Record occupier activity in the UK’s Big 6 office markets last year

The UK’s ‘big 6’ office markets - Birmingham, Bristol, Edinburgh, Glasgow, Leeds and Manchester – saw a record year of combined take-up last year, transacting 6.1 million sq ft of space, 9% higher than 2017 according to JLL’s latest research.

Manchester saw 1.76 million sq ft taken up, the highest among the six regional cities, which accounted for 29% of overall big 6 volumes. Glasgow, for the first time ever, also topped the one million mark transacting a total of 1.4 million sq ft of occupier deals. The city also saw the largest recorded deal in the regional markets with Barclay’s acquisition of 470,000 sq ft. 

Chris Mulcahy, director - office agency, JLLsaid: “Manchester and Glasgow both recorded unprecedented take-up volumes and we saw a strong performance across the big 6 markets. With the five-year take-up average at 5.3 million sq ft, and the 10-year around 4.4 m sq ft, the big 6 office markets comfortably outperformed these last year.”

With such strong leasing activity witnessed last year office supply continued its downward path throughout 2018, with the average office vacancy rate in the big 6 markets falling below the 5% mark for the first time ever.

Ian Wills director, director - office agency, JLLadded: “Bristol, Manchester and Edinburgh all have a shortage of good quality space, with a Grade A vacancy rate of 1.1% or less evident in these cities set against the average Grade A vacancy of just 1.5%. This has led to an increase in pre-lets with 18 completing last year and with the scale of some of these schemes it is also expanding the traditional CBD as developers have to look further afield to find available land.”

JLL highlights occupier activity came from a diverse tenant base with the public sector and banking & financial services each accounting for around 20% of take-up last year. The TMT sector registered its best performance yet with 18% of the take-up. The continued expansion of flexible workplace operators supported the wider services sector activity. Last year, 585,000 sq ft of space was taken up by flexible workspace providers across 26 deals, a 26% increase on the previous year.

Across the big 6 cities, there is a total of 2.2 million sq ft of new build office space under construction. Of this total, 1.2 million sq ft is due to complete in 2018, of which close to half is in Manchester, with a further 910,500 sq ft anticipated in 2019. This falls well short of the expected level of demand for new office space, with average Grade A take-up across the big 6 of circa 1.8 million sq ft. 

JLL also cites the growth in flex space and inward investment as two key themes for the big 6 markets this year. Flex space accounted for 10% of big 6 take up and all of the 6 cities witnessed flex space activity last year. According to JLL’s data, over the last five years, predominantly driven by the search for talent, 75 businesses have entered the big 6 cities (both new entrants and regional moves) which accounted for 2.5m sq ft of space.  

Office investment

Over 2018, office investment volumes in the big 6 hit £2.4 billion, a decrease from the record breaking levels seen in 2017, but still a solid year nevertheless. Manchester led the way, with volumes of £845 million which accounted for 35% of overall activity. Glasgow was the second most active market with £422 million transacted followed by Leeds with £318m traded, significantly higher than the £112m seen in 2017.

“A lack of quality stock led to there being 20% few deals compared with 2017, however the average lot size has stayed consistent over the last five years at around £28 million,” added Colin Finlayson, director - capital markets, JLL. 

Colin continued: “Given the tight supply across the big 6 we are seeing investors increase their allocations to forward funding speculative development. We are also seeing UK institutions entering in to direct development to create their own prime investment stock.”

Looking ahead, JLL’s research shows that there 18 office investment transactions currently under over in the first quarter of 2019, compared to just six at the same point last year. 

James Porteous, director - capital markets, JLLconcluded: “Of the office deals currently under offer, 90% of this capital is coming from overseas investors. The big 6 cities will remain attractive locations to foreign investors as these markets continue to offer notable value when compared to other similar sized European markets.

“With the ongoing political and economic uncertainty, investors will continue to be focused on well-let, good quality assets.”