UK regional office markets have seen subdued rental growth over the last few years. However, the broadening economic recovery is feeding through to improved occupier demand. This together with the diminishing availability of Grade A stock and lack of significant speculative development completions over the last few years is driving rental growth across the regions.
Matt Phillips, managing partner of the Knight Frank office in Cardiff said: “We expect to see strong rental growth in the majority of regional city centres over the next 12 months, with new development completions securing higher prime rental levels.
“In Cardiff, headline rents were £22.00 at the end of 2014 and we would expect to see these rise to £23.00 by the end of 2015. Meanwhile, vacancy rates will remain stable. This is, in part, driven by the quality of the new development currently under construction at Capital Quarter and Central Square. Cardiff’s headline rental is still lower than other regional centres and looks well placed to see growth. The delivery of new occupiers into the city will be key in this regard.”
Manchester, Birmingham, Newcastle and Aberdeen will see the strongest growth while all other centres, apart from Sheffield, will see positive growth.
Prime headline rents in Manchester and Aberdeen are expected to reach record highs of £34.00 per sq ft by the end of 2015, representing corresponding increases of 10% and 6% over the year (see the chart above).
Birmingham offices will also see rents rise by 8% to a seven year high of £32 per sq ft. While we do not anticipate any rental growth in Sheffield in 2015, Sheffield rents are expected to rise more sharply up to £22.00 per sq ft by the end of 2016.
Given the diminishing availability of Grade A stock and lack of developments, vacancy rates are likely to fall or at least remain stable, with the exception of Aberdeen where the level of speculative development is higher. We are also anticipating a slight softening of incentives over the next 12 months.
Louisa Rickard, associate, commercial research, Knight Frank, commented; “As economic growth spreads to the regions we expect to see prime office rents rise across regional city centres in 2015. Lack of supply at the prime end of the market will add further upward pressure on both prime and secondary rental growth.”
