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.

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European Office Markets Update

A recent report by CBRE on Europe’s office markets highlighted Madrid’s first quarter take-up was just under 100,000 sq m (1.1m sq ft) which was a major improvement on other recent first quarters. Analyst believe that demand is being driven by occupiers taking advantage of low rents in prime central locations with many small and mid-size deals recorded.

In Paris there were two office deals of 40,000 sq m (430,000 sq ft) each, together with a surge of HQ consolidation projects, taking the French capital’s take-up to 506,000 sq m (5.4m sq ft), a substantial improvement on recent quarters.

In London, rents increased, including the West End recording a 5% prime rent increase to £105 per sq ft per annum in the first quarter of the year.

Amsterdam and Munich also saw rents increases of 1.5% each over the same period, with both cities experiencing demand for grade A quality buildings. As a result, Munich has just 35,000 sq m of space available in the city centre with prime rents to stand 5% higher than 12 months ago at €33 per sq m per month.

In Barcelona, two large transactions of 9,000 sq m and 13,000 sq m boosted the market and the number of office deals per quarter is reaching 300.

In Dublin, there have recently been large office deals involving Facebook (11,000 sq m ), Deutsche Bank (10,200 sq m), Susquehannah (9,600 sq m) and William Fry (9,000 sq m).

This trend is not confined to the West of Europe with the Scandinavian cities of Oslo and Stockholm both recording prime rental growth of 5.2% and 2.3% respectively over the same period.

Metropolis has a large archive of European office deals