UK regional office markets have seen a surge in occupier demand in Q2 2015, totalling a combined take up of 2.08million sq ft, 51% ahead of Q1 and 49% above the five year quarterly average.
Birmingham was the clear stand-out performer in Q2, with take-up of 521,136 sq ft. This was boosted by a number of large transactions, the most significant being the 212,000 sq ft pre-let to HSBC at Arena Central.
Pre-letting activity has also increased in Q2 impacting on New and Grade A availability, which is down by 17% year-on-year collectively to 2.2million sq ft.
In the investment market, £2.09bn regional office assets changed hands in H1 2015, its strongest first half year since H2 2007. Bristol, Manchester and Birmingham were the main focus of investment activity in Q2, accounting for over half of total investment turnover.
Bristol in particular saw some sizeable transactions, including the off-market purchase of Templeback by Orchard Street Investment Management in June 2015 for £58.5m, reflecting a net initial yield of 5.34% and Aviva Investors’ acquisition of 66 Queen Square for £32.7m, at a net initial yield of 4.94%.
Stephen Hodgson, Head of Regional Offices, Knight Frank, commented; “Improved occupier confidence has led to a surge in pre-letting activity and high levels of take-up across the main regional office markets in Q2, which we anticipate will be reflected in rental growth and further starts on new development schemes over the next 18 months. On the investment front, despite the fact that yields are approaching historic lows we also feel that there is scope for further yield compression.”