Source: Savills Research
Savills forecast 2017 take-up to reach 9.8m sq ft
■ Take-up for the regional office markets reached 4.1 million sq ft in the first half of 2017, a 14% fall on the first half of 2016 (Graph 1). Technology, media and telecoms (TMT) was the most active sector, accounting for 24% of take-up, followed by public services (13%) (Graph 2).
■ The largest leasing deal was the Government Property Unit (GPU) pre-letting 190,000 sq ft at New Waverley, Edinburgh. ASOS signed for 75,000 sq ft at Leavesden Park, Watford, whilst serviced office provider, We Work expanded into Manchester, taking 56,000 sq ft at No.1 Spinningfields.
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GRAPH 1Take-up is forecast to reach 9.8m sq ft during 2017
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GRAPH 2Take-up by business sector, H1 2017
Source: Savills Research
■ We expect end year take-up to reach 9.8 million sq ft, a 4% increase on 2016, and 9% up on the 10-year average, driven by more large GPU deals completing during the second half.
■ Office based employment across the regional cities is forecast to grow by 4.6% over the next five years, equating to a net additional 55,000 jobs and indicating a need for around five million sq ft. The strongest growth is expected to be seen in the administrative and professional, science and tech sectors.
■ Total availability fell 1% to 30 million sq ft during H1 2017 (Graph 3). Grade A supply now stands at only 1.8 years worth of Grade A demand – Savills classifies anything below two years as a shortfall.
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GRAPH 3Availability has fallen 1% during 2017
Source: Savills Research
■ Leeds saw top rents reach £30 per sq ft, following Burberry taking 46,000 sq ft of space at 6 Queen Street. We expect Bristol to see the strongest top rental growth over the next 18 months (Table 1).
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TABLE 1Top rents will continue to rise
Source: Savills Research
■ The development pipeline remains limited, with 49% of space already prelet (Table 2). Savills estimate 3.5 million sq ft of speculative development to complete by end 2019.
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TABLE 2Development pipeline to end 2019
Source: Savills Research
■ Office investment volumes in the first half of 2017 reached £2.2bn, 40% below the first half of 2016, but still 4% above the 10-year first half average (Graph 4). Overseas investors contributed £718m, accounting for 32% of the total.
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GRAPH 4Overseas investors remain active
Source: Property Data
■ Investor demand remains strong for long income assets, which has seen prime yields move in since end 2016. We expect yields to remain firm throughout the second half of 2017 (Table 1 above).