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.”
Quarterly office take-up in Bristol reached 106,164 sq ft.
Phil Moore, Associate Director in DTZ’s Office agency team in Bristol commented: “After a record breaking 2014, Bristol’s office market drew breath in Q1 2015. This was not unexpected as the larger credible office requirements (20,000 sq ft +) all landed in Q4 2014 as prospective tenants fought to secure their preferred buildings in the face of dwindling availability, and limited development pipeline.
“With larger office requirements generally taking at least six months from entering the market until transacting, Q2 2015 is likely to be another reasonably quiet quarter when compared to the stellar take-up levels seen at the end 2014. However, do not read too much into this, the underlying dynamics of Bristol’s office market are very positive. Bubbling beneath the headline of ‘reduced office take-up in Q1 2015’ is a growing number of larger office requirements from both existing Bristol businesses and newcomers to the city.
He continued: “Grade A availability in Bristol city centre now stands at approximately 160,000 sq ft (having halved over the past 12 months) and is increasingly fragmented. Completion of any further grade A office developments is at least 24 months away and subsequently, as soon as another major occupier (25,000 sq ft) commits to a new building we anticipate a flurry of activity from other larger occupiers as they fight to secure their preferred buildings amidst limited supply.”
“We expect record headline rents in Bristol city centre (broken twice in 2014 by PwC and KPMG respectively) to be broken at least once as they are forecast to rise to £29 per sq ft in 2015.”