Strong occupier activity in the UK’s ‘Big 6’ office markets last year
And Big 6 office investment hits £2billion again
The UK’s ‘Big 6’ office markets - Birmingham, Bristol, Edinburgh, Glasgow, Leeds and Manchester – recorded another strong year of activity with 5.2 million sq ft of space taken up, according to JLL’s latest research.
Manchester continued to dominate activity with 1.5 million sq ft taken up, the highest among the six regional cities, which accounted for 29% of overall Big 6 volumes last year. Glasgow saw the largest recorded deal in the regional markets with JP Morgan Chase’s acquisition of 272,000 sq ft on Argyle Street.
Elaine Rossall, head of UK offices research at JLL, said: “We saw a strong performance across the big 6 office markets with 2019 take-up just shy of the five-year average of 5.3 million sq ft. Five of the Big 6 cities also outperformed their ten-year averages.
“The services sector, which includes flexible workspace operators, along with the TMT sector dominated occupier activity last year. According to our data 50% of all floorspace was taken up by businesses from these areas.
With such healthy leasing activity witnessed last year office supply continued its downward path throughout 2019, with the average office vacancy rate in the Big 6 markets falling to a historic low of just 4.2% at the end of the year. The pressure on supply was more acute for Grade A space, with the vacancy rate falling to an unprecedented low of 1.2% at the end of 2019.
Elaine Rossall continued: “Development has been comparatively low in most office markets over the past few years, despite demand remaining robust. In most of the Big 6 markets, office vacancy rates are now well below historic averages. Some locations, such as Edinburgh and Leeds, are facing a supply crisis while in Manchester sustained occupier demand suggests the relatively high level of new build there will easily be absorbed.”
With few new starts, speculative space under construction fell throughout 2019 declining from 3.6 million sq ft in 2018 to just 2.6 million sq ft by year end. Around 1.8 million sq ft is due to complete in 2020, which would be the highest level of speculative completions since 2009, but while that may alleviate some of the supply shortage in the short term, JLL points to the pressure on Grade A space continuing into 2021, when speculative completions are expected to fall back sharply.
As well as an increase in pre-letting activity across the regional markets, JLL anticipates further rental growth this year, following growth of over 4% in Leeds, Birmingham and Manchester in 2019.
Manchester prime rents increased to £36.50 per sq ft, which is a historical high in any of the
Big 6 markets and rents in Leeds now stand at £31.00 per sq ft, which still makes it the most cost effective Big 6 office market.
Investment volumes across the Big 6 reached £2 billion in 2019, the fifth highest year on record, and the third consecutive year at or above £2billon.
Volumes were 16% down on a strong 2018, but relatively stable in the context of the wider market – overall UK investment was 21% down in 2019 and office investment was 29% down. Concerns around Brexit dented sentiment, notably impacting supply and seller motivation, which were among the biggest limiting factors throughout 2019 alongside the lack of product.
Leeds was the best performing Big 6 market, with £526millon invested, comfortably the highest ever figure and 66% up on last year’s £317millon, which was the previous record. The main driver was the sale of two government occupied assets for a combined £450millon, with Quarry House (£243millon) and 7-8 Wellington Place (£211millon) both acquired by L&G in Q3.
Edinburgh also saw record investment in 2019, with £471millon transacted, an increase of 77% on 2018. This included the purchase of 4-8 St Andrew Square for £120millon by German fund manager Kanam, and Brockton’s sale of the Leonardo Innovation Hub to South Korea’s Hyundai AM for £100millon, both in Q2. The only other deal over £100millon to conclude last year was L&G’s £139millon sale of Priory Court & Lewis Building to Gulf Finance House of Bahrain.
James Porteous, director capital markets, JLL concluded: “We are already seeing investors becoming more confident following December’s General Election however caution is likely to grow as 2020 progresses. With vast amounts of capital looking for a home, especially from overseas, investors have confidence in the UK’s long-term future, the negative impacts are unlikely to overwhelm, and overall investment should pick up – although as in 2019 the biggest problem could be lack of product.
“The UK remains a highly attractive investment destination for several reasons: transparency, liquidity, very strong occupational markets, and its reputation as a hub of innovation and talent. Added to this, and against the backdrop of a slowing world economy, the UK’s relatively high yields and the spread over risk-free rates make it look very attractive indeed.”
JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. JLL shapes the future of real estate for a better world by using the most advanced technology to create rewarding opportunities, amazing spaces and sustainable real estate solutions for our clients, our people and our communities. JLL is a Fortune 500 company with annual revenue of $18.0 billion, operations in over 80 countries and a global workforce of more than 93,000 as of December 31, 2019. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit jll.co.uk.