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News Release

Sustained take-up activity in the UK’s Big 6 office markets in 2016

Although supply gap looms beyond 2017

​UK, 24 February 2017 – 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 according to JLL at its annual ‘Big 6’ office market seminar held this morning.

Bristol and Glasgow led the way in terms of growth on 2015, while Manchester once again recorded the highest annual office take-up among the six regional cities in 2016, with 1.3 million sq ft which accounted for 27% of total overall take-up of floorspace followed by Glasgow with 19%. 904,000 sq ft of transactions completed in Glasgow in 2016, the highest level of office take-up recorded in the city for ten years. Glasgow also saw the largest occupier deal of the year with Morgan Stanley taking 155,000 sq ft at Bothwell Exchange.

The Big 6 office market continued to benefit from a broad range of occupier activity. Professional services 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 a number of large requirements in the regions, totalling 1.5million sq ft, the public sector is anticipated to continue being a major driver of take-up in 2017.

Speaking to an audience of over 200 guests, Cameron Stott, Director of Office Agency at JLL, said: “Our research shows there are currently 4.4 million sq ft of active requirements, for space over 20,000 sq ft, with overall take-up estimated to reach around 5 million sq ft this year.

“Leeds was the only city to see an increase in prime rents during H2 2016, which are now £27.50 per sq ft for the best quality space. Some markets saw rising rent free periods, perhaps reflecting weaker sentiment arising from the EU referendum. However, with most cities continuing to face a shortage of new and Grade A space, headline rents should remain well supported in 2017.”

Big 6 office supply totalled 7 million sq ft at the end of 2016 and the average overall vacancy rate stood at 6.8% falling 90 basis points year-on-year. Grade A supply remains constrained with a vacancy rate of just 1.8% averaged across the Big 6 cities. Bristol currently has the lowest Grade A vacancy rate at 0.4%, but Birmingham, Edinburgh, Glasgow and Manchester all have Grade A vacancy rates below 2%.

2.1 million sq ft is currently under construction speculatively across 13 schemes of which 30% is already pre-let. It’s a varied picture across the Big 6 - Birmingham has nearly 650,000 sq ft of speculative space on site while Glasgow has no speculative build on site.

Cameron Stott continued: “As a result of the supply gap, pre-lets continued to be prevalent. Last year, nine pre-lets completed – the second highest for ten years – with all six cities witnessing at least one. Increasingly, landlords are considering refurbishment, as demand for good quality space holds up. There is currently 2 million sq 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.”

Big 6 office investment volumes hit £1.96 billion for the full year with an average deal size of £26.9million, similar to 2014 levels. While transactional volumes were well below the £2.8 billion recorded in 2015, activity last year comfortably outperformed the £1.4 billion long-term average. Manchester led the way for the year as a whole, with volumes of £643 million, followed by Edinburgh, which saw another strong year, with £390 million transacted.

Nearly 30% of the overall 2016 volumes were for lot sizes of £50-£100 million. Just four deals of over £100 million completed with the largest being M&G’s £200 million acquisition of Three Snowhill in Birmingham.

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: “Following a period of heightened uncertainty in the immediate aftermath of the EU referendum, the Big 6 office investment market had a strong finish to 2016. Prime yields stabilised in Q4 and are now back to pre-Brexit levels.

“£300 million of office deals have already completed in 2017 and there is circa £685 million, in 14 key deals, currently under offer. 70% of transactions so far in 2017 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.”