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Resilient regional office markets

by | Aug 16, 2017

The new CBRE National Offices Property Perspective  shows a healthier first half year for office space take-up in the UK regions than might have been expected in the prevailing political and economic climate.

 

Regional office occupier markets in the first half of 2017 have proven relatively resilient, despite the unexpected timing of the UK’s general election and ongoing uncertainties around Brexit. Across the ten regional city markets monitored by CBRE, overall take-up in the first half of 2017 was 2.8 million sq ft. This is 5% lower than the 2.9 million sq ft taken in the same period of 2016 and 4% below the average from the first halves of the last five years.

As ever there is variation across the UK. Most cities have struggled relative to recent past performance, but there are a few exceptions. Cities with improved levels of take-up this year, when compared to H1 2016, include Aberdeen, Edinburgh, Leeds and Manchester. Take-up levels in Edinburgh, in particular, have been very strong in the first half of 2017, already ahead of the full-year total from 2016.

Requirements continue to circulate, so we don’t know how much Brexit and political uncertainty in the UK will dampen down occupier demand in the regions. Surveys of businesses in the regions generally show that confidence is holding up although anecdotal evidence suggests some larger occupiers are taking slightly longer to make decisions on office moves.  On the positive side, the economic outlook is still one of growth, albeit at a slower rate. The market and the economy are very much sentiment driven at the moment, which can make firm predictions difficult.

Many markets are benefitting or poised to benefit from various Government Property Unit (GPU) requirements in different UK cities, all of which are very large compared to the typical requirements that drive the regional cities. Edinburgh has been the first city so far this year, to agree a deal with the GPU for over 181,000 sq ft, which partly explains the strong H1 performance recorded in this market.

Will the regional 2017 aggregate performance exceed levels recorded last year? It’s a difficult call.  We expect to see demand from smaller occupiers continue at a steady rate. There are also undoubtedly some large requirements circling which could tip the balance. However, longer decision making time and a dwindling supply of good quality stock in certain markets may be an issue. At the moment it’s all in the balance.

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