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News Release

London

No defined occupier sector set to drive office demand in UK regions in 2010

Increasing Grade B Supply remains a risk to market recovery


London, 12th May 2010 – Insurance, recruitment and media companies have been some of the most active sectors in the UK regional office market during the first quarter of the year but it is likely that there will not be a stand out sector in 2010. New enquiries for office space are falling and whilst activity from the fulfilment of current occupier requirements over the short term should increase, the market remains unsure from where replacement demand will be derived from according to Jones Lang LaSalle’s latest National Voice Office Market Conditions across the UK report.
 
James Finnis, head of Jones Lang LaSalle’s National Offices team, said: “Office take-up activity in the UK regions was relatively weak in the first quarter of 2010, although most markets did show an improvement in comparison with the equivalent period last year. We anticipate increased leasing activity over the next six months as current requirements complete however any upturn in activity may be relatively brief given the uncertainty of where replacement demand will come from. This will continue to keep office take-up volumes below the longer term average for the remainder of this year.”
 
Jones Lang LaSalle highlights that office requirements from Government occupiers have been markedly absent.  The general election has resulted in property decisions being deferred and with occupational costs still high on the agenda many occupiers are reviewing how to make their current premises more efficient to avoid relocation.
 
Reducing Grade A supply will be the driver of any recovery as Grade A vacancy rates are expected to peak over the next six months.  70% of the current development pipeline is anticipated to complete in Q2 2010 and beyond this there will be tightening of good quality space as take-up absorbs existing supply.
 
James Finnis continued: “There is a growing awareness from occupier and developers about the potential shortages of Grade A space that will emerge from 2012, although continuing funding constraints for speculative product mean that we do not anticipate any major construction starts in the next 12 months. Increasing Grade B supply remains a risk, particularly to the English markets, which already have an oversupply of secondary space.”
 
Whilst providing a boost to take-up levels, any consolidation activity will also release second hand space back on to the market. Some Public Sector occupiers are already reviewing their occupational needs which could result in space being brought onto the market in the short term. This will outweigh any benefits from the plans to move civil servants out of London, which will be seen in the longer term.”

According to the report prime rents have stabilised across the UK and incentives are expected to harden towards the end of the year. There will be more flexibility elsewhere in the market, even in non-prime Grade A space, as landlords continue to be extremely competitive in order to secure a tenant with further softening of Grade B rental values expected in most markets.
 

 - ends –
Notes to Editors:
 
Jones Lang LaSalle’s latest National Voice - Office Market Conditions across the UK report (for locations outside of London) examines Quarter 1 2010 activity and provides a forward looking view on the office leasing markets in Birmingham, Leeds, Manchester, Western Corridor, Edinburgh and Glasgow.