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Current occupier demand levels, prelets and speculative starts buoy optimism
London, 1 May 2013 – Signs of recovery across the UK’S Big Six* regional office markets continued during the first quarter of 2013 (Q1 2013) with total occupier take-up reaching one million sq ft, an increase of 25% compared with the same period last year, according to Jones Lang LaSalle’s latest research.
Whilst regional variations continued to create a mixed occupier picture total take-up in the first quarter was 15% ahead of the three year quarterly average level of 880,000 sq ft boosted by strong activity in Manchester, which accounted for the most substantial share of Q1 take-up, and the return of preletting activity in Leeds. In addition, Bristol City Council’s decision to purchase 100 Temple Street for owner occupation further strengthened the regional picture.
According to Jones Lang LaSalle’s data the top five occupier requirements across the Big Six markets account for 1.8 million sq ft of office demand, with an average size of 60,000 sq ft.
Jeremy Richards, head of Jones Lang LaSalle’s Regional Office Agency, said: “The return of some preletting activity in Leeds will kick start much needed development, pre-lets are however expected to remain rare. Current demand levels coupled with two new speculative development s in Glasgow give cause for encouragement and buoy optimism in the market.”
Office availability fell by 4% in Q1 2013, with vacancy rates across the six regional markets falling from 12.7% at the beginning of 2012 to just 12.2% in Q1 2013.?Whilst overall supply is gradually being absorbed vacancy rates remain stubbornly high in a number of locations. On aggregate, vacancy rates are still some way above the 10-year average of 10.7%. In contrast, Grade A supply remains relatively constrained across the Big Six; the average Grade A vacancy rate stood at just 3.1% at the end of Q1 2013.
Despite Grade A vacancy rates of circa 3%, the development pipeline remains relatively constrained with just 860,000 sq ft under construction, of which 697,000 sq ft is speculative. There are however, signs that confidence is beginning to return marked by two new speculative schemes commencing on site in Glasgow: 1 West Regent Street comprising 143,000 sq ft which is due for completion in early 2015 and 110 Queen Street which will deliver a further 165,000 sq ft in the second half of 2015. This confidence is not restricted to Glasow with, for example, Salmon Harvester starting on site with 100,000 sq ft in Bristol during Q2.
Jeremy Richards continued: “The regions continue to be characterised by an overhang of Grade B space, much of which is old or unfit for purpose making it difficult to let in the current climate. Refurbishment of obsolete stock could help to alleviate overall vacancies as well as providing much need new Grade A supply in the regions and some assets, which are unsuitable for refurbishment, could potentially be converted into alternative uses. Across the Big Six markets we estimate that over two million sq ft has been converted into alternative uses in the last two years.”
Prime rents were broadly stable across all six markets in the year to end Q1 2013. However, the lack of Grade A supply will continue to drive rents for the very best space.?On aggregate, Jones Lang LaSalle forecasts growth of 3.4% per annum over 2013-2017 in the major UK cities. -ends -
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