law firm planning to combine two of its offices (which may now be a refurbishment and extension of the existing building) and an engineering group searching for 25,000 sq ft.

 

Top Ten Cities (Excluding London) by H1 Office Demand

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Copyright Metropolis Property Research Ltd 2015

 

 

Manchester Spotlight

Recent research on the Manchester office market by GVA, points to a rising demand for office space in the city. After a record 1.3m sq ft of office take-up in 2014, there were deals totaling 320,000 sq ft in the first quarter of 2015, including lettings to PWC, EY, Bupa, Trowers Hamlyn, Home Office (UK Visas), Citation and Rental Cars.

The future of office demand in Manchester is looking bright with Metropolis tracking up to 50 active searches in Manchester, including requirements by Freshfields, Shoosmiths and Aviva. Research by Metropolis has revealed that the largest sector for office demand in the city comes from professional services firms (accountants, law firms, consultants etc); this is followed by business services, financial services and media. Metropolis is also tracking 150 upcoming lease expiries in Manchester over the next two years, many of which could result in searches. Local agents also point to a number of inward investments and branch office openings into the city. As a result prime office rents have risen from £30 psf to £32 psf in recent months.

The demand upsurge has prompted a new wave of Manchester office construction, which now encompassess 850,000 sq ft of office space underway in the city. New office scheme starts include the 267,000 sq ft No 1 Spinningfields following a 50,000 sq ft pre-let to PwC plus One New Bailey (125,000 sq ft), 101 The Embankment (165,000 sq ft), The Cotton Building (165,000 sq ft),  First Street (150,000 sq ft) and Two Peter’s Square (161,000 sq ft). However most are at an early stage, as a result there are no major completions until the second half of 2016.

In conclusion, recently released statistics show a healthy 5% per annum increase in Manchester private sector office employment between 2009 and 2014, which is greater than London. Future GDP growth is forecast at 3.5% per annum, better than the UK average at 2.8%. The general consensus is that the growth in the market and the age of a proportion of existing buildings, means that there are up to 1m sq ft of ‘grade A’ office requirements in Manchester, together with a number of longer term strategic requirements.

Office Forecasts for 2015

Lambert Smith Hampton has published its latest ‘UK Vitality Index’ and has identified Guildford in Surrey as the location most likely to see expansion in 2015.

Guildford has replaced Cambridge as the destination best placed to support economic expansion over the next 12 months.

Metropolis has over 20 live Surrey office requirements added this year, compared to a dozen in Cambridge.

The results are based on the analysis of 20 datasets, with each location ranked within six separate categories: most productive, fastest growing, most entrepreneurial, best educated, greenest and most affluent.

Overall, the top 10 towns and cities in the 2015 UK Vitality Index are:

Guildford
Cambridge
Brighton
Reading
Warwick
St Albans
Milton Keynes
Oxford
Edinburgh
York

Oxford and York are both new entries into the top ten boosted by greater corporate investment and an increase in the number of recent business start-ups.

The report also identifies Manchester, Northampton and Derby as the most significant improvers over the past 12 months.

Metropolis would rank Edinburgh and Manchester as the locations with the most live requirements, with 40 new searches in Edinburgh in 2014 and 42 in Manchester in the last 12 months. With over 80% of UK GDP generated outside London and predictions of a revival in the regions next year, it is likely these towns and cities will prove increasingly important in 2015.