Regional office take-up fell back to the long run average in Q3 following some exceptional deals in Q2, according to the latest DTZ Property Times UK Regional Offices report. Despite the overall fall in take-up during the quarter, some markets improved, most notably Newcastle city centre, where there was the strongest volume of lettings since Q1 2006. BSkyB took 37,000 sq ft of grade A space, which was the largest deal in the city centre in over five years.
The report highlights that while city centre take-up eased in Glasgow and Manchester, the out-of-town markets in the two cities performed strongly in Q3. The engineering and renewable energy sectors have been active in the Lanarkshire business parks, satisfying several long-standing requirements and supporting Scotland’s leading reputation in this field. In south Manchester, Shell took space and Etihad made an inward move to office space at Manchester Airport.
Martin Davis, Head of UK Research at DTZ said: “Sentiment remains fragile, given the uncertain economic outlook for the UK. This has led to extended decision-making procedures for the larger corporates. Most demand continues to come from smaller, indigenous professional firms that are occupying space at an increasing density and keen to relocate. These smaller firms are able to make occupational decisions more readily and are taking the opportunity to upgrade.”
Phil Moore, Senior Surveyor at DTZ in Bristol comments on the city’s office market: “Sentiment in the market continues to be cautious. The optimism which was prevalent following the end of the summer break has become much more subdued with many occupiers citing the continuing uncertainty in the Euro Zone, limited bank lending and rise in inflation as barriers to making a move. The majority of the live enquiries in the market have been triggered by lease events and are highly opportunistic with landlords continuing to offer incredibly competitive terms.”
He continued: “During the third quarter of the year the majority of deals in Bristol were within the grade B sector with many tenants trading up whilst the opportunity is available. That said, there are currently several grade A requirements in the market which may be satisfied before the end of the year. This will continue to eat into the available grade A space in the city, though quoting rents remain static at around £27.50 per sq ft.”
Total regional availability crept up in Q3, but grade A was again eroded by take-up, maintaining average prime headline rents and reducing some incentives. The number of years of grade A supply at current take-up rates has been falling since 2009 and dipped to just below two years in Q3 Grade B availability increased slightly as more space became more formally marketed.
Looking forward, the report states that the development pipeline across all the key regional cities, particularly for speculative schemes, is minimal. Consequently the divergence between the supply of grade A and grade B space is set to continue. Regional annual office take-up is set to fall in 2011 and 2012 with fewer exceptional large deals. The market is changeable and conditions are set to remain challenging for landlords, with the average deal size likely to stay subdued over the medium term. The market will continue to present opportunities for incumbent tenants to take advantage of prevailing market conditions when lease events occur.
