Regional cities’ take-up increased 63% in Q2, with most markets recording an increase in lettings, according to the latest DTZ Property Times UK Regional Offices report. This increase was mainly due to large deals in Cardiff, Leeds and Nottingham.
The main driver of the increase was a 190,000 sq ft pre-let, following the granting of planning permission to Admiral Insurance for a new HQ in Cardiff, to be ready for occupation in 2014. Other notable rebounds from a quiet Q1 include Leeds, where take-up was at its highest for almost four years, and Nottingham, where the increase was due to a 59,000 sq ft transaction by legal firm Browne Jacobson.
The report reveals the lower-sized end of the market is still most active and there is an ongoing strengthening of demand from smaller professional firms. Some of these firms remained on flexible lease terms during the downturn, and are now seeking to take advantage of the current market conditions to upgrade to better quality space as they reach a lease event.
Regional cities’ availability remained unchanged at 13.5 million sq ft in Q2. Grade B space increased slightly as more space became formally marketed, but Grade A availability continued to be eroded by take-up. It fell to below four million sq ft in Q2 for the first time since Q4 2008.
Philip Morton, Head of Office agency in DTZ’s Bristol office, commented: “Take-up for Q2 in Bristol was up compared with this quarter last year, however overall levels for the first half of the year were slightly down on that of 2010. Activity slowed around the Easter period which, when coupled with the Royal Wedding Bank Holiday, saw a significant drop in enquiries. Since Easter, enquiry levels have picked up and we anticipate a similar year to last with take-up in the city centre of around 450,000 sq ft.”
Robert Parr-Head, Director in Valuation at DTZ in Bristol, said: “Investment activity in the Bristol office market continued to be subdued in Q2 2011. Whilst it is encouraging that enquiry levels did increase towards the end of the quarter, we have yet to ‘turn the corner’ in the economic recovery of the property market. There continues to be an oversupply of secondary space in the Bristol market with little prospect for rental growth.”
He added: “Looking ahead, yields are expected to remain broadly static until there is a sustained improvement in take-up and investor confidence.”
The report highlights that the market continues to be changeable and conditions are set to remain challenging for landlords. However the market presents opportunities for incumbent tenants to take advantage of prevailing market conditions as and when lease events occur.
Martin Davis, Head of UK Research at DTZ said: “Total annual take-up volume is forecast to be slightly lower than in 2010. This is due in part to the current phase of the lease event cycle for some markets, and an absence in 2011 of the exceptional number of large requirements satisfied in recent years. This last factor stems in part from the fact that the Grade A floor space to accommodate such transactions is becoming more limited.”