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Boost for UK’s regional office market in second quarter of 2013

This is the highest take up in the regions since the third quarter of 2012 and 16% up on the first quarter of 2013, according to the latest report from property firm Knight Frank.

Whilst total take up for the first half of 2013 stands 1.8% higher than the first half of 2012, this was largely due to Aberdeen’s exceptional performance in 2012.  Indeed, key markets in England saw exceptional take up levels in the first six months of 2013, most notably Birmingham up 128%, Leeds up 106%, Bristol up 54% and Manchester up 51%.

Occupier demand is relatively robust for the regions, with a growing list of sizeable requirements, mainly from the big occupiers in the legal and financial sectors. Whilst there was a healthy level of activity, similar to previous quarter, transactions continued to be predominantly characterised by smaller deals.

Availability of Grade A space slipped to 2,831,975 square feet in the second quarter of 2013, 15% down on the same period in 2012. The report says that this reflects the continuing erosion of Grade A space in most markets in the absence of new completions/development activity.
 
Headline rents and incentives have been largely stable, with only Aberdeen showing an increase in headline rents from £31.50 to £32.50 during the second quarter of the year. While further significant growth in regional headline rents is unlikely over the remainder of 2013, net effective rents may harden as Grade A supply continues to decline.

‘The erosion of Grade A supply across all markets has seen a trigger in a number of enquiries from major occupiers. The fear of missing out on the selective deliverable development opportunities seems to be a catalyst to this,’ said David Porter, partner and head of Knight Frank’s Manchester office.

‘This said, landlords are still being very competitive in an attempt to regear leases and thus retain occupiers. We expect this trend to continue over what is now a pre let market, mainly due to the lack of speculative development across the regions,’ he added.

Investment turnover for offices outside London and the South East was subdued in the second quarter of 2013. The latest figures from Property Data suggest around £346 million turnover, 42% down on the first quarter.

But the report says that strong investor interest in prime office stock in the regions has been maintained, despite a shortage of suitable product which remains a major barrier to activity. In the secondary spectrum, investor interest is highly selective, confined to good quality secondary stock where there is potential to add value through asset management.
 
Generally, prime yields were largely stable in the regional cities and signs of improved sentiment for prime stock. Aberdeen, Birmingham, Bristol, Cardiff, Edinburgh, Glasgow and Leeds saw prime yields move in by 25bps.

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