UK regional office market sees demand increase

Occupier demand in the UK regional office market increased 51% in the first quarter of 2015 compared with the previous quarter, with total investment at its highest level since 2007.

This growth totalled a combined take up of 2.08million square feet and 49% above the five year quarterly average, according to the latest data from real estate firm Knight Frank.

Birmingham saw the top performance in the second quarter with take up of 521,136 square feet which was boosted by a number of large transactions, the most significant being the 212,000 square feet pre-let to HSBC at Arena Central.

Pre-letting activity also increased in the second quarter of the year, impacting on new and grade A availability which is down by 17% year on year collectively to 2.2 million square feet.

In the investment market some £2.09 billion of regional office assets changed hands in the first half of 2015, the sector’s strongest first half year since the second half of 2007. Bristol, Manchester and Birmingham were the main focus of investment activity, accounting for over half of total investment turnover.

Bristol in particular saw some sizeable transactions, including the off market purchase of Templeback by Orchard Street Investment Management in June 2015 for £58.5 million, reflecting a net initial yield of 5.34% and Aviva Investors’ acquisition of 66 Queen Square for £32.7 million, at a net initial yield of 4.94%.

‘Improved occupier confidence has led to a surge in pre-letting activity and high levels of take-up across the main regional office markets in the second quarter,’ said Stephen Hodgson, head of regional offices at Knight Frank.

The firm anticipates that this will be reflected in rental growth and further starts on new development schemes over the next 18 months. ‘On the investment front, despite the fact that yields are approaching historic lows we also feel that there is scope for further yield compression,’ added Hodgson.