According to research by Cushman & Wakefield, investor sentiment remains strong in the UK office regional markets, as total transaction volumes reached £2.3bn (€3bn) in 2015, the highest since 2006.
Looking ahead, prime office rents are forecast to rise by a total of 11% by 2019, due to higher quality new developments but continued competition over floor space. The financial crisis saw regional cities left with an oversupply of office floor space, tough credit conditions and fragile investor confidence, causing a drop off in development activity. However, as the recovery has taken hold, most regional cities have now been left with acute low levels of availability.
As a result, rents in Bristol, for example, are expected to increase by 19% to £34/ft² (€470/m²) by 2019, and Manchester and Birmingham will also see large increases to £36.50/ft² (€505/m²) and £34/ft² (€470/m²), respectively. Grade-A availability in Leeds is particularly low with only six months of supply remaining at current take-up rates. Similarly, Birmingham, Bristol, Cardiff, Edinburgh and Newcastle all have just over a year’s supply remaining.
According to the research, developers are responding to these new demands, with 5.8 million ft² (540,000m²) to be completed over the next three years. This represents a near two-thirds increase in the rate of development in comparison with the last three years.
Birmingham has the strongest pipeline with 2 million ft² (186,000m²) to complete over the next three years. The largest developments are 3 Snowhill (360,000ft²/33,000m²) and Paradise (360,000ft²/33,000m²), both of which are due to complete in 2018. Glasgow has the second strongest pipeline, although the vast majority of new space (820,000ft²/76,000m²) will not be completed until 2019.
However, reignited pre-letting activity means 40% of 2016 completions are already no longer available. In Edinburgh, the two developments to complete this year; Quartermile 4 (128,000ft²/11,900m²) and 6 St Andrew Square (108,000ft²/10,000m²) are fully let and similarly in Manchester, the XYZ building is completely let and only 32,000ft² (3,000m²) remains in One New Bailey.
Alex Dunn, senior research analyst at Cushman and Wakefield, said: “The current low availability across the regions means that occupiers are finding it harder to find good quality space, particularly larger lot sizes. Those that can afford to wait and sign a pre-let on a new development are continuing to do so.”
Ben Clarke, head of UK research at Cushman and Wakefield, said: “Investors continue to look beyond London for higher yielding opportunities and many regional markets have seen an increase in institutional demand, while property companies and opportunity funds are also actively targeting stock with asset management/redevelopment potential.”
