Sustained take-up activity in the UK's Big 6 office market in 2016
Covering the Big 6 UK regional markets, we held our annual seminar on Thursday 23 February at the Ham Yard Hotel in London.
The regional office market experienced strong levels of take-up in 2016 with 4.8 million sq ft transacted in the UK’s ‘Big 6’ cities - Birmingham, Bristol, Edinburgh, Glasgow, Leeds and Manchester – 15% higher than the 10-year average.
The Professional Services sector accounted for 25% of overall 2016 take-up, followed by the public sector with 20% (up from 12% in 2015) and the TMT sector with 16%. With around 1.5 million sq ft of live requirements, the public sector is anticipated to continue being a major driver of regional take-up in 2017.
Big six office supply totalled seven million sq ft at the end of 2016 and the average overall vacancy rate stood at 6.8%. Grade A supply remains constrained with a vacancy rate of just 1.8% averaged across the big six cities.
2.1 million sq ft is currently under construction speculatively across 13 schemes of which 30% is already pre-let.
Cameron Stott, Director of Edinburgh Office Agency, said “Last year, nine pre-lets completed – the second highest for ten years – with all six cities witnessing at least one. Increasingly, landlords are also considering refurbishment as demand for good quality space holds up. There is currently two million sq ft of refurbished space coming on stream, supported by a strong rental growth story. The question for many is whether to ‘refurb’ or ‘defurb’ with the trend for exposed services growing amongst professional services occupiers.”
Office investment volumes in the big six hit £1.96 billion for the full year with an average deal size of £26.9 million, similar to 2014 levels. International investors snapped up 58% of offices last year, compared with 63% in 2015 which was one of the highest levels of cross border investment on record. In Edinburgh last year, 89% of office investment volumes came from overseas.
Angus Minford, Director in JLL’s Capital Markets team, concluded "£300 million of office deals have completed so far this year and there is circa £685 million, in 14 key deals, currently under offer. To date, 70% of transactions have been from overseas money illustrating the draw of the UK regional office market from investors from across the globe, largely attracted by the yield gap compared with other European markets.”
UK Office Market Report H2 2016
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