Significant rise forecast for office take-up – Savills
OFFICE take-up across the UK regions is expected to rise significantly in 2014, with the latest Regional Office Market Report from Savills predicting a 17% increase.
The international real estate advisor notes that this increase will be predominantly driven by a return to larger grade A lettings (over 50,000 sq ft) throughout the regional markets towards the end of 2013 and during 2014.
Regions that have already seen a particular rise in take up include Birmingham, which has recorded a 128% increase in take-up so far in 2013 compared with 2012, Leeds has also seen a rise of 107% with Manchester, Bristol and the M25 witnessing a growth of 43%, 31% and 10% respectively.
Paul Fairhurst, head of Savills Leeds, said: “We have not only seen a large number of requirements in the regions move forward this year, but anecdotally there is a widespread sentiment that UK businesses are doing better and that headcount growth, leading to an increase in the level and size of new enquiries, is going to come forward shortly.
“The concern for occupiers is that there is relatively little quality office space currently available for them to choose from and unlike other sectors, most notably retail and industrial, office occupiers more traditionally consume speculatively built vacant product than pre-let or build to suit. For those landlords, investors and developers with well located sites and buildings, there are great opportunities ahead of them.”
Savills research confirms that more traditional office occupiers such as the professional sector is showing some bounce back in the regions, with Leeds showing 28% of take up being from the professional sector.
However, the report also highlights that the Technology, Media and Telecoms (TMT) sector, which has seen exceptional growth in Central London, has also gained momentum in the regions this year, accounting for the most take up in Leeds at 34%. This trend is expected to continue with Oxford Economics forecasting employment in this sector throughout the UK will grow by 9% over the next five years.
According to Savills, the question now for the UK office market is: will 2014 be the year of a return to more widespread office rental growth?
Mr Fairhurst said: “While there are ten new schemes underway in Bristol, Cardiff, Manchester, Edinburgh and Glasgow showing a vote of confidence in the prospects for the regional office markets, the overall development pipeline continues to be restrained. Grade A supply is now falling in all major cities with an 11% decrease across the UK over the last 12 months. We expect this continued lack of grade A space to result in prime rental growth in some regional cities as we head into 2014.”
Savills’ report shows that between now and 2016, Bristol and Birmingham will see a growth of 1-2 % per annum, Manchester and Leeds 2% per annum and Edinburgh and Glasgow 2-3% per annum.
While there is a lack of new developments in the office market, Savills research does emphasise that a rise in refurbished stock coming to the market will help to fill the gap.
Clare Bailey, from Savills research team, added: “The shortage of grade A office space provides landlords with a clear window of opportunity and, as a result, we expect to see a continued rise in refurbishment activity across the regional office markets as we approach the end of 2013 and head into next year. The Government’s permitted development- office to residential initiative has only produced very small numbers of these schemes and, in any event, residential values struggle to justify this change of use much further north than the south Midlands. “