National occupier outlook
Take-up
TOTAL TAKE-UP IN QUARTER (SQ FT)
CHANGE ON LAST QUARTER
CHANGE ON 10 YR QUARTERLY AVG
TAKE-UP (SQ FT)
Source: Avison Young
ANNUAL TAKE-UP
Source: Avison Young
With a total of 1.92m sq ft taken-up, Q4 was a quieter than average quarter, 19% below the Q4 10-year average. It brought total 2023 take-up to 7.12m sq ft, which was down on the last two years and 17% below the 10-year annual average.
A total of 493 deals completed in Q4, which on a rolling 12-month basis was down 14% on the post-pandemic peak of 538 in Q4 2022.
Whilst no whole market saw above-average take-up, the city centres of Birmingham (+15%) and Liverpool (+2%) saw stronger levels of activity alongside Glasgow’s (+12%) and Leeds’ (+6%) out-of-town markets. Overall, out-of-town markets had a stronger quarter, 8% below the 10-year average, where city centres were 25% below.
Best-in-class space remains in high demand and short supply across the Big Nine city centres, which continues to drive rental growth. Whilst only Edinburgh saw growth in its prime rent this quarter (from £42.50 per sq ft to £43.00 per sq ft), the Big Nine’s average rate of annual growth remained high by historical standards at 5.0% due to significant quarterly growth earlier in the year. Both Edinburgh and Bristol are expected to see further rental growth over the next six months based on deals currently under offer.
As occupiers continue to right-size their footprints, often in exchange for higher quality space, volumes of city centre deals 25,000 sq ft or larger have fallen compared to pre-pandemic levels, now accounting for just 24% of all transacted space, where they had averaged 31% in the five years before the pandemic. However, this share of transactions has now recovered slightly from its Q2 2023 trough of 21%.
Notable deals of Q4 included: Dyson’s 66,317 sq ft lease at 1 George’s Square in Bristol; Mills & Reeve’s 32,088 sq ft lease at One Centenary Way in Birmingham; and in the out-of-town markets the top deal was Curtis Instruments’ 32,742 sq ft purchase at 2 Kloppers Way, Monkton, Newcastle.
We expect take-up in Q1 2024 to remain at a similar level to Q4 2023, and prime rental growth to continue above the 10-year average due to the lack of best-in-class availability. Sentiment in Q4 was slightly weaker than Q3 across the Big Nine, whilst the return to the office had stabilised over the course of 2023, according to data from Remit Consulting.
2023 Q4 TAKE-UP BY CITY
Source: Avison Young
NOTABLE DEALS – CITY CENTRE
Source: Avison Young
NOTABLE DEALS – OUT OF TOWN
Source: Avison Young
HEADLINE RENTS
Source: Avison Young
TAKE-UP BY SECTOR
Source: Avison Young
RENTAL GROWTH
Source: Avison Young
Vacancy
VACANCY RATE
CHANGE ON LAST QUARTER
CHANGE ON LAST YEAR
AVAILABILITY (SQ FT)
Source: CoStar, Avison Young
The Big Nine’s total availability rate increased by 78 basis points in Q4 to 9.5%, continuing the general loosening of supply seen over the past few years.
Liverpool (5.4%) and Edinburgh (6.9%) remained the tightest markets for total and grade A supply, whilst Birmingham (11.3%) and Leeds (10.9%) had the highest rates of availability.
The Big Nine’s availability is now 226 basis points higher than last year. Newcastle (+503 bps) and Bristol (+337 bps) have seen the greatest increases in availability over the past 12 months, whilst Liverpool (no change) and Manchester (+85 bps) have seen more incremental shifts.
AVAILABILITY BY CITY
Source: CoStar, Avison Young
Development pipeline
UNDER CONSTRUCTION PIPELINE (SQ FT)
Source: Avison Young
A total of 1.71m sq ft of new and refurbished office space completed in 2023. 115,000 sq ft has already completed in 2024, with a further 3.31m sq ft due over the course of the year, of which 34% is let or pre-let. A total of 4.53m sq ft is under construction and due for completion by 2026, of which 28% is let or pre-let.
The largest projects due to complete over the next 6 months include Qmile and M&G’s fully pre-let 280,000 sq ft 2 & 3 Haymarket Square in Edinburgh, One Central in Glasgow (270,000 sq ft, fully pre-let), and Candour and Tristan Capital’s fully-available 207,000 sq ft Welcome Building in Bristol.
Newcastle and Edinburgh have the highest pre-letting rates, with 94% and 75% of space under construction already pre-let, respectively.
Developers remain cautious with borrowing and construction costs still elevated and yields and voids increasing, which will restrict badly needed high-quality supply across regional markets in the coming years. Based on schemes currently under construction, we expect to see supply shortages in 2025 which will place additional pressure on prime rents.
DEVELOPMENT PIPELINE (SQ FT)
Source: Glenigan, Property Market Analysis, Avison Young
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