Knight Frank: yields drift but occupier markets hold firm

The fall in UK office values was reflected in Manchester and Liverpool in the first quarter of 2008 with yields in both cities moving out by 0.25%, according to a report by Knight Frank.

Knight Frank's Regional Office Market Presentation found an outward shift in prime yields by an average 32 basis points, or 0.32%, across the country as a result of the worldwide credit crunch and the increased pressures on the debt market. Aberdeen, Glasgow, and Sheffield saw the highest yield shift of 50 basis points.

Outside Central London, Manchester was the most expensive city to buy into, with the lowest yield at 5.50%, followed by Birmingham, Bristol and Newcastle at 5.75%. Liverpool is now on a par with Glasgow and Sheffield with a yield of 6.00%.

Claire Higgins, head of commercial research, Knight Frank, said: "Although prime yields have continued to move out across the UK, the rate of movement has lessened, indicating that the office investment market may stabilise in the short to medium term. However, this remains dependent on investor confidence and the underlying economy, while concerns surrounding restrictions on financing will continue to influence performance."

On rental price movement, the report's authors said the UK market is forecast to see rental growth increase by an average of 5.0% by the end of 2008.

Rents in Liverpool and Manchester remained flat from the previous quarter, on £22/sq ft and £32/sq ft respectively. The "continued buoyancy of the regional office occupational markets" will result in growth for Liverpool by 5% to £23/sq ft and Manchester 6% to £34/sq ft by the end of the year, Knight Frank said.

Only London's City market saw a decrease in rentals, of 6% to £60.00/sq ft. London's West End continued to top the table as the most expensive place to rent prime office space; however, it saw nil rental growth in Q1 08 to remain at £110.00/sq ft and is forecast to end the year with an increase of 5% to £115.50/sq ft. Birmingham remained the most expensive city outside the South East in which to rent prime office space at £32.50/sq ft, and is forecast to end the year with a 2% increase to £33.00/sq ft.

UK office prime rents

Prime Rent (£ per sq ft) Q4 2007

Prime Rent (£ per sq ft) Q1 2008

Prime Rent Forecast

(£ per sq ft) end 2008

Q4 07-

Q1 08

% increase

Forecast

% increase

Sheffield

18.50

18.50

21.00

0%

14%

Newcastle

22.00

22.00

24.00

0%

9%

Cardiff

20.00

20.00

21.50

0%

8%

Aberdeen

24.50

28.00

30.00

14%

7%

Manchester

32.00

32.00

34.00

0%

6%

Edinburgh

28.50

28.50

30.00

0%

5%

Liverpool

22.00

22.00

23.00

0%

5%

London – West End

110.00

110.00

115.50

0%

5%

Leeds

26.00

27.00

28.00

4%

4%

Glasgow

27.50

27.50

28.50

0%

4%

M25 – South East exc C Ldn

36.00

37.00

38.00

3%

3%

Birmingham

32.50

32.50

33.00

0%

2%

Bristol

27.50

27.50

27.50

0%

0%

London – City

63.50

60.00

60.00

-6%

0%

Source: Knight Frank

Average

1%

5%


UK office prime yields

Prime Yield (%)

Q4 2007

Prime Yield (%)

Q1 2008

Increase (basis points)

Aberdeen

6.00

6.50

0.50

Glasgow

5.50

6.00

0.50

Sheffield

5.50

6.00

0.50

Edinburgh

5.50

5.85

0.35

Leeds

5.50

5.85

0.35

M25 – South East exc C Ldn

6.00

6.25

0.25

Cardiff

5.75

6.00

0.25

Liverpool

5.75

6.00

0.25

Birmingham

5.50

5.75

0.25

Bristol

5.50

5.75

0.25

Newcastle

5.50

5.75

0.25

Manchester

5.25

5.50

0.25

London – City

5.25

5.50

0.25

London – West End

5.00

5.25

0.25

Source: Knight Frank

Average

0.32

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