New research published by global real estate services firm DTZ reveals that occupied space in the UK office market is set to grow, despite the cuts to public administration jobs announced in the Comprehensive Spending Review.
DTZ forecasts that total UK occupied office space in the major markets will increase by 2 million m² by 2014. Strengthening demand from the recovering private sector will more than outweigh the effects of public administration job cuts on regional office markets.
The public administration workforce is expected to diminish by 11% between 2010 and 2014. DTZ calculates that this will result in 711,000 m² of office space becoming vacant across the major UK office markets. However, public sector office based employment is small, accounting for 19% of total UK office employment, compared to 81% private sector employment. As a result of employment growth in finance and business services, DTZ forecasts that the finance and business services sector office requirements will increase by 2.8 million m² by 2014, offsetting the public administration cuts and increasing total UK occupied office space in major markets by 2 million m² (6.8%) over the next four years.
DTZ assessed the relative vulnerability of UK regional office markets based on the level of public administration employment as a proportion of total office employment in each region and office based employment growth. Although the overall outlook for UK offices is positive, DTZ's research shows a degree of disparity across the UK.
The research reveals that the London, Bristol and Leeds markets will be least affected by the cuts. Although Central London has the highest concentration of civil servants, the dominance of financial and business services means that this vulnerability will be more than offset by increasing demand from the private sector. Bristol and Leeds benefit from a below-average proportion of public administration employment and also expect to see stronger growth in finance and business services employment.
By contrast, those areas where public sector occupancy represents a particularly high share of the office market stand to be hit hardest by the cuts. Among the major office markets, Newcastle, Cardiff and Birmingham have a relatively high ratio of civil servant jobs and expect to experience weaker finance and business services employment recovery, putting them at greater risk.
James Grierson, Head of Public Sector at DTZ, comments: "Whilst the research paints a more positive picture for regional office markets than many have speculated, it is likely that a proportion of accommodation released from the civil estate will not be suitable for reoccupation by the private sector. This will provide some opportunities for development but there may also be some localised blighting as secondary locations wait for a sufficiently large increase in values to make development viable."
Tony McGough, Global Head of DTZ Forecasting & Strategy Research, comments: "DTZ's current rental growth forecasts have already priced in reductions in the public sector workforce and the expectation that the private sector is poised to more than take up the slack. The UK economic recovery remains fragile, and the full effects of public job losses on the private sector could still prove to be a significant drag on the recovery, particularly in the more vulnerable regions. However, the strength of overall office job growth does appear to be large enough to support the office market."