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After two years of uncertainty and upheaval caused by the COVID-19 pandemic, the UK regional office market has regained footing in the new, changed working world. Each regional locale is experiencing different conditions, with some faring better than others, making it essential to be aware of key regional variations.<\/span><\/p>\n In this article, we assess the overall performance of the regional office market in recent times, whilst also looking into the factors that have defined this market throughout 2022. We\u2019ve generated our insights from the latest data out of market leading sources, such as CBRE, Savills, Avison Young, and Cushman Wakefield.<\/span><\/p>\n <\/p>\n It should be noted that, for the most part, the regional markets that we will be referring to comprise the largest office markets outside of Central London<\/a>; including Liverpool<\/a>, Manchester<\/a>, Birmingham<\/a>, Bristol<\/a>, Edinburgh<\/a>, Cardiff<\/a>, and more.<\/span><\/p>\n Some helpful commercial real estate definitions:<\/b><\/p>\n In the first half of 2022, the UK office market continued to strengthen and recover from the ill effects of the pandemic.\u00a0<\/span><\/p>\n The region’s total take-up for H1 2022 was 2.4 million sq\/ft. This was a 24% increase YOY, and a 20% increase over H1 2020.\u00a0<\/span><\/p>\n Grade A space accounted for 46% of the total take-up in major office markets outside of London. The 10-year average take-up rate for prime office space in the first half of the year was lower, at 41%, further expressing a<\/span> continued flight to quality<\/span><\/a> across the UK regions. Adding to this, resilience has been demonstrated through continued demand for Grade A office space, despite the pandemic exerting downward pressure in other market subsets.<\/span><\/p>\n However, due to declining levels of Grade A availability in several locales, tenants with greater needs have been waiting and weighing their options \u2013 in order to find an ideal space that effectively satisfies the unique needs of their business. Due to the current shortage of Grade A property seen across core regional markets outside of London, the market for expansive, high-end floor plates has grown significantly more competitive.<\/span><\/p>\n 402 deals were completed in the UK\u2019s nine biggest markets outside of London in the first half of 2022, which was 20% more than the five-year average and a notable 33% rise over the total of 303 deals seen in the first half of 2021.<\/span><\/p>\n Take-up for deals under 5,000 sq\/ft made up 26% of all take-up in the five years prior to the pandemic. Deals under 5,000 sq\/ft accounted for an increased 36% of the total take-up in H1 2022. This demonstrates the increased importance of transactions in the lower size band going forward.<\/span><\/p>\n In the first half of 2022, there were two lettings in the regional markets of the UK that were larger than 100,000 sq\/ft. These included Shell’s purchase of 100,000 sq\/ft at the Silver Fin Building in Aberdeen, and the Government Property Agency’s lease of 130,000 sq\/ft at First Street in Manchester.<\/span><\/p>\n Supply-wise, the total regional availability at the end of H1 2022 was 14.5 million sq\/ft, roughly matching the number from Q4 2021.<\/span><\/p>\n In Q2 2022, supply of Grade A space<\/span> fell by 14%<\/span><\/a> to 4.3 million sq\/ft, resulting in a shortage of premium space in core regional markets. Exemplifying the continuing shortage, there is currently less than a year’s worth of Grade A space available in Birmingham, Bristol, Leeds<\/a>, and Edinburgh. Additionally, only 130,000 sq\/ft of new Grade A space is currently available in Glasgow<\/a>, clearly illustrating the lack of high-quality space in numerous major markets.<\/span><\/p>\n Bristol was able to achieve increased rental rates in the first half of 2022, despite previously mentioned obstacles. Currently, the prime rent in this market sits at \u00a342.50 per sq\/ft, an increase of 12% from Q4 2021 and a 10% increase YOY.<\/span><\/p>\n There is also still hope for rental growth in other regional markets entering the second half of the year, with forecasts for prime rents exceeding \u00a340 per sq\/ft in at least three of the UK’s largest regional markets by the end of 2022.<\/span><\/p>\n Hope exists for rental growth in other regional markets as we enter the tail end of the year, with forecasts for prime rents exceeding \u00a340 per sq\/ft in at least three of the UK’s biggest markets by the end of 2022.<\/span><\/p>\n At the conclusion of H1 2022, office investment volumes outside Central London totalled \u00a33.6 billion <\/span>\u2013<\/b> 15% more than the long-term average. The main reason for this is the trading of multiple major assets. Additionally, the first half of the year saw nine agreements totalling more than \u00a3100 million, the second-highest number of such transactions seen in the previous ten years. A significant proportion of investor demand related directly to prime (Grade A) office stock.<\/span><\/p>\n In four of the last five years, foreign investors have been the most active group when it comes to regional market investment. Responsible for 49% of all investment volumes in H1 2022, this group remains highly engaged in the sector. North American investors took up the largest share for the second year in a row, making up 46% of all foreign investment.<\/span><\/p>\n UK property businesses followed behind as the second most active investors in the UK regional market. On the other hand, investment from UK institutions has faltered, only accounting for roughly 10% of investment since the start of 2021.<\/span><\/p>\n A recent market analysis from<\/span> Avison Young<\/span><\/a> evaluated the Q2 performance of the nine most significant office markets outside of London. This data is especially helpful in allowing assessment of the resilience of these markets against medium-term risks.<\/span><\/p>\n So, to get more of a detailed understanding of the way in which these markets contribute to the outlook of the entire UK, we\u2019ve investigated their recent performances below.<\/span><\/p>\n After rallying post-pandemic in late 2021, take-up across the core regional office markets totalled 1.8 million sq\/ft in Q2, trending downward for the second straight quarter. Manchester was the biggest contributor, despite the shortfall, accounting for more than 500,000 sq\/ft of total leasing activity. Declining take-up is likely due to diminishing Grade A stock, which is failing to meet the pressure being placed on demand by the market’s perceived flight to quality.<\/span><\/p>\n More optimistically, investment volume increased for the third quarter in a row, with office sales totalling \u00a3850 million across core markets. The half-year total now stands at \u00a31.6 billion, the highest investment level since 2005. Additionally, the average rental prices have increased by 5% YTD, certainly nothing to scoff at.<\/span><\/p>\n Some quick figures for Q2 2022<\/b><\/p>\n In Birmingham, <\/span>leasing activity<\/b> was at 153,000 sq\/ft in Q2 2022, down on figures of 260,000 sq\/ft seen in Q1. The Department for Transport leased 22,900 sq ft of prime space at The Colmore Building as a key transaction.<\/span><\/p>\n Similar to numerous other locations, many organisations in Birmingham are unsure about how much physical office space they will need in the post-pandemic working world \u2013 as some employees continue working remotely, while others look to return to the office. As a result, many companies are looking to remain agile by occupying smaller spaces on shorter lease terms.\u00a0<\/span><\/p>\n However, there\u2019s<\/span> expected to be more stability<\/span><\/a> for flexible office providers in Q4, when businesses have a clearer idea of their individual workplace needs. In turn, this increased demand for flexibility from corporate users is anticipated to lead to an expansion of similar types of flexible spaces in the area.<\/span><\/p>\n\n
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<\/p>\nQ2 2022 UK Regional Office Market \u2013 At a Glance<\/b><\/h2>\n
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<\/p>\nThe UK Office Market Continues to Recover\u00a0<\/b><\/h2>\n
Grade A office space leading the way<\/b><\/h3>\n
Transactions<\/b><\/h3>\n
Notable leases<\/b><\/h3>\n
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<\/p>\nSupply levels\u00a0<\/b><\/h3>\n
Rental rates<\/b><\/h3>\n
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<\/p>\nInvestment market<\/b><\/h3>\n
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<\/p>\nWhich Regions are Succeeding and Why?<\/b><\/h2>\n
Pulling together regional CRE data<\/b><\/h3>\n
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<\/p>\nBirmingham Office Market<\/b><\/h2>\n
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