The regional office markets have seen a sharp recovery in take-up, pushing up prime rents despite concerns over the rise of homeworking during the Covid-19 pandemic, according to new research.
Over the third quarter of the year, combined take-up across 20 regional markets stood at 2.2m sq ft, its highest since the pandemic began, the team at Lambert Smith Hampton found. The firm expects fourth-quarter take-up to hit 2.7m sq ft, taking the full-year total to 8.1m sq ft – up by 42% on last year and only 12% below the annual average.
Ryan Dean, LSH’s head of office advisory, said: “As more employers seek to make the grade on their workspace ambitions, perhaps the only limit to take-up in 2022 is the level of choice available to them. Limited development points to looming pinch points in supply, but this will translate into opportunities for landlords and investors to make the grade by repositioning existing buildings and adding value.”
Newcastle is set to be among the biggest winners, not least thanks to HM Revenue & Customs signing up to make the city’s Pilgrim’s Quarter its largest regional hub (pictured).
Leeds and Sheffield are likely to see full-year take-up at 21% and 11% ahead of the 10-year averages, with a 4% rise in Edinburgh.
Nine of the 20 markets saw prime headline rents rise during 2021, with six tipped to see prime rental growth of more than 10% on current levels by the end of 2023, including Birmingham city centre (+15%), Leeds (+12%) and Newcastle (+11%).
In the investment market, £913m of regional office assets changed during the third quarter, ahead of the quarterly average for the first time since Q3 2019. The final three months of the year look set to be the strongest quarter of 2021, LSH’s team said, including Landsec’s acquisition of a 75% stake in MediaCity, Salford, for £425m.
Charlie Lake, director for capital markets at LSH, said: “Despite the enormous challenges thrown up by the pandemic, there continues to be a sizeable weight of money looking invest in UK regional offices.
“Occupiers’ emphasis on property betterment is having a positive impact on prime rents and, given ongoing constraints to supply, we expect prime yields to harden in 2022 alongside increased activity from institutional buyers.”
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