2020 got off to a strong start, with Q1 regional office take-up 21% above both Q1 2019 and the 10-year quarterly average. However, during the second quarter, the UK-wide lockdown which saw most offices across the UK become temporarily closed, had a significant impact on take-up. Q2 2020 take-up, therefore, totalled 441,436 sq ft, reflecting a 73% decrease from the five-year quarterly average. Total H1 take-up totalled 2,061,968 sq ft, reflecting a 36% decrease from H1 2019 and a 31% decrease from the H1 five-year average.

Bristol and Aberdeen were the only regional office markets which experienced an increase in H1 take-up from the same period last year.

In Bristol, H1 take-up totalled an impressive 272,425 sq ft, a 16% increase on the same period last year, and 2% up on the ten-year H1 average. This was driven by an exceptionally strong Q1 in which 219,491 sq ft of office space was let. Similarly, in Aberdeen, total H1 take-up was 30% above H1 2019 and 2% above the H1 five-year average. This was largely due to the strength of Q1, in which 171,609, sq ft of office space was transacted.

So far this year, the Technology, Media and Telecoms (TMT) sector has accounted for the majority of take-up, which has been typical in the UK regions since 2018. The sector signed for a total of 645,571 sq ft of office space which equated to 31% of total take-up. Key deals from this sector included telecommunications giant BT which signed for 283,073 sq ft at Three Snowhill, Birmingham during Q1, the largest regional office deal so far this year.

Hilti, which creates software, design and products for the construction industry leased 42,559 sq ft at 1 Circle Square, Manchester, during the first quarter, and online betting company Bet365 took 25,029 sq ft at Core, Manchester.

Significant activity also came from the Public Services, Education & Health Sectors and the Insurance & Financial Services sectors which accounted for 16% and 9% of take-up, respectively.

Overall, 39% of deals were for Grade A space demonstrating the occupier preference for high-quality office space in the UK regions. However, due to a lack of supply, this requirement cannot always be met.

During the global financial crisis, there was over 20 million sq ft of office supply in the UK regions, equating to a significant oversupply. Today, the situation is very different, as there is an undersupply of office space. In 2009, the regional vacancy rate was 18%, and currently, it is just 10%. It looks, therefore,  as though rents in the regional office markets are less exposed to downward pressure arising from the current economic climate.

Currently, there is a total available office supply of 11.3 million sq ft in the UK regions, reflecting a 17% decrease since the end of 2019. However, of that, just over 3 million sq ft is Grade A, reflecting a 4% decrease since the end of 2019. When this is compared to average annual take-up levels, this reflects only enough supply to meet the demand for 11 months of take-up, reflecting a severe undersupply of Grade A office space. In some markets the situation is more acute than others: Birmingham, Bristol, Glasgow and Leeds all have less than six months of Grade A supply available demonstrating a critical need for speculative office development in these markets to keep up with average demand.

The limited take-up and disruption caused by Covid-19 has given occupiers more leeway to negotiate and secure competitive rents. However, in Leeds and Oxford, there was rental growth during H1. In Leeds, top rents increased by 7% from £30 per sq ft to £32 per sq ft. While in Oxford, top rents increased by 6% from £40 per sq ft to £42.50 per sq ft.

The overall top rent within the regional office markets is £46 per sq ft, which has been the top rent in Cambridge since 2019.

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_{Read the articles within Spotlight: UK Regional Office Market Report below.}