Occupier market in brief
Occupier activity at highest level for two years
Occupier confidence across the Big Nine office markets has reached its highest level since the pandemic started, which is reflected in the strongest take-up for two years.
Increasing confidence has released pent-up demand and requirements that have been on hold during the past 18 months. As such, there has been a depth to the number and size of deals this quarter, including some exceptional lettings.
Take-up amounted to 2.3 million sq ft across both the city centre and out-of-town markets, 11% up on the ten-year average. Out-of-town activity amounted to the strongest quarter for three years, at 45% of all take-up, more than a million sq ft. This was led by an exceptional inward investment deal of 217,000 sq ft to Just Eat at Rainton Bridge, near Newcastle. The city centre market accounted for the next seven largest deals, dominated by the take-up of newly delivered space.
Demand for Grade A, best-in-class office space remains robust, even if in some cases occupier requirements are slightly less than they may have been. There is also a growing focus on carbon reduction commitments, improving wellness for staff and ensuring that the ‘return to the office’ environment is as positive and safe as possible. In Birmingham for example, grade A take-up accounted for 85% of activity this quarter, with a number of deals at new developments Paradise and 103 Colmore Row. We are seeing an increase in the amount of space being refurbished as landlords make the most of enforced void periods, firstly in order to make their buildings more attractive to tenants, and in some cases to address the change in Minimum Energy Efficiency Standards.
A post-Covid focus on flexibility is underpinning an increase in demand from flexible workspace providers such as X+Why and Chadwick Business Centres, with the potential for more in the final quarter of the year. Unsurprisingly, this quarter was the sector’s busiest in two years. An increased occupier focus on flexibility is also driving the proliferation of Cat A+, plug and play space. Up until recently, fully fitted space was relatively scarce, with landlords rarely seeing the need for additional capital expenditure against the prospect of a minimal return on investment. However, this is evolving with a premium being seen on oven-ready space across markets.
The quarter saw a marked increase in professional services activity, which has been relatively subdued during the pandemic and recorded its highest quarterly activity for five years. Among the other sectors, consumer services and healthcare have held up well over the past 12 months, while financial services and public sector activity has been relatively subdued - although this is expected to change with the prospect of a number of large Government deals completing in the near future.
Increased occupier activity and confidence is almost certainly a function of the numbers returning to the office continuing to increase, even if it is ‘slowly but surely’. Avison Young’s ‘Return to Office’ Index for the Big Nine cities average out at 55 – up from 33 in January, and although this compares to a pre-pandemic normal of 100, all cities are performing close to their highest level since then.
Availability across the Big Nine city centres continues on an upward trajectory, increasing from a cyclical low of 8.1 million sq ft in Q1 last year to 11.6 million sq ft over the course of the pandemic. To put this in context, availability was at about this level before the GFC in 2007 and reached 18.3 million sq ft during 2013.
There is a further 5.1 million sq ft of space under construction, of which 2.3 million sq ft remains available. When added to the standing supply, this amounts to 2.7 years’ demand, given past take-up rates. With increasing demand for quality space, prime rents across the Big Nine average £32.61 psf, an increase of 2.8% over the past 12 months.
Charles Toogood Principal and Managing Director, National Offices Team
TOTAL TAKE-UP IN Q3
2,352,010 sq ft ▲11%
Up on the 10 year quarterly average
5.1 million sq ft
1,307,463 sq ft
1,044,537 sq ft
HEADLINE RENTS AVERAGE
Across all nine cities
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