Record investment activity in the UK's Big 6 office markets last year
Investment volumes across the Big 6 regional office markets were the highest for over a decade according to JLL's latest analysis.
London, 22 February 2018 - Investment volumes across the Big 6 regional office markets were the highest for over a decade according to JLL's latest analysis.
Over 2017, office investment volumes in the Big 6 hit £2.9 billion, 49% up on 2016 activity of £1.96 billion. Manchester led the way for the year as a whole, with volumes of £908 million which accounted for 30% of overall activity. Birmingham was the second most active market with £762 million transacted. According to JLL's data, Birmingham (£762 million), Glasgow (£468 million) and Edinburgh (£402 million) all achieved the highest volumes on record last year.
Last year, 55% of the overall Big 6 office investment volumes were for lot sizes of over £50 million, with fifteen deals over this size bracket completing. The largest was the £260 million acquisition of Brindleyplace in Birmingham by clients of HSBC.
Angus Minford, director in JLL's Capital Markets team, said: "This record activity reinforces the regional office markets as a continued draw for overseas investors who have significant appetite for sizeable transactions. Overseas money accounted for 48% of 2017 volumes, with investors attracted by the yield gap with London and other European markets."
Regional interest by overseas investors for larger lot sizes also continued, with 64% of offices traded over £50million involving overseas equity. However UK investors remained acquisitive, accounting for more than double the number of Big 6 transactions of overseas investors in 2017.
While UK funds will increase their appetite this year the trend of foreign investment into the regional markets is expected to continue. This demand will continue to focus on prime assets with investors seeking steady and predictable income streams.
James Porteous, director in JLL's Capital Markets team, added: "The availability of suitable product will remain thin with motivated sellers in short supply. Demand for "risk on" assets will remain tempered against the backdrop of Brexit negotiations. Polarisation between prime and secondary pricing is undoubtedly increasing, and our advice to investors is to choose carefully in secondary markets."
The Big 6 occupier market also saw a record year of take-up last year, transacting 5.6 million sq ft of offices, 20% higher than 2016. Four cities transacted over one million sq ft - Birmingham, Edinburgh, Leeds and Manchester. Manchester saw 1.2 million sq ft of take-up, the highest among the six regional cities in 2017. Leeds saw the biggest occupier deal outside of London with the GPA's acquisition of 378,000 sq ft at Wellington Place.
While the public sector accounted for 29% of Big 6 take-up last year, the flexible workspace sector, which is expanding rapidly all over globe, also increased its share in the UK regions. WeWork acquired 100,000 sq ft in Manchester, its first regional facilities outside of London and Regus took 76,000 sq ft in Birmingham.
Chris Mulcahy, director of office agency at JLL, continued: "In London, flexible workspace operators now occupy 3.5% of total office stock whilst across the Big 6 markets it is currently just 1.9%. With the growing trend for collaborative workplaces and amenities, we certainly expect to see further growth in the regions this year."
As a result of the strong demand for space and limited supply across the Big 6, office rents rose in a number of locations in 2017. Bristol led the way with a 14% increase over the year to finish at £32.50 per sq ft.
"The outlook for 2018 is for further rental growth which is encouraging and with supply shortages likely to persist there will be continued upward pressure on the rental tone", concluded Mike Buchan, director of office agency at JLL.