Savills: Confidence returning to office market

Office take-up across the UK regions is expected to rise significantly in 2014, surveyor Savills said in its latest Regional Office Market Report.

Savills predicted a 17% increase next year in take-up in its sample of half a dozen cities outside London.

Take-up is up this year compared to 2012; 128% in Birmingham, 107% in Leeds, 43% in Manchester, 31% in Bristol and 10% around the M25.

James Evans, director in Savills Manchester, said: "We are now seeing real evidence of what appears to be a growing sentiment of confidence in the North West and, while we have witnessed this before in recent years, there is a feeling that this trend is more robust and likely to result in some substantial transactions.

"There has been a significant uplift in larger enquiries within Manchester particularly in the city centre and, combined with a considerably constrained development pipeline with no significant overhang of development stock from the last cycle, office schemes are enjoying a spike in demand that could place some upward pressure on rents. This resurgence of activity in the leasing market has fuelled investor interest and we are not only seeing UK institutions searching Manchester but purchasers from as far afield as North America, Israel, India and North Africa have also shown an interest in identifying a suitable property investment in Greater Manchester."

Jeremy Bates, national head of office agency at Savills, comments: "We have not only seen a large number of requirements in the regions move forward this year, but anecdotally there is a widespread sentiment that UK businesses are doing better and that headcount growth, leading to an increase in the level and size of new enquiries, is going to come forward shortly. The concern for occupiers is that there is relatively little quality office space currently available for them to chose from and unlike other sectors, most notably retail and industrial, office occupiers more traditionally consume speculatively built vacant product than pre-let or build to suit. For those landlords, investors and developers with well located sites and buildings, there are great opportunities ahead of them."

Savills research confirms that more traditional office occupiers such as the professional sector is showing some bounce back in the regions, with the highest rise reported in the North West, which saw professional services take-up grow by 9.1% over the last 12 months. However, the report also highlights that the technology, media and telecoms sector, which has seen exceptional growth in Central London, has also gained momentum in the regions this year. This trend is excepted to continue with Oxford Economics forecasting employment in this sector throughout the UK will grow by 9% over the next five years.

According to Savills, the question now for the UK office market is 'will 2014 be the year of a return to more widespread office rental growth?' Bates continued: "While there are 10 new schemes underway in Bristol, Cardiff, Manchester, Edinburgh and Glasgow showing a vote of confidence in the prospects for the regional office markets, the overall development pipeline continues to be restrained. Grade A supply is now falling in all major cities with an 11% decrease across the UK over the last 12 months. We expect this continued lack of grade A space to result in prime rental growth in some regional cities as we head into 2014."

Savills report shows that between now and 2016, Bristol and Birmingham will see rental growth of between 1% and 2% a year, Manchester and Leeds 2% and Edinburgh and Glasgow 2-3% a year.

Regional office yields have hardened throughout 2013 by 0.5% to a current holding figure of 5.75%, Savills said.