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2018 UK Market Outlook: Buoyancy in regional office markets

by | Dec 15, 2017

2017 office take-up volumes in UK regional office markets have proved robust and even exceptional in some cases – turbo boosted by unprecedented public-sector demand. As we head into 2018, what next?


In our new 2018 UK Market Outlook, we predict a two-speed performance for UK Office markets over the year.  There will be various push and pull factors at work.  Key drivers in the mix will be:

The Brexit effect…

Brexit is fast approaching. Growth in the UK economy is slowing and the effects of Brexit-related uncertainty and political turbulence will continue to be felt throughout 2018. The regions should ride these waves of uncertainty. Cities with strong underlying market fundamentals will continue to attract strong investor and occupier interest. These markets are less exposed to the financial services than London. However, they are vulnerable to any weakening of business sentiment which could result in longer decision-making times from larger occupiers.

On the positive side, there are a number of large occupier requirements currently circling the regional cities.  And we expect demand from smaller occupiers to continue at a steady rate from a broad sector base.

Slow development and tight supply conditions…

Development activity across the UK will slow in 2018 as developers wait to see the full impact of the Leave vote before proceeding with new projects. This is most likely to affect the speculative new build market, where uncertainty, combined with the weak pound and rising build costs, could lead to a pause in new starts in 2018.

Pre-lets will be prevalent in regional city markets, in order to accommodate the larger requirements.  61% of the development pipeline is pre-let. Grade A space constraints will be an ongoing issue in certain regional cities such as Bristol, Edinburgh and Glasgow where the development pipeline has not kept pace with demand. These shortages will drive further pre-let activity.

Public sector growth continues …

Many regional office markets benefitted from sizeable Government Property Unit (GPU) requirements in 2017, resulting in record take-up in some cities. The public sector will continue to account for a significant share of office space demand in 2018, as there are still some outstanding GPU requirements to be satisfied – notably in Manchester and Glasgow where deals are yet to be agreed.

Flex appeal…

Established flexible office space providers also significantly expanded their presence beyond London in 2017, into the South East and regional cities such as Birmingham and Manchester. This momentum will continue in 2018. At present, the availability of modern offices of less than 20,000 sq ft in the regional CBD markets monitored by CBRE was a third lower than the five-year average. So occupiers will be looking for alternatives.  Uncertainty around Brexit will also increase desire for lease flexibility.

In summary, there are clear challenges ahead but the regions will remain buoyant in 2018.

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