5 of the Big 6 regional office markets (Birmingham, Bristol, Edinburgh, Glasgow, Leeds, Manchester) are facing a supply shortage of forthcoming prime Grade A office accommodation, which is driving up rents and creating opportunity for refurbishments, according to international real estate adviser Savills.
Birmingham, Bristol, Edinburgh, Glasgow and Leeds all have less than one years’ worth of prime supply available which means that if we experience an average year of take-up the supply may not be sufficient to meet demand in these markets next year. The situation is particularly apparent in the Scottish markets, with no developments due to complete in 2023 and just 150,000 sq ft of prime space available across the two markets.
In order to satisfy this demand, and against a backdrop of limited new supply in some of the Big 6 cities, refurbishments will be a key focus of the UK regional office market in the years ahead for both landlords and occupiers, says Savills. Comprehensive refurbishments that may fill the gap to provide a viable alternative to occupiers in 2023 and beyond include Lucent at 50 Bothwell Street in Glasgow, which will provide 90,000 sq ft office space for the market, and 10 Brindley Place in Birmingham which provides 230,000 sq ft of refurbished space in to markets where the development pipeline is extremely thin between 2023 and 2025.
From a rental perspective, the continuing flight-to-quality and falling availability of prime space is likely to put further upward rental pressure across the regions. Five of the Big 6 markets recorded prime rental increases in 2022, with Bristol and Leeds achieving 12% and 6% growth respectively.
Savills latest forecasts are predicting further increases in prime rents in Birmingham, Bristol, Edinburgh, Leeds and Manchester in 2023. By 2025, prime rents could be as high as £45 per sq ft in Bristol, with all of the regional Big 6 markets expecting to surpass the £40 per sq ft in 2025.
The office market is starting to see a 'new generation' of refurbishments which offer a much higher quality product than ever before, with 'back to frame' schemes now becoming increasingly interchangeable with new build stock. On this basis, Savills expects that the gap between prime rents and top refurb rents will continue to contract across the Big 6 markets next year as occupiers look to refurbishments to potentially assist in reaching internal sustainability and wider ESG targets.
James Evans, head of national office agency at Savills, says: “We remain optimistic about the performance of the regional office market in 2023 in spite of the economic challenges the UK currently faces. The market proved its resilience through a much worse economic period in 2020/21, in some cases delivering record prime rent levels. The factors that drove this resilience are still in place, specifically an under-supply of prime space, a contracting development pipeline, strong demand for best-in-class space and further centralisation into city centres. As such, the current Prime A availability levels means that supply levels are likely to remain constrained in the coming years.”
Clare Bailey, Commercial Research Director at Savills, adds: “Businesses are now more
likely to demand a greater range and level of facilities to create an enhanced experience for their employees to encourage them back into the workplace. While many companies have adopted work from home strategies in the wake of the pandemic, their city centre offices, are even more important as places for staff to collaborate, to instil company culture, and to attract the best and brightest talent. As a result, the need for a five-star office, which, alongside increased sustainability credentials, include terraces, gyms, cafes and auditoriums. These will be key when considered alongside the requirements for occupiers striving to meet sustainability objectives, pointing to an ever-growing demand for Prime Grade A office space.”