Following a record quarter at the end of last year, 2015 got off to a strong start, with regional office take-up 11% above the five year average in Q1, according to DTZ. This was the sixth consecutive quarter of above-average take-up, indicating ongoing occupier confidence in the major UK office markets outside of central London.
For the first time since Q2 2012, overall office availability increased in the regions, most notably grade A availability, which increased by over a third. This was driven by various speculative developments nearing completion in a sign of confidence on the part of developers, with over 1.3 million sq ft of speculative space due to be delivered in Manchester and Glasgow alone over 2015-17. Interest in these developments is high, with around a quarter of the space already prelet and DTZ expects further lettings ahead of completion.
Notable schemes include One New Bailey and Two St Peters Square in Manchester; and St Vincent Plaza, 1 West Regent St and 110 Queen St in Glasgow.
The recent increase is off a low base and most cities are still suffering from a shortage of availability. This is particularly the case for grade A stock, which has led to landlords taking a harder stance on incentives. Rent free periods have fallen 28% in the past year and headline rents are forecast to rise 8% on average over the next three years.
Ben Clarke, Head of UK Research at DTZ, said: “The increased speculative pipeline in regional UK office markets is good news for various key occupiers reaching lease events, but the total pipeline is still more than a third lower than completions during the pre-recession 2004-08 period. This strength in prime occupier markets is helping support investment demand, which eroded prime UK regional office yields by a further 20 basis points in Q1.”
Chris Terry, Associate Director in DTZ’s Office agency team in Cardiff, commented: “Following the best take-up figures for three years, Cardiff’s office take-up for 2014 totalled an impressive 542,500 sq ft. 2015 got off to good start in terms of the number of office transactions (29 in total), however the vast majority of deals have been in the sub-3,500 sq ft size range, which resulted in Cardiff Q1 office take-up for the city centre and out of town markets registering only 75,000 sq ft.
“The largest office transaction in Q1 was the letting of part of the third and whole fourth floor of One Capital Quarter to Parsons Brinckerhoff which took 13,000 sq ft at a rent of £18.95 per sq ft. Market incentives for this transaction are believed to be been around two months for every year certain. Incentives are currently at 12 months’ rent free per five years of term certain on any new lease transaction, which assumes a regional covenant rather than a national PLC or public sector covenant.
He added: “There remains a genuine lack of grade A accommodation in the city centre available for immediate occupation, with only some 20,000 sq ft available at One Capital Quarter. Notable speculative schemes currently under construction in Cardiff city centre include One Central Square, a new 135,000 sq ft development project being undertaken by local developer Rightacres Property, available at a quoting rent of £23 per sq ft; and Two Capital Quarter – an 84,000 sq ft building available at a quoting rent.”