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News Release


Strengthening occupational market shows no sign of waning in big six markets

​Lowest level of Grade A office supply remains real pressure point in core markets outside London

UK, 25th February 2015 – There is no sign of the strength of the main office markets outside London waning following last year’s record year for take-up, according to JLL’s latest Big 6 office market research.

2014 was the best performing year for the Big 6 markets, comprising Birmingham, Bristol, Leeds, Manchester, Glasgow and Edinburgh, with office take-up totalling five million sq ft. This equates to a similar level of activity in both the West End and Western Corridor markets combined. According to JLL, 1,080 big 6 office transactions completed last year, a 25% increase compared to the previous year and there was a 43% rise in the number of deals over 10,000 sq ft in size.

JLL said the volume of Grade A office supply, which is at its lowest for ten years, remains the real pressure point in the core six markets outside London.

The strengthening occupational market drove prime rental growth in all but one of the big six markets last year. The UK regional office average weighted prime rent increased by 3.7% year-on-year to stand at £29.78 per sq ft at end-2014. Incentives also moved in over the course of 2014 with the prime average net effective rent increasing by 6.2% year-on-year.

Jeremy Richards, head of national office agency at JLL, said another closely watched barometer of business optimism was the 4.2 million sq ft of active requirements for space over 20,000 sq ft, a 55% increase on 2013. The majority of this demand continued to be driven by lease events closely followed by business expansion demonstrating confidence is returning to corporates.
Jeremy continued: “The Big 6 Grade A vacancy rate is currently 1.6%, its lowest level for ten years and lower than the other three markets we monitor namely London’s West End, City of London and Western Corridor. Combined with named occupier demand at its highest and rental increases last year in all but Birmingham these ingredients are making for a very interesting cocktail for the year ahead.

“Landlords are now changing their quoting rents upwards; we’ve seen this in Bristol and Manchester so far and anticipate it will become more common-place as market conditions continue to shift away from the occupier. Incentives also moved in over the course of 2014 with the prime average net effective rent increasing by 6.2% year-on-year.”

The Grade A office shortage is the catalyst behind new development with 16 schemes now on site across the big 6 cities which is set to bring 1.9 million sq ft of new space. With 400,000 sq ft already let, the volume currently being built does not correct the current / supply demand imbalance.

JLL also points to the rapidly growing Digital and Technology, Media & Telecommunications (TMT) sector which it says could herald a major shift in the type of space developers need to deliver as businesses seek out next-generation ‘white-collar factories’ to house their operations. There is also a genuine opportunity for the regional cities to capitalise on near-shoring requirements to escape rising costs in the Capital. Offshoring risks are also propelling companies to consider locations closer to home.

Jeremy continued: “Recent research showed that of the 1.46 million workers currently employed in the Tech industry, 74% are based outside of London with all of the big 6 cities having digital hubs of significance. This is clearly a rapidly growing occupational group which doesn’t necessarily want traditional office space instead preferring ‘smart’ factory-style space with scope to meet, collaborate and share ideas. The question for office developers is what to build in the future?”

“London’s high cost of living and working is the biggest opportunity for other cities. While some 23 million sq ft of offices are needed in London currently just 10 million are being provided and this too could play to the regional agenda. We only need 10% of this 13 million sq ft shortfall to be built outside of London and it will have a huge impact on the regional property market.”

Big six investment market

Big 6 investment volumes hit £2.5 billion in 2014, up £1.1 billion on the previous year and transacting more than double that of the Western Corridor. Lot sizes also increased with 13 deals over £50 million compared to just seven over 2012-13. The largest deal outside of London last year was the £320 million sale of 1 Spinningfields / 3 Hardman Boulevard in Manchester. Activity in the Scottish markets returned during Q4 2014 following a subdued period in the run up to September’s referendum.

Speculative forward funding returned also to the big 6 in 2014 with seven deals in 2014 accounting for £450 million of investment and 895,000 sq ft of new space.

Colin Finlayson, director in JLL’s National Investment team, said: “The sheer weight of money targeting South East and regional offices together with the onset of rental growth drove prime yields in by over 50 basis points during 2014. Prime yields now sit at 5.25%, with further yield compression anticipated this year in the big 6 markets as investors compete for trophy stock.

“We also expect investors to look further afield for suitable investment product and, in that context, regional centres outside the big 6 and value-add stock will be targeted in 2015.”