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Did vote for Brexit damage UK Regional Office Markets in 2016?

by | Feb 22, 2017

The vote for Brexit in mid-2016 on the face of it did not dampen occupier demand for UK regional office space. However, was this a foregone conclusion regardless of the EU referendum outcome? What can we expect this year?

Regional office occupier markets outside of London and the South East have proven resilient in 2016, despite the vote to leave the EU. Our new UK Property Perspective shows demand for office space across the UK totalled 5.6 million sq ft, only a7% decrease from 2015 and just 3% below the 5 year average, statistically not that significant.

Of course aggregate numbers obscure a more varied pattern of take-up between the individual markets. Some cities have fared better than others relative to recent past performance. Bristol has been a stand-out market, with occupier activity up by nearly 60% from 2015. This market was boosted by a pre-letting of 107,000 sq ft at 3 Glass Wharf to HMRC as part of the Government’s regional hub programme.

Other cities with improved levels of take-up included Glasgow and Liverpool. Manchester, whilst not quite beating its 2015 level still comfortably outperformed its 5 year average, with a stellar level of occupier activity in the final quarter of the year. Activity at the year-end was bolstered by the letting to Swinton Insurance of 165,000 sq ft at 101 Embankment.

In contrast, occupier demand in cities such as Leeds and Edinburgh struggled to keep up with the very successful years both cities have seen since 2013, whilst Birmingham, although 28% down from 2015, in the larger picture was just marginally below its 5 year average. Leasing volumes in Aberdeen remain subdued by the low oil price, but did see a small pick-up in the second half of the year.

Returning to the questions raised at the start of this blog…

Firstly, was take-up in 2016 ever likely to be impacted by a vote to leave the EU? I would say not.  Although it may appear that occupiers have not been unduly deterred from continuing searches for new space in 2016, in my view this conclusion is not supportable. For many, searches will have been initiated owing to forthcoming lease breaks or expiries so referendum concerns will have played little part in decisions relating to office moves.

Secondly, what will occupier demand look like in 2017? Although I do not have a crystal ball to be certain I do think there are some significant positives to look forward to. Requirements continue to circulate, some of them sizable. Additionally many will welcome the timing of the Government Property Unit, who have launched a search for a number of hubs in different regional centres, all of which are very large compared to the typical requirements that drive the regional cities.

So, it still remains to be seen the extent to which the Brexit will dampen down occupier demand in the regions.   Watch for future CBRE analysis.

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