Office Market Pulse

Q4 2018

Welcome to our latest Office Market Pulse, your comprehensive guide to current activity and trends across all of the UK’s main office markets. We hope you find this research useful and encourage you to get in touch if you need any additional information.

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Name:Nick O’Leary
Tel:01223 814 256
Email:noleary@lsh.co.uk

Take-up (000s sq ft)

A grade
B/C grade
69
194
131

Q on Q

-64%

Prime rent (per sq ft)

£42.00

Q4 2018

£38.00

Q4 2017

£42.00

PEAK

Y on Y

11%
Source: LSH

Years of supply

under construction
existing
1.3
1.3

Y on Y

1%
Name:David Earle
Tel:020 7198 2270
Email:dearle@lsh.co.uk

 

 

Take-up (000s sq ft)

A grade
B/C grade
0
0
0

Q on Q

0%

Prime rent (per sq ft)

£75.00

Q4 2018

£75.00

Q4 2017

£82.50

PEAK

Y on Y

0%
Source: LSH

Years of supply

under construction
existing
0.0
0.0

Y on Y

0%
Name:Paul Bullock
Tel:01245 215521
Email:pbullock@lsh.co.uk

The uncertainty around Brexit and end of year wind down saw the market slow in the last quarter, although this was the highest quarterly take-up of 2018 at just under 22,000 sq ft. LSH recorded the largest deal for the quarter acting for the Maitland Group who acquired the entire ground floor of the Hamilton Centre on the fringe of the city totalling 8,328 sq ft.

Total take-up for the year of 62,694 sq ft was down on 2017 (97,523 sq ft), whilst total availability in the city centre throughout the year remained steady at around 255,000 sq ft. A number of new enquiries have already been received with viewings to take place during January, thereby bucking the Brexit malaise. A client of LSH is due to complete an acquisition of 4,400 sq ft by the end of January in part of the new Amlin building close to the station which will set a new headline rent of £27.50 per sq ft for the city centre.

Take-up (000s sq ft)

A grade
B/C grade
22
16
22

Q on Q

37%

Prime rent (per sq ft)

£24.00

Q4 2018

£24.00

Q4 2017

£25.00

PEAK

Y on Y

0%
Source: LSH

Years of supply

under construction
existing
4.0
3.6

Y on Y

10%

Hemel Hempstead

Name:Ian Partridge
Tel:01727 896 217
Email:ipartridge@lsh.co.uk

In the final quarter of 2018, the Hertfordshire office market saw a good deal of activity, with deals that had been in the pipeline finally over the line before the year end.

By way the biggest was ASOS consolidating their occupation at Leavesden Park by taking a further 123,000 sq ft. Other areas of activity were in Hemel where the first lettings at The Maylands Building, 26,000 sq ft to Spaces, and 7,400 sq ft to Annodata, took place. NHSP also took 20,000 sq ft of space at Brakespear Park.

Hatfield Business Park saw healthy levels of activity, with Engie Regeneration leasing 18,000 sq ft at Titan Court and Schneider Electric taking 11,700 sq ft in neighbouring Helios Court.    

 

Take-up (000s sq ft)

A grade
B/C grade
38
28
23

Q on Q

36%

Prime rent (per sq ft)

£26.50

Q4 2018

£26.50

Q4 2017

£27.00

PEAK

Y on Y

0%
Source: LSH

Years of supply

under construction
existing
3.2
2.8

Y on Y

15%
Name:Ian Partridge
Tel:01727 896 217
Email:IPartridge@lsh.co.uk

Grade A stock continues to erode in Luton with Chargemaster taking a floor within 500 Capability Green on a short term basis whilst their new D&B facility is constructed in Milton Keynes. A number of suites are currently under offer within Butterfield Business Park which will further reduce Grade A supply.

The potential opportunity to capitalise on the favourable supply dynamic has been recognised by an investor who has recently purchased the 40,000 sq ft former Monarch HQ Building, with the intent to carry out a refurbishment letting strategy despite speculation that the property was going to be sold to a serviced office operator.

In a market where there is real disparity between the quality of product on offer, we believe that where landlords speculatively refurbish to a high standard they will benefit from a material advantage over the competition.

Take-up (000s sq ft)

A grade
B/C grade
0
13
19

Q on Q

-100%

Prime rent (per sq ft)

£22.25

Q4 2018

£22.25

Q4 2017

£22.50

PEAK

Y on Y

0%
Source: LSH

Years of supply

under construction
existing
2.6
2.3

Y on Y

13%
Name:Ian Partridge
Tel:01727 896 217
Email:IPartridge@lsh.co.uk

In the final quarter of 2018, the Hertfordshire office market saw a good deal of activity, with deals that had been in the pipeline finally over the line before the year end.

By way the biggest was ASOS consolidating their occupation at Leavesden Park by taking a further 123,000 sq ft. Other areas of activity were in Hemel where the first lettings at The Maylands Building, 26,000 sq ft to Spaces, and 7400 sq ft to Annodata, took place. NHSP also took 20,000 sq ft of space at Brakespear Park.

Hatfield Business Park saw healthy levels of activity, with Engie Regeneration leasing 18,000 sq ft at Titan Court and Schneider Electric taking 11,700 sq ft in neighbouring Helios Court.    

 

Take-up (000s sq ft)

A grade
B/C grade
24
10
13

Q on Q

139%

Prime rent (per sq ft)

£32.00

Q4 2018

£31.00

Q4 2017

£33.50

PEAK

Y on Y

3%
Source: LSH

Years of supply

under construction
existing
1.5
1.6

Y on Y

-11%
Name:Jon Rea-Palmer
Tel:020 7198 2255
Email:jreapalmer@lsh.co.uk

The letting at Leavesden Park of 125,000 sq ft to ASOS, which was a simultaneous surrender from BT, was one of the largest deals in the south east office market in 2018. Outside of this significant transaction, the take-up for the final quarter surged with a number of lettings totalling 55,000 sq ft.

The 20,000 sq ft letting to IWG Plc took Building 2 Croxley Park to fully let at a headline rent of £32 per sq ft. IWG’s continued regional expansion was replicated in other north M25 markets including notable deals in Milton Keynes and Hemel Hempstead.

Rental growth was somewhat subdued during 2018 due in part to paucity of stock, but market sentiment would indicate that landlord’s aspirations softened towards the end of the year.

There still remains a shortage of supply and an acute lack of Grade A space, which will be rebalanced towards the end of 2019 when approximately 100,000 sq ft of refurbished space will become available on Clarendon Road.

Take-up (000s sq ft)

A grade
B/C grade
187
7
46

Q on Q

2439%

Prime rent (per sq ft)

£32.50

Q4 2018

£32.50

Q4 2017

£32.50

PEAK

Y on Y

0%
Source: LSH

Years of supply

under construction
existing
0.7
1.9

Y on Y

-61%

Welwyn Garden City / Hatfield

Name:Ian Partridge
Tel:01727 896 217
Email:ipartridge@lsh.co.uk

In the final quarter of 2018, the Hertfordshire office market saw a good deal of activity, with deals that had been in the pipeline finally over the line before the year end.

By way the biggest was ASOS consolidating their occupation at Leavesden Park by taking a further 123,000 sq ft. Other areas of activity were in Hemel where the first lettings at The Maylands Building, 26,000 sq ft to Spaces, and 7400 sq ft to Annodata, took place. NHSP also took 20,000 sq ft of space at Brakespear Park.

Hatfield Business Park saw healthy levels of activity, with Engie Regeneration leasing 18,000 sq ft at Titan Court and Schneider Electric taking 11,700sq ft in neighbouring Helios Court.    

 

Take-up (000s sq ft)

A grade
B/C grade
30
0
19

Q on Q

0%

Prime rent (per sq ft)

£25.00

Q4 2018

£24.00

Q4 2017

£30.00

PEAK

Y on Y

4%
Source: LSH

Years of supply

under construction
existing
4.7
1.7

Y on Y

181%
Name:Alex Tross
Tel:0121 236 2066
Email:atross@lsh.co.uk

With 287,000 sq ft of deals in the city centre, Q4 2018 was the best performing quarter of the year by some margin. The next best was Q2 with 170,000 sq ft transacted. Over the last five years, the average Q4 take-up has been 222,000 sq ft, with Q4 2018 representing an increase of 25%. At 33, the total number of deals in Q4 was in line with the average but it was the size of those deals that made the difference. Average deal size for the quarter was c8,500 sq ft against c6,000 sq ft for the rest of the year.

The quarter’s performance contributed to a total take-up of 754,129 sq ft for the year, bringing the year in line with the long term average for annual take-up.

Take-up (000s sq ft)

A grade
B/C grade
289
159
205

Q on Q

82%

Prime rent (per sq ft)

£34.00

Q4 2018

£34.00

Q4 2017

£34.00

PEAK

Y on Y

0%
Source: LSH

Years of supply

under construction
existing
3.3
3.1

Y on Y

8%
Name:Phil Quiggin
Tel:0115 976 6603
Email:pquiggin@lsh.co.uk

At 37,497 sq ft Q4 take-up was down 22% on Q3 2018 but 37% higher than the same quarter last year. Only 9 deals were recorded although four of these were over 5,000 sq ft – including two lettings totalling 16,000 sq ft at Kelvin House to Resourcing Solutions and Addaction (NHS) and 6,893 sq ft to Totally plc at Cardinal Square.

Availability stands at 421,000 sq ft across the wider market, broadly 55/45 in favour of the out of town market. There is still no Grade A space available following recent lettings – 60% of total supply falling within Grade B. Enquiries remain good but 2019 will be a challenging year with take-up again likely to be held back by limited availability.

Take-up (000s sq ft)

A grade
B/C grade
38
46
37

Q on Q

-18%

Prime rent (per sq ft)

£17.50

Q4 2018

£17.50

Q4 2017

£17.50

PEAK

Y on Y

0%
Source: LSH

Years of supply

under construction
existing
3.2
3.0

Y on Y

4%
Name:Phil Quiggin
Tel:0115 976 6603
Email:pquiggin@lsh.co.uk

At 37,497 sq ft, Q4 take-up was down 22% on Q3 2018 but 37% higher than the same quarter last year. Only 9 deals were recorded although four of these were over 5,000 sq ft – including two lettings totalling 16,000 sq ft at Kelvin House to Resourcing Solutions and Addaction (NHS) and 6,893 sq ft to Totally plc at Cardinal Square.

Availability stands at 421,000 sq ft across the wider market, broadly 55/45 in favour of the out of town market. There is still no Grade A space available following recent lettings – 60% of total supply falling within Grade B. Enquiries remain good but 2019 will be a challenging year with take-up again likely to be held back by limited availability.

Take-up (000s sq ft)

A grade
B/C grade
25
25
76

Q on Q

-2%

Prime rent (per sq ft)

£17.50

Q4 2018

£17.00

Q4 2017

£17.50

PEAK

Y on Y

3%
Source: LSH

Years of supply

under construction
existing
1.3
1.7

Y on Y

-27%
Name:Tim Bell
Tel:01604 664362
Email:TBell@lsh.co.uk

Over the past two quarters, letting transactions within the Northampton office markets have plateaued. This is due to the continued scarcity of available prime stock combined with uncertainty surrounding Brexit negotiations.

Availability of office space within the town centre has continued over from q3. Recent lettings, totalling 26,418 sq ft within Riverside House and 1 Greyfriars, show that an appetite for in-town office space continues.  However, Grade A space of 104,000 sq ft is bolstered by 60,000 sq ft of the 4 Waterside development. Without this development, only 44,000 sq ft of Grade A space remains, and none within town. This is significantly outweighed by the 280,000 sq ft of Grade B space still available.

Take-up (000s sq ft)

A grade
B/C grade
48
0
48

Q on Q

0%

Prime rent (per sq ft)

£19.00

Q4 2018

£19.00

Q4 2017

£19.00

PEAK

Y on Y

0%
Source: LSH

Years of supply

under construction
existing
2.2
2.8

Y on Y

-22%
Name:Phil Quiggin
Tel:0115 976 6603
Email:pquiggin@lsh.co.uk

At 66,769 sq ft, Q4 take-up was up 32% on the previous quarter yet 55% down on the same quarter last year. 23 deals of significance 5 of which greater than 5,000 sq ft – including 13,945 sq ft let to Buzz Bingo at New Castle House and 9,730 sq ft to Wren Stirling at 13-19 Derby Road.

After a small rise in Q3, availability has reduced in line with the underlying trend, now at 820,000 sq ft across the wider market, split 60/40 in favour of the out of town market 31% of stock remains to be Grade C and in need of refurbishment whilst still only 12% is grade A. Enquiries remain good but 2019 will be a challenging year with take-up again likely to be held back by limited availability and uncertainty surrounding Brexit.

Take-up (000s sq ft)

A grade
B/C grade
81
51
89

Q on Q

60%

Prime rent (per sq ft)

£19.75

Q4 2018

£19.75

Q4 2017

£19.75

PEAK

Y on Y

0%
Source: LSH

Years of supply

under construction
existing
2.6
3.1

Y on Y

-15%
Name:Adam Varley
Tel:0113 887 6706
Email:avarley@lsh.co.uk

The Leeds office market posted a solid final quarter in 2018 with combined take-up in the city centre and out-of-town markets totalling 196,252 sq ft. The total was 27% down on the same like-for-like quarter from 2017, which witnessed a larger volume of corporate transactional activity and the absence of these larger deals 2018’s performance was held back.  Whilst on face value this may appear negative and potentially show signs of BREXIT starting to take its effect on the Leeds office market, the reality is that the occupational office markets are affected more by the lack of supply and choice with the situation likely to worsen in the short to medium term, heading into 2019.

Whilst the political uncertainty hasn’t directly affected occupier demand, confidence within the investment & development markets are mixed and if decisions are delayed until the outcome of the UKs deal to leave the EU is better understood and no new space is brought to the market, take-up will inevitably be affected.

Take-up (000s sq ft)

A grade
B/C grade
135
192
167

Q on Q

-30%

Prime rent (per sq ft)

£30.00

Q4 2018

£30.00

Q4 2017

£30.00

PEAK

Y on Y

0%
Source: LSH

Years of supply

under construction
existing
2.0
2.8

Y on Y

-26%
Name:Matthew Pickersgill
Tel:0161 242 7055
Email:MPickersgill@lsh.co.uk

City Centre

Manchester City centre has experienced the greatest level of take-up since records began, an increase of 12% on last year. Headline deals include some 181,000 sq ft let to WeWork across four buildings, a 220,000 sq ft pre-let to Booking.com, and 90,000 sq ft let to Amazon Web Services.

South Manchester

South Manchester experienced unprecedented take-up in 2018. Key to this were deals at Airport City, the sale of Lakeside 3400 at Cheadle Royal for serviced offices, and lettings at the only new grade A buildings in the area. Rents will rise, and new developments are now more certain in 2019.

Salford Quays and Old Trafford

An unspectacular year statistically, with the sale of 96,000 sq ft Kelloggs HQ for the new UA92 University campus being the largest deal. Regus took 22,000 sq ft for serviced space at Centenary House. The reduction in office stock due to residential conversions, will lead to increased rents in 2019.

Take-up (000s sq ft)

A grade
B/C grade
513
478
347

Q on Q

7%

Prime rent (per sq ft)

£34.00

Q4 2018

£34.00

Q4 2017

£34.00

PEAK

Y on Y

0%
Source: LSH

Years of supply

under construction
existing
1.9
2.1

Y on Y

-7%
Name:Michael Downey
Tel:0191 338 8326
Email:mdowney@lsh.co.uk

Driven by the dearth of supply, Grade A rents have continued to rise within the city centre as £24.50 per sq ft and £23.75 per sq ft have been achieved within Central Square South with lettings to both Towergate Insurance and Sanderson Weatherall respectively.  With further lettings under offer falling north of £24.00 per sq ft, our expectation is for the headline rent to be consolidated throughout 2019 with £25.00 per sq ft to be achieved at the ‘The Lumen’ in 2020.

Rents within Grey Street are also pushing forward with a new headline rent for the street set at 71 Grey Street equating to £22.50 per sq ft.  71 Grey Street is a building which has recently been subject to a significant refurbishment program in which five lettings have been concluded within the last quarter, prior to or at practical completion.  The relatively small suites were available on flexible lease terms which was a major factor in ensuring the building achieved full occupancy in as short a timescale as possible.

Take-up (000s sq ft)

A grade
B/C grade
117
110
58

Q on Q

6%

Prime rent (per sq ft)

£23.50

Q4 2018

£23.50

Q4 2017

£23.50

PEAK

Y on Y

29%
Source: LSH

Years of supply

under construction
existing
3.0
2.3

Y on Y

29%
Name:Tom Burlaga
Tel:0114 270 2706
Email:tburlaga@lsh.co.uk

Following a strong final quarter in the office market, Sheffield managed to surpass 400,000 sq ft which represents the strongest take-up for a number of years  (not sure how many) illustrating continued strong demand in the market.

Q4 saw a number of larger deals for Grade A space including 11,500 sq ft for Ansys at St Paul’s and both Egress and Mindbody Inc taking 7,400 sq ft and 7,600 sq ft respectively at Acero. Interestingly these transactions were all by software / technology companies demonstrating the continued growth within the TMT sector.

As a result of the above, immediately available Grade A space is now at a critically low level and whilst this has pushed up Grade A rents, the challenge in the immediate future will be how the continued strong demand can be satisfied.

Take-up (000s sq ft)

A grade
B/C grade
131
72
96

Q on Q

83%

Prime rent (per sq ft)

£23.00

Q4 2018

£23.00

Q4 2017

£23.00

PEAK

Y on Y

0%
Source: LSH

Years of supply

under construction
existing
2.0
2.5

Y on Y

-21%
Name:Josh Levy
Tel:0161 242 7061
Email:jlevy@lsh.co.uk

Take-up (000s sq ft)

A grade
B/C grade
165
100
145

Q on Q

64%

Prime rent (per sq ft)

£20.50

Q4 2018

£20.50

Q4 2017

£22.00

PEAK

Y on Y

0%
Source: LSH

Years of supply

under construction
existing
3.1
2.8

Y on Y

12%
Name:Geoff Scott
Tel:0131 226 0322
Email:GScott@lsh.co.uk

Take-up in Edinburgh totalled 215,000 sq ft in Q4, slightly down on Q3 but was largely made up of smaller deals. The two largest deals were Burness Paull’s 16,770 sq ft lease at Exchange Plaza and NC Tech’s 9,585 sq ft lease at Quartermile 1.  There is now a real shortage of good quality city centre stock with all buildings under construction either wholly or partially pre-let.  Of those that are available – 2  Semple Street 39,347 sq ft and 80 George Street 40,585 sq ft – both are courting serious interest.

With low supply, steady demand and rising build costs, we will see further rental growth during 2019 with rents reaching in excess of £35.00 per sq ft for new prime buildings in the city centre. New office supply will shortly come through at New Fountainbridge, with construction on phase 1 to start soon.

Take-up (000s sq ft)

A grade
B/C grade
215
307
310

Q on Q

-30%

Prime rent (per sq ft)

£34.00

Q4 2018

£34.00

Q4 2017

£34.00

PEAK

Y on Y

0%
Source: LSH

Years of supply

under construction
existing
1.4
1.4

Y on Y

9%
Name:Aasia Mohammad
Tel:0141 226 6786
Email:amohammad@lsh.co.uk

Annual office take-up has outperformed the ten-year average, despite Q4 city centre take-up reducing by 100,000 sq ft compared to 2017. Key Q4 deals included Barclays at Princes House (57,473 sq ft) and KPMG at 123 St Vincent Street (30,571 sq ft). Demand for Sub 5,000 sq ft offices remains strong and accounted for the majority of transactions.

In the Northern and Eastern Periphery, Q4 take-up was 37,632 sq ft, a slight decrease on 2017. Prime rents reached c.£17.50 per sq ft. In the South and Western Periphery, Q4 take-up (33,890 sq ft) also decreased (15,000 sq ft) compared with 2017, and top rents remain c. £16.50 per sq ft.

Grade A supply remains limited, with two new developments on site, Atlantic Square (90,000 sq ft) due for completion in Q3 2020, and Cadworks (95,000 sq ft) which is due for completion in Q1 2021. Refurbishments of buildings are ongoing and additional space is expected to come online in late 2019/early 2020.

 

Take-up (000s sq ft)

A grade
B/C grade
235
145
173

Q on Q

63%

Prime rent (per sq ft)

£32.50

Q4 2018

£30.00

Q4 2017

£32.50

PEAK

Y on Y

8%
Source: LSH

Years of supply

under construction
existing
1.9
2.6

Y on Y

-29%

Blackwater Valley

Name:Paul Dowson
Tel:01483 446 703
Email:pdowson@lsh.co.uk

Take-up in Q4 2018 in BWV was 35,299 sq ft and represented  a third of the 2018 take-up for the region. Total take-up for the year was 107,791 sq ft, nearly half of the 10 year average and down from 147,000 sq ft in 2017.

The significant deal in Q4 was the letting of  11,953 sq ft to Jenoptik at 10 Watchmoor Park, to add to 22,500 sq ft in the building they committed to earlier in the year. There were two other lettings over 10,000 sq ft in BWV in 2018 – 12,238 sq ft at 10 Watchmoor Park to Creative Foods and 14,410 sq ft to Syneos Health at Pinehurst II on Farnborough Business Park.

Prospects for 2019 look much better with a number of significant letting in legals, the refurbished Ascent buildings on Farnborough Aerospace Centre due for completion and talk of a speculative construction of Pinehurst IV on Farnborough Business Park.

 

Take-up (000s sq ft)

A grade
B/C grade
25
0
32

Q on Q

0%

Prime rent (per sq ft)

£27.50

Q4 2018

£27.50

Q4 2017

£27.50

PEAK

Y on Y

0%
Source: LSH

Years of supply

under construction
existing
4.8
2.5

Y on Y

94%
Name:Jonathan Scott
Tel:020 7198 2015
Email:jscott@lsh.co.uk

The Thames Valley office market had a strong finish to the year. Q4 2018 take-up totalled 762,000 sq ft across the markets collectively among deals over 5,000sq ft. This was a 47% rebound on the previous quarter and the strongest quarter since Q3 2015. This was boosted by Virgin Media’s 120,000 sq ft lease at Green Park which will be their new HQ, relocating from Hammersmith.

This brought the total 2018 take-up in the Thames Valley to 2.0m sq ft, a 16% rebound on 2017 and the strongest year since 2015.

In further positive news, enquiries for Thames Valley offices over 5,000 sq ft totalled 124 in Q4 2018, 48% higher than the same period last year and 24% up on the total of 100 from Q3 2018.

Take-up (000s sq ft)

A grade
B/C grade
75
0
40

Q on Q

0%

Prime rent (per sq ft)

£24.50

Q4 2018

£23.00

Q4 2017

£28.50

PEAK

Y on Y

7%
Source: LSH

Years of supply

under construction
existing
3.3
2.6

Y on Y

27%
Name:Paul Dowson
Tel:01483 446 703
Email:pdowson@lsh.co.uk

Take-up in Q4 2018 in Guildford  was 27,981 sq ft and represented  just under half the 2018 take-up for  the town. It was a very disappointing year where just 60,907 sq ft of offices were let in total. The significant deal in Q4 was the letting of  24,537 sq ft to IWG (Regus) of the newly refurbished, 2 Guildford Business Park.

The only other letting over 10,000 sq ft in Guildford in 2018 was the 18,663 sq ft let to Prime Vigilance on Surrey Research park. Prospects for 2019 look much better with a number of active requirements in the town, particularly from the expanding computer games sector. With new town centre stock also arising we expect to see prime rents reach £35.00 per sq ft.

Take-up (000s sq ft)

A grade
B/C grade
25
7
23

Q on Q

268%

Prime rent (per sq ft)

£33.50

Q4 2018

£33.50

Q4 2017

£33.50

PEAK

Y on Y

0%
Source: LSH

Years of supply

under construction
existing
4.3
4.0

Y on Y

8%
Name:Jon Rea-Palmer
Tel:020 7198 2255
Email:jreapalmer@lsh.co.uk

The Thames Valley office market had a strong finish to the year. Q4 2018 take-up totalled 762,000 sq ft across the markets collectively among deals over 5,000sq ft. This was a 47% rebound on the previous quarter and the strongest quarter since Q3 2015. This was boosted by Virgin Media’s 120,000 sq ft lease at Green Park which will be their new HQ, relocating from Hammersmith.

This brought the total 2018 take-up in the Thames Valley to 2.0m sq ft, a 16% rebound on 2017 and the strongest year since 2015.

In further positive news, enquiries for Thames Valley offices over 5,000 sq ft totalled 124 in Q4 2018, 48% higher than the same period last year and 24% up on the total of 100 from Q3 2018.

Take-up (000s sq ft)

A grade
B/C grade
77
49
31

Q on Q

59%

Prime rent (per sq ft)

£38.50

Q4 2018

£34.50

Q4 2017

£38.50

PEAK

Y on Y

12%
Source: LSH

Years of supply

under construction
existing
6.3
5.4

Y on Y

16%
Name:Caroline Waldron
Tel:01628 676 001
Email:cwaldron@lsh.co.uk

Maidenhead has had a stable end to 2018, with an annual take-up of 137,364 sq ft. Most lettings were to existing Maidenhead occupiers, demonstrating a renewed commitment to the town. Q4 saw take-up of 26,000 sq ft , following a particularly strong Q3 at 53,000 sq ft.

75% of the Q4 lettings were in the out of town business parks, with town centre supply of 85,000 sq ft compared to 365,000 sq ft in the out of town market. Prime rents remain at £38.75 per sq. ft., achieved in the Pearce Building, however with Lantern, the only new building in town, nearing completion in Q1 2019, rents are set to increase.

Q4 saw Aurora, Vanwall Business Park, successfully complete its first letting to Barloworld who secured a new lease of 10,900 sq ft., with the ground floor of 9,900 sq ft still available.

Take-up (000s sq ft)

A grade
B/C grade
17
47
29

Q on Q

65%

Prime rent (per sq ft)

£39.50

Q4 2018

£39.50

Q4 2017

£39.50

PEAK

Y on Y

0%
Source: LSH

Years of supply

under construction
existing
3.7
3.5

Y on Y

4%
Name:Tom Fletcher
Tel:0118 959 8855
Email:tfletcher@lsh.co.uk

The Thames Valley office market had a strong finish to the year. Q4 2018 take-up totalled 762,000 sq ft across the markets collectively among deals over 5,000sq ft. This was a 47% rebound on the previous quarter and the strongest quarter since Q3 2015. This was boosted by Virgin Media’s 120,000 sq ft lease at Green Park which will be their new HQ, relocating from Hammersmith.

This brought the total 2018 take-up in the Thames Valley to 2.0m sq ft, a 16% rebound on 2017 and the strongest year since 2015.

In further positive news, enquiries for Thames Valley offices over 5,000 sq ft totalled 124 in Q4 2018, 48% higher than the same period last year and 24% up on the total of 100 from Q3 2018.

Take-up (000s sq ft)

A grade
B/C grade
8
0
8

Q on Q

%

Prime rent (per sq ft)

£23.50

Q4 2018

£23.00

Q4 2017

£23.50

PEAK

Y on Y

2%
Source: LSH

Years of supply

under construction
existing
4.0
1.3

Y on Y

202%
Name:Kevin Wood
Tel:01865 200244
Email:kwood@lsh.co.uk

The Thames Valley office market had a strong finish to the year. Q4 2018 take-up totalled 762,000 sq ft across the markets collectively among deals over 5,000sq ft. This was a 47% rebound on the previous quarter and the strongest quarter since Q3 2015. This was boosted by Virgin Media’s 120,000 sq ft lease at Green Park which will be their new HQ, relocating from Hammersmith.

This brought the total 2018 take-up in the Thames Valley to 2.0m sq ft, a 16% rebound on 2017 and the strongest year since 2015.

In further positive news, enquiries for Thames Valley offices over 5,000 sq ft totalled 124 in Q4 2018, 48% higher than the same period last year and 24% up on the total of 100 from Q3 2018.

Take-up (000s sq ft)

A grade
B/C grade
69
42
67

Q on Q

63%

Prime rent (per sq ft)

£32.00

Q4 2018

£31.00

Q4 2017

£32.00

PEAK

Y on Y

3%
Source: LSH

Years of supply

under construction
existing
1.7
2.5

Y on Y

-33%
Name:Nick Coote
Tel:0118 960 6912
Email:ncoote@lsh.co.uk

The Thames Valley office market had a strong finish to the year. Q4 2018 take-up totalled 762,000 sq ft across the markets collectively among deals over 5,000sq ft. This was a 47% rebound on the previous quarter and the strongest quarter since Q3 2015. This was boosted by Virgin Media’s 120,000 sq ft lease at Green Park which will be their new HQ, relocating from Hammersmith.

This brought the total 2018 take-up in the Thames Valley to 2.0m sq ft, a 16% rebound on 2017 and the strongest year since 2015.

In further positive news, enquiries for Thames Valley offices over 5,000 sq ft totalled 124 in Q4 2018, 48% higher than the same period last year and 24% up on the total of 100 from Q3 2018.

Take-up (000s sq ft)

A grade
B/C grade
287
168
121

Q on Q

70%

Prime rent (per sq ft)

£37.75

Q4 2018

£36.75

Q4 2017

£37.75

PEAK

Y on Y

3%
Source: LSH

Years of supply

under construction
existing
2.9
4.0

Y on Y

-26%
Name:Caroline Waldron
Tel:01628 676 001
Email:cwaldron@lsh.co.uk

Slough has had a record year in terms of performance, and investor appetite. Occupier sentiment remains strong ahead of Crossrail and regeneration. Slough won “Best place to work in the UK” for 2 consecutive years and ends with a record annual take-up of 323,000 sq ft. nearly tripling its 10 year average.

4 saw Heathrow Approach’s first letting to Iris Software who took 32,000 sq ft. and 234 Bath Road’s first letting to Indivior taking 20,912 sq ft. Prime rent increased slightly to £37.00 as a result of Yitu taking 4,800 sq ft. at The Porter Building. Office supply reduced slightly, with 745,000 sq ft. available across 36 buildings, 38% of which are Grade A.

Take-up (000s sq ft)

A grade
B/C grade
60
153
38

Q on Q

-61%

Prime rent (per sq ft)

£34.00

Q4 2018

£34.00

Q4 2017

£34.75

PEAK

Y on Y

0%
Source: LSH

Years of supply

under construction
existing
4.7
9.5

Y on Y

-50%
Name:Jon Rea-Palmer
Tel:020 7198 2255
Email:jreapalmer@lsh.co.uk

The Thames Valley office market had a strong finish to the year. Q4 2018 take-up totalled 762,000 sq ft across the markets collectively among deals over 5,000sq ft. This was a 47% rebound on the previous quarter and the strongest quarter since Q3 2015. This was boosted by Virgin Media’s 120,000 sq ft lease at Green Park which will be their new HQ, relocating from Hammersmith.

This brought the total 2018 take-up in the Thames Valley to 2.0m sq ft, a 16% rebound on 2017 and the strongest year since 2015.

In further positive news, enquiries for Thames Valley offices over 5,000 sq ft totalled 124 in Q4 2018, 48% higher than the same period last year and 24% up on the total of 100 from Q3 2018.

For more information on the Thames Valley office market in Q3 click here.

Take-up (000s sq ft)

A grade
B/C grade
10
16
30

Q on Q

-33%

Prime rent (per sq ft)

£35.00

Q4 2018

£34.50

Q4 2017

£35.00

PEAK

Y on Y

1%
Source: LSH

Years of supply

under construction
existing
2.6
3.0

Y on Y

-14%
Name:Jonathan Scott
Tel:020 7198 2015
Email:jscott@lsh.co.uk

The Thames Valley office market had a strong finish to the year. Q4 2018 take-up totalled 762,000 sq ft across the markets collectively among deals over 5,000sq ft. This was a 47% rebound on the previous quarter and the strongest quarter since Q3 2015. This was boosted by Virgin Media’s 120,000 sq ft lease at Green Park which will be their new HQ, relocating from Hammersmith.

This brought the total 2018 take-up in the Thames Valley to 2.0m sq ft, a 16% rebound on 2017 and the strongest year since 2015.

In further positive news, enquiries for Thames Valley offices over 5,000 sq ft totalled 124 in Q4 2018, 48% higher than the same period last year and 24% up on the total of 100 from Q3 2018.

Take-up (000s sq ft)

A grade
B/C grade
5
26
14

Q on Q

-81%

Prime rent (per sq ft)

£36.00

Q4 2018

£36.00

Q4 2017

£36.00

PEAK

Y on Y

0%
Source: LSH

Years of supply

under construction
existing
9.6
9.9

Y on Y

-3%

Milton Keynes

Name:David Ball
Tel:01908 544905
Email:DBall@lsh.co.uk

Q4 saw a number of larger lettings complete, taking the overall take-up to just over 200,000 sq ft for 2018 which is much improved on 2017, albeit still below the 10-year average for Milton Keynes. The largest letting of these was Technip who took a sublease from Dentons in the Pinnacle of c.19,500 sq ft.

The speculative development of 100 Avebury Boulevard has been rewarded with approximately 50% of the 140,000 sq ft building pre-let to Regus’ co-working concept ‘Spaces’ and the national law firm Shoosmiths. These lettings have resulted in the prime rents for Central Milton Keynes being propelled from £23.50 psf to £27.50 psf. The lettings in 2018 have demonstrated an emerging occupier preference for high quality office space, in a market where there is a high supply of secondary accommodation but a decreasing level of Grade A stock.

The market sentiment in Milton Keynes is strong with a number of active occupier requirements and the potential of the Oxbridge Growth Corridor, which has been recognised by investors with a number of assets changing hands during 2018.

Take-up (000s sq ft)

A grade
B/C grade
122
64
68

Q on Q

91%

Prime rent (per sq ft)

£27.50

Q4 2018

£22.50

Q4 2017

£27.50

PEAK

Y on Y

22%
Source: LSH

Years of supply

under construction
existing
2.5
2.8

Y on Y

-12%
Name:Andrew Hodgkinson
Tel:01489 579579
Email:ahodgkinson@lsh.co.uk

2018 saw a recovery in take-up in the 2nd half of the year following a difficult 1st half to reach 260,821 sq ft but still finished 24% below the 10 year average of 342,819 sq ft (2009 to 2018). Over 71% of all take-up for the year was transacted in the 2nd half of the year with 84,072 sq ft in the final quarter. This was 17% down on the Q4 2017 figures.

Supply has fallen to 869,329 sq ft. To put this into context, this represents a decrease of 58% in the past 10 years with available supply along the M27 corridor in 2009 being 2,024,000 sq ft. The net effect is that the south coast now has only 3.33 years supply and this number continues to fall. Aligned with improving headline rents this has increased the prospect of speculative new office development in the locations with the greatest supply/demand imbalance.

Take-up (000s sq ft)

A grade
B/C grade
84
124
92

Q on Q

-32%

Prime rent (per sq ft)

£22.00

Q4 2018

£21.50

Q4 2017

£22.00

PEAK

Y on Y

2%
Source: LSH

Years of supply

under construction
existing
2.0
2.7

Y on Y

-9%
Name:Peter Musgrove
Tel:0117 914 2013
Email:pmusgrove@lsh.co.uk

The Greater Bristol office market maintained strong. Take-up in the final quarter of 2018 totalled of 210,311 sq ft, taking the annual total to 932,586 sq ft. The city centre ended the year with a total take-up of 532,085 sq ft, in line with the 10-year average, and the out of town market transacted 400,501 sq ft over the year, to be above the 10-year average. The market also saw continued activity of larger sized deals with 4 deals over 10,000 sq ft completing in the city centre and 4 deals in excess of 10,000 sq ft in the out of town market.

Rents have not increased any further this quarter but this is largely due to supply issues, not demand, as there is a lack of stock that is able to push rents over and above the existing prime of £34.50 per sq ft. This lack of supply, paired with continued strong demand has seen another developer choose to start spec development.

Take-up (000s sq ft)

A grade
B/C grade
97
167
162

Q on Q

-42%

Prime rent (per sq ft)

£34.50

Q4 2018

£32.50

Q4 2017

£34.50

PEAK

Y on Y

6%
Source: LSH

Years of supply

under construction
existing
1.3
1.2

Y on Y

8%
Name:Steven Matheson
Tel:029 2052 3004
Email:smatheson@lsh.co.uk

Take-up of 200,000 sq ft in Q4 saw Cardiff reach a respectable yearend total of 508,298 sq ft for in 2018. Considering at the end of H1 2018, only 151,568 sq ft had transacted, a bumper Q3 and Q4 have brought the 2018 take-up figures in line with 10 year average. Although Take-up was down from previous years (2016 and 2017 take-up were both record breaking) the market sentiment is still strong, with Admiral Insurance taking 65,000 sq ft in 3 Capital Quarter and Geldards pre-letting 30,000 sq ft at 4 Capital Quarter

Supply stands at 1,130,527 sq ft and continues to contract. Only 600,000 sq ft remains in the City Centre and a more limited proportion of this is good quality, grade A stock. With 4 Capital Quarter the only office scheme currently under construction it remains to be seen whether Cardiff will continue to see high levels of take-up with so little availability for occupiers.

Take-up (000s sq ft)

A grade
B/C grade
200
157
152

Q on Q

27%

Prime rent (per sq ft)

£25.00

Q4 2018

£25.00

Q4 2017

£25.00

PEAK

Y on Y

0%
Source: LSH

Years of supply

under construction
existing
1.9
2.8

Y on Y

-32%
Name:Ed Cloke
Tel:02920 523 021
Email:ECloke@lsh.co.uk

Q4 take-up of 43,000 sq ft was a healthy improvement on the first three quarters of the year, bringing the annual take-up for 2018 a touch short of the long term average of 79,000 sq ft. Two large deals in Q4 contributed to the improved figures namely Welsh Ambulance Service taking 15,000 sq ft at Matrix 1and N Z Manuka Group also 10,000 sq ft at Matrix.

Supply remained stable at just over 220,000 sq ft though there is a severe lack of grade A stock. There are a number of active requirements in the area, though the poor quality of existing stock has restricted take-up and has prevented the relocation of organizations into Swansea. We are seeing some good quality refurbished rents creep up to £11.00 per sq ft and hope this will encourage Landlords to take action. Prime rents remain stable at £14.50 per sq ft.

Regeneration of the High St/City Centre is largely being driven by (though is not limited to) redevelopment to student accommodation with a number of schemes in progress. Oldway Centre (556 beds) and The Kingsway (307 beds) are due for completion Q3 2019 and a number of approved planning applications due to start work shortly.

Take-up (000s sq ft)

A grade
B/C grade
43
15
24

Q on Q

190%

Prime rent (per sq ft)

£14.50

Q4 2018

£13.50

Q4 2017

£14.50

PEAK

Y on Y

7%
Source: LSH

Years of supply

under construction
existing
2.3
2.5

Y on Y

-7%
Name:Greg Henry
Tel:028 9026 9265
Email:ghenry@lsh.co.uk

We are anticipating that demand will remain strong into Q4, with total take-up expected to exceed 725,000 sq ft. After robust rental growth in recent years, prime headline rents are forecast to stabilise into 2019. The lack of new build stock and consistent demand may prompt speculative activity in a number of the developments that are poised to begin.

Take-up (000s sq ft)

A grade
B/C grade
241
105
129

Q on Q

129%

Prime rent (per sq ft)

£22.00

Q4 2018

£21.00

Q4 2017

£22.00

PEAK

Y on Y

5%
Source: LSH

Years of supply

under construction
existing
1.3
2.2

Y on Y

-42%
Name:Tony Fisher
Tel:020 7198 2250
Email:tfisher@lsh.co.uk

Take-up (000s sq ft)

A grade
B/C grade
27
31
38

Q on Q

-11%

Prime rent (per sq ft)

£18.50

Q4 2018

£18.50

Q4 2017

£18.50

PEAK

Y on Y

0%
Source: LSH

Years of supply

under construction
existing
1.1
1.1

Y on Y

1%
Name:David Earle
Tel:020 7198 2270
Email:dearle@lsh.co.uk

 

 

Take-up (000s sq ft)

A grade
B/C grade
0
0
0

Q on Q

0%

Prime rent (per sq ft)

£110.00

Q4 2018

£110.00

Q4 2017

£110.00

PEAK

Y on Y

0%
Source: LSH

Years of supply

under construction
existing
0.0
0.0

Y on Y

0%
Name:David Earle
Tel:020 7198 2270
Email:dearle@lsh.co.uk

The diverse occupier mix and vibrancy of Soho continued to drive demand both in terms of leasing and investment. In the final quarter of the year there was an upturn in activity with take-up of 104,000 sq ft across more than 30 deals including VF Corporation committing to a 10-year lease to take all 15,000 sq ft at the Estates & Agency’s Axtell Soho development, and WeWork’s leasing of 21 Soho Square which comprises 22,475 sq ft of newly refurbished space on undisclosed terms.

Despite improvements in take-up, Q4 saw no movement in headline rents, with Grade A rents remaining at £87.50 per sq ft. Looking ahead, we would expect this rate to remain broadly the same, despite the ongoing political and economic uncertainty, due to robust demand and low vacancy levels in the area.

 

Take-up (000s sq ft)

A grade
B/C grade
0
0
0

Q on Q

0%

Prime rent (per sq ft)

£87.50

Q4 2018

£87.50

Q4 2017

£90.00

PEAK

Y on Y

0%
Source: LSH

Years of supply

under construction
existing
0.0
0.0

Y on Y

0%

Euston/Kings Cross & Paddington

Name:David Earle
Tel:020 7198 2270
Email:dearle@lsh.co.uk

Take-up (000s sq ft)

A grade
B/C grade
0
0
0

Q on Q

0%

Prime rent (per sq ft)

£75.00

Q4 2018

£75.00

Q4 2017

£82.50

PEAK

Y on Y

0%
Source: LSH

Years of supply

under construction
existing
0.0
0.0

Y on Y

0%

Midtown & Covent Garden

Name:David Earle
Tel:020 7198 2270
Email:dearle@lsh.co.uk

Midtown continues to attract a wide range of occupiers with take-up for the quarter in excess of 210,000 sq ft. One of the largest deals in the area was at Bureau, 90 Fetter Lane, where brewing giant AB InBev acquired 23,778 sq ft across the top four floors on a 15-year lease at a rent understood to be £80 per sq ft.

Prime rents in Q4 2018 across the Midtown area remained static at £70.00 per sq ft. We would expect this rental level to endure into the next quarter due to low supply levels and healthy demand.

 

Take-up (000s sq ft)

A grade
B/C grade
0
0
0

Q on Q

0%

Prime rent (per sq ft)

£70.00

Q4 2018

£70.00

Q4 2017

£72.50

PEAK

Y on Y

0%
Source: LSH

Years of supply

under construction
existing
0.0
0.0

Y on Y

0%
Name:David Earle
Tel:020 7198 2270
Email:dearle@lsh.co.uk

Take-up (000s sq ft)

A grade
B/C grade
0
0
0

Q on Q

0%

Prime rent (per sq ft)

£72.00

Q4 2018

£72.00

Q4 2017

£72.00

PEAK

Y on Y

0%
Source: LSH

Years of supply

under construction
existing
0.0
0.0

Y on Y

0%
Name:David Earle
Tel:020 7198 2270
Email:dearle@lsh.co.uk

Take-up (000s sq ft)

A grade
B/C grade
0
0
0

Q on Q

0%

Prime rent (per sq ft)

£68.00

Q4 2018

£70.00

Q4 2017

£70.00

PEAK

Y on Y

-3%
Source: LSH

Years of supply

under construction
existing
0.0
0.0

Y on Y

0%
Name:David Earle
Tel:020 7198 2270
Email:dearle@lsh.co.uk

Take-up (000s sq ft)

A grade
B/C grade
0
0
0

Q on Q

0%

Prime rent (per sq ft)

£45.00

Q4 2018

£45.00

Q4 2017

£48.00

PEAK

Y on Y

0%
Source: LSH

Years of supply

under construction
existing
0.0
0.0

Y on Y

0%
Name:James Couse
Tel:020 7955 8416
Email:jcouse@lsh.co.uk

The most significant transaction in Q4 was M&G’s acquisition of One Southwark Bridge Road SE1, Headquarters of The Financial Times , totalling 148,0000 sq ft from Pearson; there will be no impact on availability levels as the property will be occupied by WPP after The Financial Times move back to their former premises at Bracken House  later this year . The Vacancy Rate in Southbank is now at an historical low of 4% only and forecasted to remain at these levels for the foreseeable future with less than 120,000 Sq. Ft only under construction currently. Headline Cat A rents remain at £65 per sq ft as a consequence of strong uptake of vacant offices in the Shard and the News Building, which are now fully-let.

Take-up (000s sq ft)

A grade
B/C grade
0
0
0

Q on Q

0%

Prime rent (per sq ft)

£67.50

Q4 2018

£67.50

Q4 2017

£67.50

PEAK

Y on Y

0%
Source: LSH

Years of supply

under construction
existing
0.0
0.0

Y on Y

0%

Traditional Office District

Central Business District

Knowledge District

St John's Quarter

Portland Street Corridor

Cultural District

Heart of the City

Sheaf Valley and Cultural Industries Quarter

Riverside and Kelham Island

St Vincent's and St George's

Devonshire and The Moor

Hemel Hempstead
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Watford
Welwyn Garden City / Hatfield

Hertfordshire

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Traditional Office District
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Districts of Leeds

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NOMA
Central Business District
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Cathedral
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Districts of Sheffield

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Superb finish to the year

While Brexit uncertainty casts a growing shadow over the market, 2018 ended with a flourish in the UK office occupier market. Nationwide take-up totalled 8.3m sq ft, the highest level in eight quarters. This brought 2018’s total to 29.7m sq ft, up 5% on 2017 and only 4% below 2016’s record. The first half of 2018 was subdued in comparison to the second half of the year which recorded a 22% rebound in take-up.

Yet another record for the Big Six

2018 was an exceptional year for the UK’s key regional cities. Annual take-up across the six cities combined was 8.9m sq ft, surpassing 2017’s previous high by 7%. Glasgow was home to the year’s largest deal outside London, namely Barclay’s announcement in Q3 to build a 470,000 sq ft regional HQ at Buchanan Wharf, while Manchester saw the second largest deal, Booking.com’s 225,000 sq ft pre-let at Good Yard in Q3.

Take-up in the two cities was also boosted by two Government deals at the beginning of the year; 187,205 sq ft in Glasgow and 157,000 sq ft in Manchester. This propelled take-up to record annual levels, with Glasgow and Manchester 84% and 43% above their ten-year averages respectively.

 

Belfast has Best year yet

Outside of London, Belfast was home to the largest UK deal in Q4, and indeed the largest deal recorded in the city in a decade. PwC’s pre-let of 155,012 sq ft at Merchant Square took take-up for the year to 885,023 sq ft, a new annual record and more than double that of 2018.

Flexible office operators continue to boost activity in the capital

While London is often regarded as the most vulnerable office market to Brexit, the capital recorded buoyant activity in 2018. A strong final quarter took Central London take-up for the year to 13.4m sq ft, surpassing the total in each of the previous two years and 7% above the ten-year average.

Flexible office providers were very active throughout 2018. WeWork’s 159,000 sq ft lease at Merchant Square, Paddington was the UK’s largest deal in Q4. Across the year as a whole, Facebook’s 611,000 sq ft acquisition at King’s Cross was the largest deal. This saw Midtown as the best performing subsector relative to trend, with 2018 take-up 42% on the ten-year average.

 

Availability at all-time low

UK-wide availability fell for the second consecutive quarter to stand at 51.8m sq ft at the end of 2018, down 2% on the previous quarter and down 5% year-on-year. Collectively, the regional markets largely accounted for the nationwide fall, down 8% year-on-year.

Meanwhile, Central London supply increased 2% over the year, although it remains below the ten-year average at 14.0m sq ft. The increase is attributable to grade B/C space, which increased 3%, while grade A supply remained stable.

The volume of speculative under construction has been increasing across the year. Outside London, 2m sq ft of development commenced during 2018, with 4.1m sq ft under construction at the end of 2018 on a speculative basis. Manchester is a key focus of new build development, with 1.2m sq ft under construction, of which 81% is available. Elsewhere, speculative starts in Q4 2018 include Assembly, Bristol (200,000 sq ft) and 103 Colmore Row, Birmingham (223,000 sq ft).

Rising rents

Despite uncertainty in the market around Brexit, prime headline rents remained broadly steady in Q4, with a number of markets recording growth. This included Milton Keynes, which saw a step change in rent from £23.50 per sq ft to £27.50 per sq ft following two pre-lets at 100 Avebury Boulevard.

Across LSH’s network of 52 offices, 13 markets recorded prime rental growth during 2018. Milton Keynes saw the strongest growth of 22%, followed by Heathrow at 12%, which increased to £38.50 per sq ft following IMG Studios’ lease at 4 Longwalk, Stockley Park.

Tight levels of grade A supply should continue to support rental growth across the UK’s office markets over 2019. With developers arguably more cautious of new starts in light of Brexit negotiations, slowing speculative development will to keep a relatively tight lid on supply and help support rental growth.

For more information contact Izzy Watterson, Senior Research Analyst.

REGIONS REJOICE

2018 was a strong year for office investment. Across the UK, £6.7bn of office assets changed hands in Q4, taking 2018’s annual total to £25.7bn, up 5% on 2017 and 29% above the ten-year average. While Central London offices accounted for the lion’s share of volume as usual, the UK regions were pivotal to robust volume.

STRONG FINISH TO YEAR FOR REGIONAL OFFICES

Regional office volume was particularly strong in Q4. At £1.6bn, the subsector recorded its highest quarterly volume since Q1 2016, 83% above the five-year quarterly average.

This was boosted by major portfolio deals, including Legal & General’s £360m acquisition of a 50% stake in the Bruntwood SciTech joint venture, comprising science and technology assets and developments, and Elite UK Commercial Fund’s £282m purchase of Hayhill Portfolio of 98 regional offices from Telereal Trillium.

 

 

CENTRAL LONDON VOLUME RESILIENT IN 2018

At £4.3bn, Central London office volume was down 5% on Q3, albeit 9% above the five-year quarterly average. Furthermore, Q4 improved depth to the Central London market with the highest number of deals in a quarter since Q2 2016. Q4’s largest deal was Celvam Management’s £475m acquisition of London Executive Offices from Queensgate Investments, comprising 11 Central London office assets.

Over 2018 as a whole, Central London volume totalled £16.9bn, up 8% on 2017 and 26% above the ten-year average. However, major deals were key in driving volume, the largest in 2018 being South Korean National Pension Scheme’s £1.16bn (4.10% NIY) acquisition of Goldman Sachs’ Plumtree Court, London EC4, the fifth largest office deal on record.

FAR EAST DOMINATES INFLOWS

Despite increasing anxiety over the UK’s future relationship with the EU, overseas investors continue to show faith in the UK market and take advantage of favourable exchange rates. At £4.0bn, Q4 overseas investment into offices was 11% above the five-year quarterly average. This brought the 2018 total to £15.2bn. Far Eastern investors dominated volume, acquiring a record £8.7bn in 2018.

Following net selling in Q3, institutions were net purchasers of UK offices to the tune of £398m in Q4, their highest net purchasing since Q2 2015. This was, however, underpinned by the £360m Bruntwood SciTech deal.

Eclipsing 2017’s record, local authorities invested a new high of £1.0bn into UK offices in 2018. While they accounted for only 4% of volume over the year, they were particularly active in South East offices, making up 19% of volume.

DOWNWARD YIELD SHIFT REFLECTS FOCUS ON PRIME

The All Office average transaction yield moved in by 10 bps during Q4 to 5.19%. All of the subsectors saw inward movements, reflecting an investor focus on secure, quality assets amid elevated levels of uncertainty over the near term outlook. Meanwhile, prime yields remained broadly stable across the subsectors during the quarter.

 

TIGHT SUPPLY DRIVES INTEREST DESPITE UNCERTAINITY

While investors face increasing headwinds in 2019, the key underlying fundamentals of UK office investment remain in good shape, even if returns are easing down. Of the various investment asset classes, allocations to real estate are on the increase, with dozens of global funds looking to increase their exposure to property. Alongside China and Malaysia, other parts of the Far East expected to make waves in the UK in 2019 include Japan and South Korea, with Central London office assets an obvious potential target.

Meanwhile, outside of the capital, regional offices, particularly the UK’s core markets, represent something of a happy medium between the expense of industrial and the risks around retail. The regional occupier markets are arguably less exposed to Brexit risks, while tight supply and ongoing rental growth will continue to support value-add propositions. Manchester is already well-understood in this respect, while the Scottish markets of Edinburgh and Glasgow are expected to offer real opportunity in 2019.

For more information contact Oliver du Sautoy, Head of Research

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