Supply running out in regional office markets

City centre office take-up in Manchester was 147,500 sq ft in the second quarter of the year and 16,600 sq ft in Liverpool, according to research by GVA.

The Big Nine Regional Office Market Review of the markets in nine cities outside London showed the re-emergence of Birmingham after two years of low activity, with 157,700 sq ft of take-up in the three-month period.

The report's authors said: "A two-tier market is apparent in most cities, where grade A supply continues to tighten with so little development, and secondary property remains in plentiful supply. In terms of grade A supply, each city will reach a tipping point when supply is less than the annual take-up. By projecting supply and taking average annual take-up, we estimate that Bristol will be the first to reach this point this year, followed by Manchester, Edinburgh and Glasgow next year. Of course the reality is more complex, as demand will also be met by grey [tenant-controlled sub-let] space and the availability of good secondary property, as well as pre-lets. However, it does indicate which cities may be the first to see a return to development."

On rents, the report continued: "Headline rents and lease incentives have remained fairly static over the past quarter, although there is some indication of pressure on incentives, as a result of diminishing grade A supply. City centre headline rents vary between £28.50/sq ft in Glasgow and Manchester and £21.00/sq ft in Liverpool. Factoring in rent-free periods less three months fit-out, these figures reduce to net effective rents of £23.51/sq ft and £14.70/sq ft. Rent-free incentives are typically around 36 months on a ten-year lease but vary between 20 and 42 months across the nine cities."

In Liverpool, activity is expected to improve in the second half of the year, GVA said, with deals said to be close to completing such as 90,000 sq ft to law firm Weightmans at Bruntwood's The Plaza.

The largest deal in Manchester city centre in the second quarter was 47,500 sq ft to Linder Myers at 55 Spring Gardens.

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