Lambert Smith Hampton (LSH) notes in its latest UK Office Market Pulse that UK office investment, at £26 billion, was in 2015 at its highest level since 2007. The strongest activity in regional office markets was in the South East.
Growing overseas demand for Central London offices resulted in institutions being net sellers in the second half of the year. While prime yields remained broadly stable across the UK, average transaction yields fell to their lowest level on record.
In the occupational market, take-up reached a 14-year high at 30.8 million sq ft, with the final quarter delivering 8.1m sq ft. Over two-thirds of the UK’s key office markets recorded 2015 take-up ahead of their respective 10-year annual averages, with stellar activity reported in Manchester (+74%), Edinburgh (+58%), Birmingham (+58%) and Belfast (+54%).
Availability continued to decline, falling by 5% over 2015, with grade B and C accounting for the majority of the reduction. Meanwhile, speculative development is beginning to support an improvement in grade-A supply, which increased by 3% over the year. A rental growth cycle which reflects ongoing supply shortages and rising confidence among occupiers is now well established across the UK office markets, with prime headline rents increasing in 28 of the 41 markets reported on during 2015.
Charlie Lake, capital markets director for LSH, commented: “As forecast, 2015 witnessed investor confidence returning to the regions, with a wide range of overseas investors and institutions attracted by the higher returns away from Central London. With income growth likely to be a key driver for investment in 2016, it is encouraging to see our agents forecast further prime headline rental growth in 26 of the regional markets.”
The UK Office Market Pulse is a ground-breaking interactive web-based tool which provides investors, occupiers and developers with detailed insight across a host UK office markets. Updated quarterly, it features information on rents, take-up and supply, and highlights emerging trends in individual business districts.
Tony Fisher, LSH’s national head of office agency, explained: “LSH is the only commercial-property consultancy with a truly national coverage and the Pulse takes the detailed local, regional and national market knowledge that we have, and presents it in a comprehensive, easy-to-use way. This enables people to access real-time information in order that they can make informed, intelligent and accurate property decisions.”
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