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News Release

London

Developer’s response to the impending regional office supply shortage remains limited

Just 38,000 sq ft of new offices to complete this year according to Jones Lang LaSalle’s research


London, 20th April 2011 – The squeeze on Grade A office supply continued over the first quarter of 2011 (Q1 2011) across the UK’s regional property markets.  Although, currently 488,500 sq ft of new office space is under construction in Edinburgh, Leeds, Birmingham and the Western Corridor region only 38,000 sq ft is scheduled to complete this year with no new space under construction speculatively in either Glasgow or Manchester according to  Jones Lang LaSalle’s latest research.
 
With the exception of the Western Corridor and Manchester markets, the response to the impending office supply shortage remains limited, with no new speculative developments due to commence this year in the rest of the UK regional markets monitored.  Grade A vacancy rates across the majority of the six key UK regional markets are below 4%, albeit approximately in line with their five year averages, but trending downwards.

James Finnis, head of Jones Lang LaSalle’s National Offices team in England said: “We expect developers to begin positioning themselves strategically to take advantage of the impending shortage of Grade A supply; the lack of speculative development funding will mean that the pipeline will remain severely limited over the forthcoming year.”

Office take-up across the six key regional markets* reached 940,000 sq ft over Q1 2011, down 23% compared with the same period last year.  Leasing activity is likely to improve over the coming months, however given the mixed outlook for the economy, occupiers are expected to remain cautious; Jones Lang LaSalle forecasts that the total office take-up for 2011 across the six key regional markets to be at similar levels to 2010 (5.4 million sq ft).

The growing polarisation between Grade A and Grade B office space also continued over the first quarter of this year as prime rents increased in Birmingham, Glasgow and the Western Corridor and remained stable in the other three markets.  Further growth in prime rents is expected this year, driven largely by the anticipated shortage of Grade A space.

Mike Buchan, Director, Jones Lang LaSalle Glasgow Agency team, added: “In contrast, Grade B office space carries significantly more downside risk for landlords and, while we have not yet seen any significant release of Grade B space onto the market by occupiers, we expect the level of this grade of stock to remain inflated.  As cuts within the public sector materialise we predict further influxes of Grade B space onto the market.  We expect to see increased interest from investors and developers in repositioning secondary stock to take advantage of the supply gap, as well as renewed interest in the conversion of Grade B space to alternative uses such as residential uses.”

Investment activity remained subdued in the UK regional markets and whilst purchasers have continued to focus on good quality, well let properties a clear divergence between prime and secondary has emerged. 

Angus Minford, Director, Capital Markets at JLL, concluded: “Competition for prime core assets combined with a lack of new office supply in Central London, has created a highly competitive market that, largely due to pricing, is likely to lead to investors expanding their focus further afield.  Combined with the strengthening market fundamentals for prime space, which will result in improved rental growth, this has the potential to encourage increased investment activity outside of London this year.”
 
Notes to Editors:
*The six key UK office markets outside London monitored by Jones Lang LaSalle are: Birmingham, Leeds, Manchester, the Western Corridor region (West London and Thames Valley), Edinburgh and Glasgow.