The UK’s the regional occupier markets made a positive start to 2014, reflecting a revival in occupier sentiment during the past 12 months, according to Knight Frank’s latest regional office market update.
• Q1 take-up in the ten regional cities combined was 26% above the same quarter last year and some 20% ahead of the five-year quarterly average.
• Manchester led the way in Q1 with take-up of 315,374 sqft, its highest quarterly total since Q3 2010.The city saw two prominent deals – Barclays Bank took 81,603 sqft at 4 Piccadilly Place, while Trader Publishing took 60,216 sqft at Number One, First Street.
• Despite concerns over the forthcoming independence referendum, Scotland’s three main markets all saw healthy activity in Q1. Edinburgh recorded 207,000 sqft of take-up, 65% above the five-year quarterly average, boosted by games developer Rockstar North’s lease of 75,000 sqft at Barclay House. Meanwhile, Q1 take-up in Glasgow and Aberdeen was 50% and 27% above their respective quarterly averages.
• Overall Grade A availability continues to diminish in the absence of concerted speculative development, with Leeds and Manchester seeing significant year-on-year falls of 60% and 37% respectively. Availability in Cardiff increased 29%, albeit largely reflecting the completion of Number 1 Capital Quarter (77,740 sqft), 60% of which is already under offer.
• In the investment market, total volumes outside London and the South East reached a healthy £735m in Q1, 28% above the five year quarterly average but 35% down on Q4 2013’s impressive total.
• Despite very strong demand for regional offices among the UK Funds, volumes are being constrained by a lack of stock on the market as landlords opt to hold rather than sell.
• With a limited supply of buying opportunities, the strong weight of money in the market continues to put pricing under pressure. Prime yields hardened by 25 basis points across all key markets in Q1, taking the total shift to 75 basis points over the past 12 months.
David Porter, Partner, Leasing commented;
“The improvement in occupier demand has put the diminishing levels of supply firmly under the microscope. The majority of the regional markets now have less than two years’ worth of Grade A supply available, and this is expected to put upward pressure on headline rents over the coming 18 months”.
Henrie Westlake, Partner, Investments commented
“While the rate of yield compression is expected to ease, it is likely to constitute the main driver of investment performance in 2014. Moving forward, however, we expect performance to be driven more on the income side, as the recovery in the occupier markets accelerates and rental growth becomes more widespread.”