A new analysis report by Savills shows there will be strong growth for office take-up in the UK in 2014, which is expected to be 13 per cent higher than the 10-year average, with increased demand across key markets.
According to a recent analysis report by property firm Savills, office take-up in the UK is forecast to be 13 percent above the 10-year average this 2014, with increased demand across all of the key markets.
The decreasing availability of Grade A supply has become a key theme across the regional markets in the country. It has fallen more than 50 percent from its peak in 2009, says the report.
With a rise in bigger lettings over the 2nd half of 2013, major regional office markets experienced a 32-percent growth in take-up compared to 2012—the best year since 2007.
Cities with strong performance were Leeds, Cambridge and Glasgow, while cities to watch this year include Cardiff with an exceptional 107-percent increase expected. More modest Manchester and Birmingham are still forecast to see a 26-percent and 14-percent rise in take-up, respectively.
Take-up for 2014's 1st quarter is estimated to be 4 percent up on the same quarter last year, with performing cities being Cardiff and Manchester.
The report also saw evidence that regional markets will increasingly benefit from relocations from London to lower-cost locations.
Jonothan Holmes, director of investment at Savills, said that regional city office vacancies are dropping, and the development pipeline is only equal to 0.8 percent of stock. As a result, regional office locations have started to respond to the changing market demand and are seeking to attract development of offices back to city centres.
He believes that the balance of take-up and supply looks attractive in key locations, such as Birmingham, Manchester, Edinburgh and Leeds, but rents need to increase in Tier 2 locations to make development feasible without public-sector pump priming.
He explained, "Given the renewed demand in the regions, against the improving economic conditions, there are great opportunities ahead for those investors and developers with well located sites. Indeed, the growing confidence in regional office markets, with growing demand and limited supply, is a catalyst for developers to act sooner rather than later." He also said, "Despite an economically challenging few years, we are of the belief that the regional markets are now at a turning point, with the regions being well placed to take advantage of the improving occupational markets, with some locations faring better than others."
"The sustained levels of occupier demand combined with the decreasing availability of grade A office supply has also been a catalyst for rental growth in the majority of regional office markets. As we go through 2014, as the economic recovery really starts to take shape and new developments provide a step change in rents, we expect rental growth for prime space will continue on an upward curve in the majority of the regional cities," he further added.
Furthermore, Savills also expects rental growth to remain subdued with high levels of second-hand space still on the market.
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