Q3 showed a significant uplift on Q2 in the regional office markets
After a UK-wide lockdown saw most offices across the UK become temporarily closed, it came as no surprise that at 470,882 sq ft, Q2 regional take-up was 75% down on Q2 2019. However, Q3 take-up has shown a significant uplift on Q2, totalling just over 1 million sq ft, a 116% increase. However, this was still 40% below Q3 2019.
As a result of this Q3 uplift, Q1–Q3 regional office take-up totalled 3.1 million sq ft representing a 34% decrease on the five-year Q1-Q3 average. It should be noted that while offices in England and Wales were able to open during Q3, this was not the case in Scotland, where a strict lockdown remained in place.
Interestingly, Aberdeen and Edinburgh were the only key regional cities where Q1–Q3 take-up levels were the same or above Q1–Q3 2019. In Aberdeen, a strong Q1 2020 and a weak start to 2019 saw Q1–Q3 2020 take-up reach similar levels to Q1–Q3 2019. However, Edinburgh saw a significant increase with Baillie Gifford signing a 280,000 sq ft pre-let at The Haymarket, which saw Q3 2020 take-up exceed Edinburgh’s five-year quarterly average by 105% and, Q1–Q3 take-up exceed Q1–Q3 2019 by 29%.
So far this year, the Technology, Media and Telecoms (TMT) sector has accounted for a quarter of take-up. The sector signed for a total of 777,520 sq ft of office space which equated to 25% 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 TMT deal on Savills records. 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 leased 25,029 sq ft at Core, Manchester.
In some markets, the situation is more acute than others: Birmingham, Bristol, Glasgow and Leeds all have six months or less of Grade A supply available
Savills Research
Currently, there is a total available office supply of 12.1 million sq ft in the UK regions, reflecting an 11% decrease from the five-year average figure. However, of that, 3.5 million sq ft is Grade A, equating to a 14% increase on the five-year Grade A average. New developments approaching their completion dates have seen Grade A supply increase across the UK regions. However, when supply levels are compared to average annual take-up, this still only reflects enough supply to meet the demand for one year of Grade A take-up. The UK cities still have 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 six months or less of Grade A supply available, demonstrating a critical need for speculative office development in these markets, to keep up with average demand.
Restrained demand and disruption caused by Covid-19 has given occupiers more leeway to negotiate and secure competitive rents but with a continued flight to quality, top rents have remained strong, and Oxford, Cambridge Manchester and Birmingham have all experienced rental growth this year. Oxford saw rental growth of 17.5%, Birmingham 7.2%, Leeds 6.7%, Cambridge 5.4% and Manchester 2.7%.
The introduction of the UK’s second lockdown from 5 November makes the outlook for Q4 uncertain. However, with scientific advancements in the development of a Covid-19 vaccine, the prospects for 2021 are positive.