Tenant demand for office space from professional and financial services occupiers is showing signs of growth across UK regional cities, according to CBRE.
Despite the UK's return to recession in the first half of the year, CBRE's Regional Offices Marketview reveals that this improvement is due to a diminishing supply of available prime space, as well as a significant number of occupiers facing lease expiration in 2014/2015, and who are now beginning to consider alternative office accommodation as a result.
Across the UK, the report reveals a divergent picture for the regional office markets. Cities such as Aberdeen, Edinburgh and Leeds have all benefited from robust occupier demand helping to push take-up above the long term average by around 15%.
However, other areas have suffered as a result of the ongoing economic instability and exposure to the Eurozone crises with the subsequent resistance of corporate occupiers to commit to new premises. Birmingham and Bristol are two such locations, where take-up in the year to date is tracking at or below average.
BlackRock's commitment to take 80,000 ft² (approx. 7,432 m²) at Edinburgh's Exchange Place 1 in June represents the largest leasing deal witnessed in the city since 2008, and a major boost to the Edinburgh market, already bolstered by Brewin Dolphin's earlier decision to lease 47,800 ft² (approx. 4,440 m²) at The Atria.
In terms of available stock across all Regional markets, second-hand space continues to dominate central city supply, accounting for 80% of total availability. There remains a severe lack of debt funding to support speculative development, and as a result, grade-A office stock availability is dwindling across the UK. The development pipeline over the next three years will deliver just 0.4 million ft² (approx. 37,160 m²) per annum, just 20% of the annual average since 2000 of 1.8 million ft² (approx. 167,220 m²). Already over half of this development stock has occupier commitment.
Ashley Hancox, Head of Regional Office Agency, CBRE said: "Although cities throughout the UK are still experiencing the repercussions of widespread European uncertainty, there are certainly some indications that mature regional leasing markets are improving.
"Sizeable deals in Southampton, Aberdeen and Leeds have been driven by pent-up occupier demand for the best quality space and we are aware of a number of major corporates who face lease expiries in the next two years. These requirements will alleviate the pressures felt as the UK moves out of recession. Manchester in particular looks set to perform well in the second half of the year, as a number of large requirements come to fruition."
In terms of prime regional office investment, CBRE noted that initial yields have drifted out to historically high levels and that there is an increasing geographical differentiation between the initial yields being paid according to location.
Rob Silvester, Head of Regional Capital Markets, CBRE, said: "As prime regional office yields continue to drift, we are seeing the start of renewed interest from UK institutions that had their interest piqued by initial yields being at historically high levels."
Source: FTI Consulting