Office take-up and investment activity weakened across the Big Nine regional cities in the last quarter of 2023, according to Avison Young.
Take-up across Birmingham, Liverpool, Glasgow, Leeds, Edinburgh, Bristol, Cardiff, Newcastle and Manchester in Q4 was down to 1.92m sq ft, against 2.46m sq ft in Q4 2022. Total take-up across the nine cities was down to 7.12m sq ft in 2023 from 8.06m sq ft the previous year.
A total of 493 deals completed in the three months to December 31, which on a rolling 12-month basis was down 14% on the post-pandemic peak of 538 in Q4 2022.
Tight supply drives demand out-of-town
Overall, out-of-town markets had a stronger quarter, with Manchester and Newcastle out-of-town office transactions surpassing those in the city centre, at 241,334 sq ft and 208,595 sq ft, and 111,396 sq ft and 74,906 sq ft, respectively.
The most marked out-of-town deal in Manchester saw United Living taking ownership of a 27,200 sq ft building at 4 Clearwater, Lingley Mere Business Park, Warrington. In Newcastle, notable deals included Curtis Instruments’ acquisition of 32,742 sq ft at 2 Koppers Way, Monkton Business Park, and Spran Property’s acquisition of the 22,862 sq ft Nautilus House, North Tyneside.
In the city centres, Birmingham, Manchester and Bristol saw the strongest levels of office take-up activity, at 234,828 sq ft, 208,595 sq ft and 193,183 sq ft, respectively.
Notable deals in Q4 2023 included Dyson’s 66,317 sq ft lease at 1 George’s Square in Bristol and Mills & Reeve’s 32,088 sq ft lease at One Centenary Way in Birmingham (pictured).
Meanwhile, rents across the Big Nine cities continued to tick up as best-in-class space remained in high demand and short supply across the city centres. While only Edinburgh saw growth in its prime rent during the final quarter of 2023, to £43 per sq ft from £42.50 per sq ft in Q3, on an annual basis, rents across the Big Nine rose an average 5% year-on-year.
Edinburgh is expected to see further rental growth over the next six months based on deals currently under offer.
Looking ahead, Avison Young expects take-up in Q1 2024 to remain at a similar level to Q4 2023, and prime rental growth to continue due to the lack of best-in-class availability.
The Big Nine’s total availability rate increased by 78 bps in Q4 2023 to 9.5%, continuing the general loosening of supply seen over the past few years.
Liverpool and Edinburgh remained the tightest markets for total and grade-A supply, while Birmingham and Leeds had the highest rates of availability.
In the pipeline
Turning to the development pipeline, a total of 1.71m sq ft of new and refurbished office space completed in 2023 across the nine cities, with a further 115,000 sq ft delivered so far in 2024.
Avison Young data tracks 3.31m sq ft of office space due to be completed in 2024, of which 34% is pre-let.
The largest projects due to complete over the next six months include Qmile and M&G’s fully prelet 280,000 sq ft 2 and 3 Haymarket Square in Edinburgh and 270,000 sq ft fully pre-let One Central in Glasgow. Elsewhere, Candour and Tristan Capital’s 207,000 sq ft Welcome Building in Bristol is fully available.
Avison Young expects to continue to see office supply shortages in 2025, which will in turn place additional pressure on prime rents. The prediction comes as office supply across regional markets is held back by developers’ cautiousness around borrowing and construction costs.
Bargain hunting on the horizon
On the investment front, office deals totalled £362m across the Big Nine in Q4 2023, an improvement on £304.2m recorded in Q3 and £153.5m in the final quarter of the previous year. For the whole of 2023, investment volumes shrunk to £1.12bn against £2.06bn in 2022.
Manchester saw the highest transaction volumes in Q4 2023, accounting for almost a third of total Big Nine activity.
The key deal of the quarter was Menomadin Group’s purchase of One Angel Square for £140m, reflecting a net initial yield of 7.75%. Other notable transactions in the city included Parthena Reys’ purchase of One Hardman Boulevard.
All but one of the Big Nine cities’ prime yields softened by 25 bps in Q4 2023 to a weighted average of 6.69%. Bristol was the exception, owing to a strong market and transactional evidence keeping its yield the sharpest of the Big Nine at 6.25%.
Going forward, Avison Young anticipates seeing continued steady growth in transaction volumes over 2024, as pricing expectations between buyers and sellers “have almost reached equilibrium” and buyers are now more confident in pricing stability given the likelihood that interest rates will not go any higher.
Over the coming quarters, cash-rich buyers are expected to seek opportunities to buy at lower prices and eventually set a pricing floor.
Photo from MEPC
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