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News Release

London

Signs of occupier activity recovery in UK regional office markets

According to Jones Lang LaSalle’s research


London, 19th January 2011 – Signs of recovery in the UK regional office leasing market appeared during the second half of 2010 (H2 2010), with take-up activity up 75% overall (3.5 million sq ft) in comparison with the first six months of the year.  Whilst the uptake in activity was slightly uneven across the six key UK markets outside of London*, with Manchester and West London particularly strong, overall this bounceback meant that 2010 take-up totalled 5.5 million sq ft, a 36% increase compared with 2009, and exceeded the five year annual average (4.9 million sq ft) by 12%.  The increase in leasing activity was largely a result of several long standing occupier requirements coming to fruition last year and Jones Lang LaSalle anticipates an increase in the number of companies launching requirements in the first half of 2011.
 
James Finnis, head of Jones Lang LaSalle’s National Offices team in England, said: “Occupiers across all six markets are becoming increasingly aware of the growing shortage of Grade A space, with pinch points in a number of locations expected to emerge towards the end of this year. 
 
“In almost all markets, Grade A vacancy rates are now below 4%, albeit approximately in line with their five year averages, and trending down.  With the exception of a small volume of activity in West London, where just below 300,000 sq ft is due to get underway this year, there has been no development response to this tightening supply and, given the constraints to speculative development that still exist, this remains unlikely.”
 
Cameron Stott, Director, Jones Lang LaSalle Edinburgh Agency and Development, added: “As a result of reducing levels of supply, occupiers will soon have to start considering prelet options in order to fulfil significant Grade A requirements. For cost-sensitive occupiers with a lease event, therefore, the risk of not acting in the early part of 2011 is that the economic rent required to drive a prelet will be at a premium to the market rent.”  
 
According to Jones Lang LaSalle the UK regional office leasing market continues to be a tale of two stories, however, with increasing polarisation between Grade A and Grade B space.  Prime space looks set to continue to perform well over the year but secondary stock carries significantly more downside risk. In the short-term it is anticipated that some tenants, who took space in the second half of 2010, will start to release stock onto the market keeping the supply of lower-quality space inflated. In the longer term, as the public sector cuts start to be implemented Jones Lang LaSalle forecasts further influxes of Grade B supply onto the market.
 
In the regional office investment market, activity has remained relatively subdued, as most investors have continued to seek assets in London.  Investors in the regional markets were still highly risk averse, focused on good quality, well-let properties and with clear divergence between prime and secondary space.
 
Angus Minford, Director, Capital Markets at JLL, concluded: “Given the occupier market conditions we expect the yield gap between prime and secondary stock to widen further. The strengthening market fundamentals for prime space will have the potential to encourage increased investment activity outside of London this year.”