UK office stock levels continue to drop

The UK office market will continue to lose stock to other sectors going through the rest of 2024, according to research from Savills. Total office stock in outer London and the South East has shrunk by 15% and 10%, respectively, in the last three years, according to new data, while total office stock in the regions contracted by an average of 4%.  The figures have been attributed to changing working practices and challenging economic headwinds, with the former accelerating demand for best-in-class offices. Hunt for best-in-class Greater London and the South East saw the highest proportion of grade-A take-up ever recorded in 2023, at 80%. Savills’ data showed just 12% of vacant office stock across Greater London and the South East is classified as grade-A, while across the big six office market, 17% of current supply has the same classification. The development pipeline also remains constrained across the regional office market, with 1.3m sq ft of speculatively developed space set to achieve practical completion over the next three years. Some 25% of this has been prelet or is currently under offer. In terms of repositioning, 800,000 sq ft of refurbished office space is expected to be delivered into the big six markets over the next three years, with notable developments including the Met Tower in Glasgow, Havelock in Manchester and 24-25 St Andrew Square in Edinburgh. Savills has tracked supply constraints driving headline rents upwards for best-in-class buildings. Over the past three years, rents grew at an average of 16% across the big six markets, with the first three months of 2024 showing 7% growth on prime space. The highest prime rent across the big six markets was achieved in Bristol in the first quarter of this year, hitting £46 per sq ft. Law firm DAC Beachcroft is moving to the Welcome Building, which is being delivered in a joint venture between EPISO 5, a fund managed by Tristan Capital Partners, and Trammell Crow Company. The company will occupy 44,196 sq ft across the sixth and seventh floors. Savills expects rental growth on prime space to continue over the next five years. The research also showed a 41% rental premium on BREEAM-certified buildings compared with non-certified projects in 2023, while fitted spaces secured a circa 20% rental uplift. Growing openness to alternatives Weakening demand for secondary office space has accelerated the conversion of such buildings into alternative uses, including housing, hotels, laboratories and purpose-built student accommodation. Education occupiers have benefited the most out of landlords’ openness to alternatives, with an increase in planning applications for buildings seeking dual consent for both office and educational use. According to Savills, office take-up by education providers accounted for 272,000 sq ft across the big six regional city centre markets. The trend was the most marked in Birmingham, where the education sector was the most active in 2023, securing 35% of take-up. Leeds and Manchester have also seen a number of deals involving education providers grow over the past 12 months. Looking ahead, Savills expects the structural drivers behind the increase in demand from education occupiers to remain robust. With enrolments rising from both domestic and overseas students, the provision of best-in-class facilities is a key for higher education providers to secure talent in a competitive environment. Havelock Manchester image courtesy of Savills