How concentrated is office leasing and investment activity in the UK market? And have tenants expanded their horizons beyond core city-centre markets when looking for new workspace?
Figures from Radius Data Exchange reveal the extent to which major city-centre markets dominate office-based dealmaking within their respective regions – and track how those dynamics have evolved over the past decade.
To remove any possible “skew” factors that might stem from, say, an individual mammoth deal having an outsized impact on the figures for that particular year, we have taken two five-year periods from separate decades, smoothing the impact of any potential outliers.
From a nationwide perspective, the data shows that 49.8% of all leasing activity by square footage between 2015 and 2019 took place in the primary 12 regional city-centre markets, alongside core central London.
That figure is in fact a slight decrease in core market concentration for UK office leasing compared with a decade earlier. Those same city-centre markets accounted for a marginally higher share of activity between 2006 and 2010, when 50.4% of all newly taken square footage was in those 13 enclaves.
The London effect
So on face value we can say that businesses across the country are broadening their horizons in terms of expanding or consolidating their office-based enterprise based on historical leasing data.
However, London plays a critical role in underpinning the nationwide statistical pattern, and removing the capital from the analysis means that the trend is switched, and an increase in core market concentration is seen.
The central core markets in London accounted for 83.2% of letting activity in Greater London between 2006 and 2010. This share has since dropped to 79.3%. Areas beyond the historic core have become increasingly appealing to businesses looking for more cost-effective options in adjacent locations during the past decade – particularly those which have benefited from infrastructure improvements and significant supply of new space.
If we look at the nation as a whole without London data, 31% of all letting activity during the past five years has been concentrated in the 12 major city-centre markets – up from 29.7% 10 years ago. The sharpest increases came in Wales and the East Midlands, with Cardiff and Nottingham increasing their dominance of regional letting activity by 6.8 and 5.8 basis points respectively.
Scotland is at the opposite end of that particular scale – and has actually become an even more “democratised” region for office take-up than Greater London, with Edinburgh (pictured) and Glasgow’s combined share of leasing activity shrinking from 56.2% 10 years ago to 49.2% more recently.
Investors looking further afield
Investment, meanwhile, is much more cut-and-dry, both with and without the inclusion of London’s hefty influence on the statistics. Office buyers have demonstrably broadened their horizons beyond the core markets in comparison with a decade ago.
From 2006 to 2010, 80.2% of all office investment spend came in the 12 key regional city markets plus core central London, whereas those areas comprised 72.1% of all activity between 2015 and 2019.
Eliminating transactions in the capital from the analysis gives an almost identical pattern of democratisation of office investment, with the regional centres accounting for 45.7% of spend a decade ago, compared with 40.6% over recent years.
Wales, the North East and Scotland went most strongly against the wider national trend as the core markets in those regions soaked up a greater share of activity than a decade ago. The South West and West Midlands saw the biggest democratisation of office investment outside of London, with a 12 basis point drop in share of activity for the key markets.
London saw by far the biggest fall in investment concentration between the two periods analysed, with the core markets accounting for 62.7% of spend over the past five years in comparison with upwards of 90% in the five years to 2010 inclusive.
Evolving landscape
This acute democratisation has come despite the fact that the past five years have seen mammoth individual transactions complete across those historical core markets as overseas buyers snapped up trophy assets either side of the 2016 referendum on EU membership.
Alongside the leasing statistics, it is reflective of the capital’s evolution in pure geographical terms into a much larger and more varied platform for business incubation and expansion, which in turn offers a broader range of investment options for potential buyers.
Wales, meanwhile, has gone most acutely in the opposite direction as Cardiff accounts for a significantly greater share of both occupational demand and investment spend by our methodology.
Scotland is the most “dissonant” market by comparing investment and occupational share changes, as buyers appear to be concentrating much more heavily on the core markets of Glasgow and Edinburgh while occupiers are moving in the opposite direction and widening their pool of potential locations.
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