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UK Regional Office MarketBeat Reports

Patrick Scanlon • 09/01/2021

Office Marketbeat reports summarise the quarterly supply and demand for office property across the UK's key cities, providing comment on recent trends as well as market data and analysis.

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Birmingham – Q3

Occupier activity: Birmingham office space take-up in Q3 rose to 91,151 sq ft, 48% higher than the previous quarter but still well below the five-year quarterly average of 197,000 sq ft. Availability rose slightly to 1.0 m sq ft, reflecting a vacancy rate of 5.5%. The vacancy rate for new and refurbished space is just 1.2%, well below the levels seen after the global financial crisis when the vacancy rate for this grade of office space reached almost 6%. 

Investment activity: Q3 saw Oval RE purchase No 1 Colmore Square for £86.75 m – the only office real estate investment transaction in Birmingham. Although investor demand remains strong, driven in part by the particularly tight occupier market, lack of speculative development and turnover will continue to be a reflection of stock availability. The prime net initial yield remained stable at 4.75%. >>DOWNLOAD IN FULL

Bristol – Q3

Occupier activity: Take-up of Bristol office space totalled 56,822 sq ft, marginally higher than the previous quarter but still 63% below the five-year quarterly average. The largest transaction of the quarter was software company XLedger’s acquisition of 10,719 sq ft at Tower Wharf. Bristol availability remained relatively stable at 409,000 sq ft at the end of Q3. This is 12% below Q3 2019 and 52% below the 10-year average. The prime rent remained at £38.00 per sq ft for the third consecutive quarter, the highest ever recorded in this market.

Investment activity: There were no investment transactions in the Bristol market in Q3. The ongoing lack of stock continued to weigh on activity. Pricing remained stable at 5.00%. >>DOWNLOAD IN FULL

Cardiff – Q2

Occupier activity: Cardiff was the only UK market to experience a quarter-on-quarter increase in office space take-up in Q2 2020. Take-up totalled 25,351 sq ft in the second quarter, a 54% rise on the previous quarter’s level and 75% higher than the same quarter last year. However, activity remains well below the five-year quarterly average of 99,000 sq ft. Total office space supply in Cardiff rose to 546,291 sq ft in response to the weak take-up. However, levels remain comfortably below the five-year quarterly average of 697,000 sq ft. The availability of new and refurbished space remains low at 126,000 sq ft, with just 250,000 sq ft of speculative space under construction. The prime rent remained unchanged at £25.00 sq ft; we expect to see rents remain stable over the next 12 months as the lack of supply supports values.

Investment activity: There were no investment sales in Cardiff city centre in Q2. General investment activity has been subdued with little new stock launched to the market since the beginning of lockdown. Pricing remained stable at 5.50%. While the fundamentals of the Cardiff market remain strong there is the potential for yields to soften during 2020 in response to the effects of the Covid-19 restrictions. >>DOWNLOAD IN FULL

Glasgow – Q3

Occupier activity: Take-up of Glasgow office space in the third quarter rose to 63,852 sq ft, more than double the previous quarter but still well below the five-year quarterly average of 202,000 sq ft. The largest transaction of the quarter was Chubb SE’s acquisition of 18,252 sq ft at 103 Waterloo Street. Availability remained stable at 1.0 m sq ft, one of its lowest levels since the global financial crisis and well below the five-year quarterly average of 1.5 m sq ft. At the end of the third quarter there was just 141,000 sq ft of new and refurbished space available to lease, reflecting a vacancy rate of just 1.0%. This is especially low considering that the vacancy rate for this grade of space reached in excess of 5.0% during the GFC.

Investment activity: Investment turnover totalled £70 m in the third quarter. There were two sales: Elite Partners Capital purchased 150 Broomielaw for £40 m, and Maya Capital purchased the Guildhall on Queen Street for c.£30 m. General investment activity has been subdued since the beginning of lockdown with little new stock released to the market, with Central Exchange being one of the buildings recently launched for sale at £44 m. We expect turnover to be heavily influenced by stock availability in the short term. The prime net initial yield remained stable at 5.25%. >>DOWNLOAD IN FULL

Leeds – Q3

Occupier activity: Take-up quadrupled in the third quarter to 88,507 sq ft, although levels remain low by historic standards. This was 46% below the five-year quarterly average of 166,000 sq ft. The largest office transaction of the quarter in Leeds was Knights Plc’s acquisition of 22,166 sq ft at Majestic, City Square. Availability in Leeds rose by 10% to 999,555 sq ft during the third quarter, reflecting a vacancy rate of 8.0%. Despite this rise, levels remain comfortably below the five-year quarterly average of 1.2 m sq ft. The rise can be attributed to an increase in the volume of second-hand space to the market; the availability of new and refurbished space remained particularly tight at a vacancy rate of just 0.8%. The prime headline rent is currently £34.00 per sq ft; we expect the lack of quality space in the market to support the prime headline rent as we move towards the year-end.

Investment activity: There were no investment transactions in the Leeds office market in the third quarter. The prime yield softened to 5.25% reflecting the disruption caused by the ongoing lockdown restrictions. >>DOWNLOAD IN FULL

London – Q3

Occupier activity: Take-up fell for the fifth consecutive quarter to 908,000 sq ft, the lowest quarterly total since the Global Financial Crisis, and 66% below the five-year quarterly average. At the quarter-end around 2.4 m sq ft of London office space remained under offer, 36% below the level recorded at the beginning of lockdown. Availability rose sharply to 16.8 m sq ft, representing a quarter-on-quarter increase of 18%, the largest single quarter gain since 2007. The rise reflects both ongoing subdued leasing activity and the release of some tenant space back to the market. The vacancy rate is now 6.0% which is the highest since 2013, but well below the peak of 7.7% seen during the Global Financial Crisis and the 10.7% seen in the early part of the last decade. The availability of new and refurbished space remained relatively low at 2.7%, just slightly above the five-year average of 2.3%.

Investment activity: Investment turnover in Central London rose to £1.3 bn in the third quarter after exceptionally low activity in the previous quarter. Although levels remain well below the five-year quarterly average of £3.8 bn, there is a significant backlog of deal activity and volumes have started to improve. There were 3 sales in excess of £100 m during the quarter, the largest of which was Link REIT’s purchase of The Cabot, 25 Cabot Square, E14 from Hines for £380 m, the largest deal of the year so far. Asia Pacific purchasers were the dominant source of capital into Central London in Q3 2020, accounting for 45% of all turnover, while UK investors accounted for 30% of turnover. The amount of available stock has risen considerably; at the quarter-end there was £5.1 bn on the market, well above the £2.1 bn available this time last year. Prime yields remained stable at 4.00% in the City and hardened by 25 basis points to 3.75% in the West End, reflecting the improving sentiment and weight of demand. >>DOWNLOAD IN FULL

Manchester – Q3

Occupier activity: Third quarter Manchester office take-up totalled 69,168 sq ft, an 8% fall on the previous quarter and well below the five-year quarterly average of 321,000 sq ft. The largest transaction of the quarter was the Spanish Consulate’s acquisition of 11,001 sq ft at The Chancery, Spring Gardens. Availability rose by 5% from last quarter to 2.8 m sq ft, reflecting a vacancy rate of 13.5%. The prime rent maintained its record level of £37.50 per sq ft as the market anticipated falling levels of available new and refurbished space.

Investment activity: Investment turnover totalled £56.3 m in Q3. There were 3 transactions, the largest of which was Catella APAM’s acquisition of Corner Block, Quay Street for £24.8 m. General investment activity has been subdued with little new stock launched to the market since the beginning of lockdown. The prime net initial yield remained stable at 5.00% reflecting the continued lack of supply. >>DOWNLOAD IN FULL

Newcastle – Q3

Occupier activity: Take-up in Newcastle city centre rose to its highest in 2 years as activity began to pick up after low activity over the summer. There was 48,015 sq ft of take-up during the quarter, slightly ahead of the five-year quarterly average of 46,643 sq ft, and more than four times higher than the same quarter last year. There remains a lack of quality available stock in the Newcastle market. Availability totalled 550,000 sq ft in Q3 2020, 4% above the same quarter last year but 26% lower than the 10-year average for this market. The availability of new and refurbished office space in Newcastle remained particularly low; at the quarter-end there was just 165,000 sq ft available to lease, 27% below the long-term average. There is just 68,000 sq ft under construction speculatively, representing a 68% fall year-on-year. The paucity of standing new stock, the limited pipeline and the current demand for the very best space drove the prime rent up to £26.00 per sq ft, a record level for this market.

Investment activity: There were no investment transactions in the Newcastle market in Q3. The ongoing lack of stock continued to weigh on activity. Pricing remained stable at 5.75%. >>DOWNLOAD IN FULL

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