East Midlands office market ‘ripe for investment’

Phil Quiggin

The East Midlands office market is in a good position to take advantage of the opportunities afforded by the growth of the Midlands Engine region, according to Lambert Smith Hampton (LSH).

The commercial property agency’s Midlands Engine regional office market report says that while take-up decreased in Nottingham in the first half of 2016, the number of deals has remained “robust”. However, says LSH, a lack of grade A space has become a major issue because it accounts for only 10% of total supply, with no units of 20,000 sq ft or more available.

In Derby, there is no grade A office space over 10,000 sq ft available in the city. In the first half of 2016, there were no deals involving premium offices and market activity was down to 14 transactions, compared with 31 in the second half of last year. The report says reveals that despite the shortage of prime space in Derby, there is very little development in the immediate pipeline. However, there is land available for design and build opportunities.

While in Leicester, available supply is tight, with grade A space confined to a single 15,000 sq ft building at Colton Square, the last available of the 105,000 sq ft regeneration scheme that was completed in 2008.

However, Leicester’s ambitious Waterside scheme, expected to be completed in 2018, is likely to boost the office market, while active demand is steady and two inward investment occupiers are close to signing in the city, which would join major corporate occupiers such as IBM and Hastings Direct last year.

“It is now up to the property industry, local stakeholders and occupiers to take advantage of the dearth of quality office space”, said Phil Quiggin, office agency director at LSH Nottingham.

He added: “The shock result of the EU Referendum has come at an unhelpful time, but the fundamentals to support development are robust.

“Few occupiers have the luxury of being able to wait 12–24 months to have an office built and we need to provide the buildings that can satisfy immediate requirements so that the economies in our towns and cities can flourish.

“Where viability is marginal, we need to be seeking innovative ways to ensure much needed development is realised. If we don’t, occupiers will be forced to look elsewhere.”

Activity in Derby is expected to rebound in the second half of 2016, says the report, with anticipated take up of 75,000 sq ft, although this will leave the 2016 total at about 115,000 sq ft, which is an under-performance of 40% compared with the 10-year average. Prime headline rents have been stable at £17.50 per sq ft for a number of years.

LSH says that for all of the Midlands Engine markets combined, there is just over 6m sq ft of known lease events in excess of 5,000 sq ft between 2017 and 2019. In relation to stock, the quantum of forthcoming lease events is running ahead of the recent completion rates for the majority of markets.

Quiggin said: “Those developers who are willing to grasp the right opportunity and bring forward new stock will be the winners. If the private sector cannot grasp the opportunity, the public sector can, of course, use its regeneration powers or strength of covenant to drive development forward.”

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