UK regional commercial markets see positive start to 2014

The UK’s the regional occupier markets made a positive start to 2014, reflecting a revival in occupier sentiment during the past 12 months, according to a new report.

Take up in the first quarter of the year up in the UK 10 main regional cities combined was 26% above the same quarter last year and some 20% ahead of the five year quarterly average.

The analysis market report from Knight Frank shows that Manchester led the way in the first three months of the year with take up of 315,374 square feet, its highest quarterly total since the third quarter of 2010.

Despite concerns over the forthcoming independence referendum, Scotland’s three main markets all saw healthy activity. Edinburgh recorded 207,000 square feet of take up, some 65% above the five year quarterly average. Meanwhile, take up in Glasgow and Aberdeen was 50% and 27% above their respective quarterly averages.

The report says that overall Grade A availability continues to diminish in the absence of concerted speculative development, with Leeds and Manchester seeing significant year on year falls of 60% and 37% respectively. Meanwhile in Wales, availability in Cardiff increased 29%.

In the investment market, total volumes outside London and the South East reached a healthy £735 million, 28% above the five year quarterly average but 35% down on the fourth quarter of 2013.

It points out that despite very strong demand for regional offices among the UK Funds, volumes are being constrained by a lack of stock on the market as landlords opt to hold rather than sell.

With a limited supply of buying opportunities, the strong weight of money in the market continues to put pricing under pressure. Prime yields hardened by 25 basis points across all key markets in the first quarter, taking the total shift to 75 basis points over the past 12 months.

‘The improvement in occupier demand has put the diminishing levels of supply firmly under the microscope. The majority of the regional markets now have less than two years’ worth of Grade A supply available, and this is expected to put upward pressure on headline rents over the coming 18 months,’ said David Porter, Knight Frank Partner for leasing.

Colleague Henrie Westlake, Investment Partner, said that while the rate of yield compression is expected to ease, it is likely to constitute the main driver of investment performance in 2014.

‘Moving forward, however, we expect performance to be driven more on the income side, as the recovery in the occupier markets accelerates and rental growth becomes more widespread,’ he added.