Prime Office Market Rents Increase
Posted on 02. Mar, 2011 by editor in News & Articles
Office take-up fell 43% in Q4 2010 after an exceptionally strong Q3, according to DTZ’s latest Property Times UK Regional Offices report. The drop was most apparent in the major regional cities, such as Birmingham, Edinburgh, Manchester and Glasgow. However, these locations had some exceptional deals in Q3 including 107,000 sq ft at Calthorpe House, Birmingham, and the 328,000 sq ft Co-op Group development in Manchester.
Martin Davis, Head of UK Markets Research at DTZ said: “Aggregate regional office take-up may have fallen 43% in Q4 2010 but a series of exceptional deals over the year, particularly in Q3, meant that take-up for 2010 was 18% up on 2009 and even slightly above the long-run average. This exceeded our initial expectations at the beginning of 2010, given the weak economic backdrop. Most notable was Manchester, where the 2010 annual take-up was over 1.3m sq ft, the highest we have on record for the city.”
Total regional availability edged up in Q4, but grade A availability fell again, causing average prime headline rents to rise. The major regional cities had the stronger-performing occupier markets in 2010, and consequently headline rent increases were recorded in Edinburgh, Glasgow and Manchester.
Looking forward, regional office take-up is set to fall in 2011, with fewer, large exceptional deals likely to transact. Lack of public sector demand will mute activity in some markets over the medium term. DTZ predicts that a severely limited development pipeline will mean that grade A availability will continue to fall, reducing generous incentives in some locations and pushing up prime headline rents.
The report observes there was not the surge in investment activity in the key regional markets in Q4 2010 that characterised the final quarter of 2009. A lack of prime product kept estimated prime office yields across all key regional cities stable in Q4.
Demand for good quality secondary assets with active management potential has increased, partly as a reaction to the broader range of product now being offered to the market at acceptable prices. The report shows that prime property yields are near their long-run average and that there is a tentative equilibrium at this end of the market. DTZ predicts that this situation is likely to hold in 2011, but with risks still on the downside for most key regional cities.
David Tonks (pictured), Senior Director of office agency at DTZ in Birmingham, commented: “The diverse make up of demand for office space in Birmingham city centre suggests there will be activity in most sectors of the market during 2011. But new supply brought to the market will keep overall availability near to record levels. There are, however, clear signs that occupiers with specific budget and size requirements may face a limited choice of accommodation towards the end of 2011.”
