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.”
The Newcastle city centre and out-of-town office market made a strong start to 2015, posting a combined take-up figure of 299,000 sq ft in Q1, substantially above the four year annual average of 189,000 sq ft for the same period.
Take up-comprised 48,000 sq ft within the city centre and 251,000 sq ft in the out of town market, with notable deals including the 17,000 sq ft letting to Connect Physical Health Centres at Quorum Business Park, North Tyneside, and 20,000 sq ft to iParadgms at Wellbar Centre, Gallowgate. Of the 44 deals in Q1, the vast majority were in the out of town market, with only 14 deals in the city centre.
Chris Dent of DTZ’s Office agency team in Newcastle commented: “The supply of new grade A space to the market is still one of the biggest challenges facing the city. Just two new office developments are currently on site – The Rocket at Stephenson Quarter and Liveworks, Quayside, which are 35,000 sq ft and 14,000 sq ft respectively.
“If the current levels of take-up continue, there will be a significant shortage of supply in the latter half of 2015. We have already seen the hardening of incentives and the lack of supply is also putting upward pressure on rents. This can already been seen with the last remaining suite at Wellbar Central increasing the quoting rent to £24.00 per sq ft.”