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.
In the largest deal of the quarter in Birmingham, the Ministry of Justice took 39,000 sq ft of grade B space over the 4th, part 5th and part 8th floors at The Axis on Holliday Street. The most prominent grade A deal in Q2 was to Deutsche bank, which took an additional 28,000 sq ft in Baskerville House.
Matthew Long, Associate Director at DTZ in Birmingham, commented: “Take-up in Birmingham city centre in the second half of 2011 is forecast to reach around 200,000 sq ft, with several lettings in excess of 20,000 sq ft set to acquire grade A space in Birmingham’s central core. This would take the annual total to 440,000 sq ft.
“As a result, availability of well-located grade A space will continue to fall, as new lettings and incumbent tenants take the opportunity to upgrade into better quality space. Prime headline rents are forecast to edge up in early-2012 and less generous incentives are also likely to be in the market by the year-end for this quality stock.”
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.”
