Demand Increases for Regional UK Office Space

By Simon Morris On Thursday, September 03 rd, 2015 · no Comments · In , , ,

New figures have shown property expert Simon Morris that demand for regional UK office space increased significantly in the second quarter of 2015.

London office market

As the capital and financial heart of the UK, London has always been this country’s premier office property market. As previously reported on the Simon Morris blog, demand boomed in the first three months of 2015; tenants took up a record 2.4 million square feet of London office space in this period.

Yet high demand has placed a significant amount of strain on the UK capital’s office market, as space has started to dry up. According to The Times, figures from Deloitte Real Estate indicate that the amount of available office space in central London fell from 24.4 million square feet in 2009, to 12.7 million square feet by the close of 2014. Meanwhile, Magali Marton, Head of EMEA Research at DTZ, recently labelled London’s office sector “the most expensive European office market.”

Rise of regional office market

New figures from Knight Frank suggest that companies are turning to other UK regions to acquire office space. These statistics indicate that occupier demand in the UK regional office sector climbed 51% in the second quarter of 2015, when contrasted with the first quarter.

2.08 million of square feet was taken up in the regional UK office market – 49% more than the five year quarterly average – from March to June 2015. Digital Look reported that Birmingham was the best performing region in the quarter; 521,136 square feet of office space was taken up in the Midlands city during this period. Furthermore, pre-letting activity also rose in the regional UK office market during the second quarter of this year.

The Head of Regional Offices at Knight Frank, Stephen Hodgson, commented on the release of this data. He said, “improved occupier confidence has led to a surge in pre-letting activity and high levels of take-up across the main regional office markets in the second quarter.” Turning his attention to rent growth, Hodgson added that “on the investment front, despite the fact that yields are approaching historic lows we also feel that there is scope for further yield compression.”

Diversifying investor portfolios

Does this mean that the regional office market has become a more effective investment opportunity than its London equivalent? Not necessarily; the London office market is still recording impressive growth. However with supply slowly diminishing, investors may want to start diversifying their portfolios with regional office property to hedge their bets.

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