Demand for regional offices, having returned to pre-recessionary levels over the past three years, will continue, albeit with a short term drop in activity as the market comes to terms with the medium term implications of Brexit.
According to research by the UK’s leading real estate advisory firm Bilfinger GVA the devolution of power to city regions will provide opportunity to mitigate any long-term negative economic impacts. This will create greater confidence and many more opportunities for occupiers and inward investors which will drive economic growth.
The research illustrates how rationalisation of the government’s public sector departments and establishment of 16 super-hubs based in regional cities, including Cardiff, will add a further 7.4 million sq ft of requirement between 2018 and 2021 – a significant foundation to underpin occupier demand.
‘Northshoring’ – the term increasingly used for the relocation of business outside of London – is also playing a notable role in demand for space outside of London and the south east. Major recent requirements including the 55,000 sq ft acquisition for HMRC in Wales which Bilfinger GVA completed is an example of this trend.
The on-going trend for city centre living, a focus on placemaking, civic improvements and investment in infrastructure as outlined in many of the city deals, will also play a significant role in creating a fertile environment for inward investment and driving demand for offices in key regional centres.
Tom Merrifield, Director of Agency at Bilfinger GVA in Cardiff says, “The health of the regional office market is driven by inward investment and employment growth and the Chancellors Autumn Statement in November will set out the extent and make-up of fiscal impetus. Nevertheless it is also dependent on the churn of indigenous business, which accounts for the majority of transactional activity.
“The expiry of long-term 15 and 25-year leases, combined with a trend towards shorter leases and breaks will continue to drive this activity. A greater level of lease events will also encourage landlords to make decisions on re-gearing, re-letting, refurbishing or changing the use of their assets.”
He continues, “Infrastructure schemes improvements on the South East Wales Metro and the Valley lines, electrification of the Great Western Line, and development at Cardiff Airport all contribute to the strength of the market. While the Cardiff Capital Region Skills and Employment Board will be created to ensure skills and employment provision is responsive to the needs of local business.”
The report examines trends in office occupancy over a 10 year period, sampling data from Cardiff and ten other of the UK’s regional cities.
Tom Merrifield adds, “We are seeing a considerable shift in working practices, with end-users desiring to promote more flexible and collaborative working, task based work stations and a more efficient use of space. This is coupled with a greater general acceptance of flexible working practices by employers. This flexibility has also generated an upswing in requirement for serviced offices, which by their nature offer flexibility for occupiers, although increasing entrants in the market have enhanced competition in the sector significantly.”
Between 2006 and 2015, take-up across the 11 cities averaged 8.3 million sq ft pa. While activity was more muted from 2009 to 2012 with an average of 7.3 million sq ft pa, there has been sustained year-on-year growth since 2013, with take-up rising to 10.4 million sq ft in 2015, 24% above the ten year average.
While demand is still dominated by the traditional occupational sectors, there is strong growth in the knowledge economy, including science-based sectors with a greater dependence on knowledge, information and high skill levels including advanced manufacturing, pharmaceuticals and the TMT sector.
Daniel Francis, Head of Research at Bilfinger GVA, comments: “Financial, professional and business services continue to make up the majority of office take-up, accounting for 58% of transactions since 2009. However, the strongest growth has been in the TMT sectors, increasing from 6% to 18% of all take-up between 2009/10 and 2014/15, with telecommunications and computing & software showing the greatest increase.”