Prime office shortages to intensify in regional markets – Jones Lang LaSalle
It will be a year of refurbishment rather than new development for regional UK markets for office space, says Jones Lang LaSalle. The firm says that just six offices schemes started speculatively last year across the six regional office markets it monitors – Birmingham, Bristol, Edinburgh, Glasgow, Leeds and Manchester. Four of these were underpinned by pre-lets, it notes.
JLL says the continued lack of development finance and the weaker occupier market have resulted in only about 600,000 sq ft currently being under construction speculatively across these six markets, despite the shortages of Grade A office space, which have kick-started limited development activity. Jeremy Richards, director in JLL’s national offices team, says: “New construction is typically only happening only where there is a pre-let in place. These remain rare and difficult with only five pre-lets agreed across the Big Six markets in the last 24 months.”
Lease events drove 60% of occupier take-up in 2011 across the main six regional office markets, JLL says. It expects this to remain a significant driver of demand.
The firm expects the supply shortage of Grade A space – the average vacancy rate is 3.1% across the six regional markets – to intensify during 2012, and thinks that supply of Grade A office space in Manchester and offices in Bristol could run out altogether in 2014. This will continue to support prime rents for the best space, JLL says: the firm forecasts 2.2% growth in rents by the end of 2012 in most regional cities, driven primarily by the Scottish markets.
“The Grade B market carries significantly more downside risk, with supply conditions leading to more extensive rental falls. Additional factors, including legislation, occupier preference and technology will also accelerate the obsolescence of older stock with more product expected to be allocated for change of use,” it adds. The firm expects technology to encourage flexibility and drive churn, but also to drive a long-term trend of smaller space requirements.
