Demand for commercial office space in UK cities continues to surge

HSBC HeadquartersAccording to the latest quarterly update from property advisors Knight Frank, demand for commercial office space in the UK’s regional markets remains remarkably  strong, driving upward pressure on rental prices and increasing the demand for new commercial property developments. According to the report, demand is up by around a half compared to  the previous quarter, with Birmingham enjoying the largest increase of around 400 percent. Strong economic growth is reflected in healthy occupier demand, which saw a total of 2.08m sq ft taken up in the three months to the end of June, which was 51 percent ahead of the first quarter and 49 percent above the five year quarterly average. The stand out let was HSBC’s at Birmingham’s Arena Central development (top) which accounted for fully half of the city’s take up of space and which we reported here.

“Improved occupier confidence has led to a surge in pre-letting activity and high levels of take-up across the main regional office markets in Q2, which we anticipate will be reflected in rental growth and further starts on new development schemes over the next 18 months,” said Stephen Hodgson, Knight Frank’s head of regional offices.

Pre-letting activity increased in the quarter, which Knight Frank said impacted on new and Grade A availability, which was down by 17 percent year-on-year collectively to 2.2m sq ft.

Hodgson added: “On the investment front, despite the fact that yields are approaching historic lows we also feel that there is scope for further yield compression.”

Almost £2.1bn of regional office assets were bought and sold, the strongest first six-month period since the financial crisis.

Bristol, Manchester and Birmingham were the main focus of investment activity in the second quarter, accounting for over half of total investment turnover.

Bristol in particular saw some sizeable transactions, including the off-market purchase of the 10 Templeback grade-A waterfront office building by Orchard Street Investment Management in June 2015 for £58.5m, reflecting a net initial yield of 5.34 percent, and Aviva Investors’ acquisition of 66 Queen Square for £32.7m, at a net initial yield of 4.94 percent.

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