How the decentralisation of government could benefit the regional office market
The opening weeks of Andy Burnham’s tenure as Prime Minister have brought a flurry of policy announcements with potential implications for the UK real estate market, with examples including a commitment to increase council housebuilding, business-rates relief for pubs and music venues, and proposals to give councils greater control over the mix of uses on high streets.
Central to the Prime Minister’s policy agenda is devolution – the transfer of decision-making, funding and institutional capacity from Westminster to regional government. So far, there are two key policy announcements that relate to devolution:
- Number 10 North: a permanent extension of the Prime Minister's Office in Manchester, intended to bring central government decision-making closer to regional economies.
- Income-tax devolution: mayors would retain a proportion of the income tax generated in their areas for investment in transport, housing, jobs and public services, although the proportion and allocation mechanism remain unclear.
While devolution will have implications across the real estate sector, its early effects are likely to be particularly prominent in regional office markets. In this article, we consider three areas: the near-term ripple effect on occupier demand, the capacity of regional supply to accommodate this demand, and the implications for development viability and investment.
Government (re)location to drive demand
Whilst Number 10 North itself only reflected a lease of less than 5,000 sq ft, it symbolically marks a broader government presence outside of London, with occupier demand resulting from the relocation of departments or functions likely to be one of the more immediate consequences of devolution.
The relocation of departments and decision-makers would create direct regional office requirements, which have the capacity to be of great scale. This is evidenced by chunky deals that have already occurred in 2026, with the GPA occupying the whole 115,000 sq ft of Grade A space at Havelock in Manchester, and DWP taking the entire 100,000 sq ft of 1 West Bar Square in Sheffield.
It is worth acknowledging that moving civil service branches away from Whitehall is not a brand-new initiative. The Places for Growth programme had already put in place plans to move government activity away from London, with previous governments committing to relocating 12,000 civil-service roles to the regions by 2030. Instead, this government’s devolution agenda promises to accelerate and strengthen this source of regional office demand, rather than generate it outright.
These direct public-sector requirements could also generate regional office demand through several indirect channels. An expanded government presence may encourage professional services firms, consultancies and government contractors to locate nearby, reflecting the value of proximity to public-sector bodies and regulators. Established clusters - including Manchester following the creation of Number 10 North - are likely to benefit first, while devolved investment in education, skills and transport could deepen labour pools, improve connectivity and strengthen the appeal of other regional centres over time.
The potential extends beyond businesses clustering around government. Robert Walters forecasts that 45,000 London-based banking, legal and accountancy roles could relocate elsewhere in the UK by 2029. Applying the BCO’s recommended occupancy density of 10 sq m per person indicates a potential office requirement of approximately 4.8 million sq ft, though the extent to which this translates into recorded take-up will depend on how businesses accommodate these roles.
Furthermore, higher city-centre employment generated by public- and private-sector occupier growth would support spending across retail, leisure and hospitality, strengthening the appeal of mixed-use business districts. The government previously estimated that its existing civil-service relocation programme would generate £729 million in local economic benefits between 2024 and 2030. With devolution now receiving greater emphasis, the eventual figure could be higher and the benefits realised sooner.
Smaller, better, greener, available?
Alongside the relocation of civil service jobs outside London, the Government Property Strategy aims to deliver a “smaller, better and greener estate”, with new acquisitions generally expected to achieve a minimum EPC B rating. The better and greener elements are typically associated with newly built or refurbished Grade A offices, which accounted for 75% of take-up across the Big Five and South East regional markets in 2025. Any increase in public-sector demand would therefore add to the competition among occupiers for a limited supply of high-quality space.
This concentration of demand at the top end of the market contrasts with an increasingly constrained supply picture. At the end of Q2, our estimates indicate that Grade A availability across the Big Five was equivalent to just 0.7 years of take-up. Meanwhile, the 1.5 million sq ft of new or comprehensively refurbished space under construction is below the five-year annual average of 2.0 million sq ft of Grade A take-up. This suggests that the current pipeline could be absorbed quickly, with supply constraints more likely to intensify than ease unless further schemes commence.
This raises the question of whether regional office markets are sufficiently supplied to accommodate an expanded government footprint. One way of securing better and greener space in a supply-constrained market is to commit to it before construction through a pre-let. Although pre-letting has historically been limited across the regional markets, several major civil service requirements have been satisfied in this way in recent years. Notable examples include the Department for Work and Pensions pre-letting 173,000 sq ft at 1 Pilgrim Place in Newcastle and the Government Property Agency pre-letting 130,900 sq ft at First Street in Manchester.
In both cases, the government requirement supported the delivery of an entire building rather than unlocking a wider speculative development through a partial anchor pre-let. If this pattern continues, an acceleration of devolution may support development at an individual scheme level without directly unlocking significant multi-let speculative supply. Bespoke government buildings may also limit direct competition with private occupiers for completed speculative space, although they would still draw on scarce development sites and construction capacity.
Intervention & local delivery capacity
Devolving a share of locally generated income tax to mayoral authorities could help unlock development and ease supply constraints. Potential interventions include gap funding, land contributions and infrastructure investment, alongside other forms of support for otherwise unviable schemes. Greater local control over regeneration could also reduce reliance on centrally directed programmes and help offices come forward as part of wider mixed-use developments.
However, devolved funding will not automatically translate into deliverable development. Identifying suitable schemes and delivering them successfully will depend on each authority’s expertise in land assembly, development finance, procurement, public-private partnerships and project management. Established mayoral authorities such as Greater Manchester are likely to possess many of these capabilities, while some less mature authorities may have more limited experience and resources.
These capabilities require time and investment to develop. The potential for less established authorities to deliver regeneration schemes that stimulate office supply and demand may therefore be constrained in the near term. One possible solution would be the return of development corporations or similar regional delivery vehicles, providing the specialist expertise and capacity required to progress complex schemes.
Devolution may also involve the loss of some economies of scale, including the collective procurement power, coordination and access to specialist expertise available to central government. This is an unavoidable trade-off. Central government can offer scale and national coordination, while local authorities can bring stronger knowledge of local markets and more responsive decision-making. The success of devolution will depend partly on whether these local advantages outweigh the loss of centralised capacity—and whether appropriate collaboration can preserve the benefits of both.
What signals will regional office investors follow?
While Number 10 North provides a political signal that regional growth will receive greater attention, investors will ultimately focus on policy delivery rather than announcements. For devolution to influence regional office investment meaningfully, it will need to produce tangible improvements in education and skills, employment growth prospects and committed infrastructure, supported by credible long-term growth strategies that encourage institutional capital to look beyond London. Therefore, any impact on regional office capital markets, should it materialise, is likely to emerge over the longer term as these policies translate into sustained economic and occupier growth.
The relocation of civil service functions could also strengthen the investment case. Public-sector leases generally provide secure income, strong covenants and longer-term occupancy, making government-anchored buildings attractive to institutional investors. The previously referenced Havelock building in Manchester is now being marketed for sale following its full occupation by the GPA, and the level and source of investor interest will provide a useful test of demand for this type of product.
If increased public-sector demand helps unlock new development, it would expand the pool of investable Grade A offices and could support higher transaction volumes. However, if the supply of best-in-class buildings remains constrained, a shortage of suitable opportunities could continue to suppress investment activity despite underlying demand.
In summary, devolution has the potential to strengthen regional office demand, unlock new supply and encourage investment. However, these benefits will neither be immediate nor evenly distributed, with established hubs such as Manchester best placed to benefit first, while a sustained impact will require structural reform and policy continuity beyond the remaining three years of Burnham’s term.
