Glasgow helps to boost figures
Grade A demand gives office take-up a lift
Glasgow’s booming office market is helping fuel an uplift in the UK commercial property market.
New figures show a strong start to the year with regional office take-up outside central London 11% above the five year average in the first quarter, according to DTZ.
This was the sixth consecutive quarter of above-average take-up, indicating ongoing occupier confidence in the major UK office markets.
For the first time since the second quarter of 2012, overall office availability increased in the regions, most notably grade A availability, which increased by over a third.
This was driven by various speculative developments nearing completion in a sign of confidence on the part of developers, with over 1.3 million sq ft of speculative space due to be delivered in Glasgow and Manchester alone over 2015-17.
Interest in these developments is high, with around a quarter of the space already pre-let and DTZ expects further lettings ahead of completion.
Notable schemes include St Vincent Plaza, 1 West Regent St and 110 Queen St in Glasgow, together with One New Bailey and Two St Peters Square in Manchester.
The recent increase is off a low base and most cities are still suffering from a shortage of availability. This is particularly the case for grade A stock, which has led to landlords taking a harder stance on incentives. Rent free periods have fallen 28% in the past year and headline rents are forecast to rise 8% on average over the next three years.
Ben Clarke, head of UK research at DTZ, said: “The increased speculative pipeline in regional UK office markets is good news for various key occupiers reaching lease events, but the total pipeline is still more than a third lower than completions during the pre-recession 2004-08 period.
“This strength in prime occupier markets is helping support investment demand, which eroded prime UK regional office yields by a further 20 basis points in Q1.”
Paul Broad, director, office agency at DTZ in Glasgow, added: “Glasgow has seen a resurgence in office market activity and posted city centre take-up of 677,653 sq ft over 2014. This significantly improved from 2013 levels of 452,000 sq ft (excluding the ScottishPower pre-let) and is indicative of the resurgence in demand for new Grade A space as occupiers strive to occupy more functional, flexible and efficient accommodation.
“It is widely reported that floor plates in excess of 10,000 sq ft are now in short supply and that other new build schemes will not be physically deliverable until 2018, so refurbishment opportunities will be the focus of occupier and developer alike in 2015, 2016 and 2017.
“The comprehensive refurbishment of 6 Atlantic Quay will be one of the first of these schemes to complete, providing 80,000 sq ft of refurbished Grade A accommodation. With incentive levels hardening and rental growth landlords are becoming increasingly bullish, and aware of the impending lack of supply, occupiers are looking to bring forward occupational strategies.
He added: “However the market remains fragile as it continues to recover and we should remember that both landlords and occupiers enjoy a symbiotic relationship and without each other neither can prosper. For this reason, given the current city centre market dynamics, it is imperative that both adopt a strategy of early engagement and mutual respect so occupiers and landlords alike can work together to deliver property solutions that are mutually beneficial and great for Glasgow.”