This year, the UK’s commercial property market has many reasons to celebrate. Activity has been expanding at its fastest rates since the beginning of the year, and performance ratings hit the 30.7 per cent mark in June. The figures are particularly encouraging for the office market, which has been expanding for 22 consecutive months. Office activity levels across the UK have exceeded the 35 per cent mark for the first time in years. So how exactly is the UK’s office market doing so far and what are the key figures that prospective occupiers should keep in mind? Find all the details in this post.

An overview of the British office rental market

The IPD monthly index for May showed evidence of positive rental growth among all commercial sub-sectors. Specifically, rental growth levels for office space averaged 5.27 per cent during the first two quarters of the year, with areas like the West End and the City delivering the highest growth rates in the country at more than 10 per cent.

This year, the office rental market has been characterised by a steady decline in Grade A office accommodation and for a growing demand for large office premises (50,000 square feet and above). Market analysts attribute this trend to the expansion of the manufacturing and the TMT sectors. The declining availability of prime space has resulted in increased demand for refurbished rental office space across the country. Read through the next section for a breakdown on the market’s performance.

London

According to BNP Paribas, office vacancy rates in London average 6.6 per cent. On the whole, prime rents have increased across the capital, and are currently set at £110 / sq ft in Mayfair; £74 / sq ft in Victoria; £77.5 / sq ft in Soho; and £65 / sq ft in areas to the north of Oxford Street.

In the West End, supply declined by 0.75 per cent, and this has resulted in moderate rent increases in Mayfair (1 per cent) and Victoria (2 per cent). The most important rental transactions that have taken place during 2014 have involved the 31,000-square feet deal at Regents Place; the 26,000-square feet letting at 62 Buckingham Gate; and 21,800-square feet premises rented at 20 Bentinck Street. Banking and finance occupiers account for 34 per cent of all transactions in the West End. The TMT sector is also a key occupier, although this sector shows preference for small deals (offices of 10,000 square feet or under).

In the City, the number of transactions has increased by 14 per cent when compared to 2013. Just like in the West End, the banking sector is the main occupier and accounts for 28 per cent of all transactions. Banking is followed by the professional services industry (21 per cent), the TMT sector (17 per cent), and insurance (11 per cent). In this part of London, supply grew by 5.5 per cent during the first quarter of the year and vacancy rates averaged 8.5 per cent. Prime rental values have remained stable on a quarter-on-quarter basis and currently range between £58.5 and £70 per square feet. The most notable lettings include a 120,000-square feet deal at 8-10 Moorgate; the lease of the 59,000-square feet Alphabeta building; and two transactions at the Walbrook Building; and 23 Fenchurch Street.

The office rental market in London’s Midtown area has been characterised by smaller transactions (offices of 15,000 square feet and under) and by a 4 per cent increase in rental values. Average rents in Covent Garden are the higest at £72.5 / sq ft, followed by properties in King’s Cross (£65 / sq ft) and Holborn (£62.5 / sq ft).

The regional market

During 2014, the TMT sector has experienced significant growth both in the British capital and in regional markets, becoming one of the most important office occupiers nationwide. Firms involved in the professional business services industry bouncing back from the recession, especially in the North West of the country, where office take-up rates by companies in this sector is up by 9.1 per cent.

In terms of rental values and overall growth, Manchester continues to command some of the highest rents outside London, as this year average prime rents have reached £30 / sq ft. In Birmingham, office take-up rates are 128 per cent higher than in 2012, and city centre rents have increased to £28.5 / sq ft. Leeds has followed suit with a 107 per cent increase on take-up levels and with average rents of £25 / sq ft (for city centre properties) and £17.5 for out-of-town locations. In Bristol (one of the most buoyant regional office markets), rental values have slightly declined and currently average £26.5 / sq ft for city centre offices.

In Scotland, rental values have remained stable in Edinburgh and Glasgow (which have average values of £29.5 and £27 / sq ft respectively), but have increased in Aberdeen, where they are now set at £31.5 / sq ft. Plymouth and Middlesborough have the country’s lowest prime rental rates (£12.5 / sq ft) and are followed by Northampton, Leicester, and Liverpool, where office space is being rented out for £15 / sq ft.