Growth in prime headline office rents has continued across the UK’s regional property markets with an average increase of 4.3% in the year to June 2015.
The growth has been seen across the core eight markets covered by the index from property consultants JLL and reflects a solid outlook for demand and tight supply of new space.
The firm says that headline rents are expected to continue on an upward curve with average growth of 2.9% per year in the core regional markets over the period from 2015 to 2019.
‘Sustained levels of occupier demand combined with the decreasing availability of Grade A office supply has contributed to healthy rental growth with year on year increases witnessed in all bar one of the core eight cities,’ said Jeremy Richards, dead of national office agency at JLL.
The data shows that Manchester and Leeds saw the most significant increases with rents up by 6.5% year on year to £33 per square foot and by 6% year on year to £26.50 per square feet respectively.
According to JLL’s research report office take up across the regional markets reached 3.8 million square feet in the first half of 2015 and is forecast to exceed last year’s full year total of 7.3 million square feet, well ahead of the 10 year average of 6.6 million square feet.
The figures also reveal that Manchester and Birmingham dominated activity in the first half of the year accounting for 677,000 square feet or 18% and 650,000 square feet or 17% of take up respectively.
The falling supply of good quality office space remains a key theme according to JLL. Available office space across the core markets stands at 19.5 million square feet with an average overall vacancy rate of 8.2%, down from 9.1% over the year. The Grade A vacancy rate is just 2.4% on average, with Leeds and Cardiff the lowest at 1.5% and 1.3% respectively.
JLL’s report shows that total pre-leasing jumped sharply in the first six months of the year to 837,000 square feet across 14 transactions in comparison to 138,000 square feet across five deals in the whole of 2014. Some 5.36 million square feet is currently under construction speculatively across the core cities in 58 schemes, which compares to just 3.3 million square feet in the first half of 2014.
‘Partly aided by pre-lets, the development pipeline is now responding to the supply issue with Manchester accounting for the greatest volume of speculative development activity at 875,000 square feet,’ said Richards.
Office investment volumes across the core cities hit £1.9 billion, well up on the £1.5 billion traded in the first half of 2014. Domestic investors accounted 74% of investment volumes with the weight of money targeting the regions continuing to place inward pressure on prime yields, which now range between 5% and 5.25% for the largest regional cities, down 25 to 50 basis points over the past 12 months.
According to Chris Ireland, chairman and lead director UK Capital Markets at JLL, the first half of 2015 saw a continuation of the strong investor demand for regional offices that characterised 2014. The Western Corridor market has been most active with £936 million traded, followed by Manchester and Birmingham with £245 million and £223 million respectively.
‘We have continued to see yield compression in the main core eight markets. Edinburgh and Glasgow have notably seen yield compression following a period of reduced trading and yields in these markets have stabilised at a discount to the prime yields in the major English cities,’ he added.
Source: Property Wire