The 2016 Office Market’s Halfway Point Overview

Posted on 8 June, 2016 by Chris Grigorovsky

We have now hit the halfway mark of 2016. A lot has happened in the commercial property market in the last 6 months, such as the Budget introducing a substantial change to Stamp Duty Land Tax and business rates. All of this has and will have an impact on the major sectors in some capacity. So in this first of a new feature, we collate the latest data regarding the office market’s performance so far, which should give you a good idea of what to expect as we head into the second half of 2016.

Modern Office Interior

The City’s Current State

Central London is still the go to destination for offices, with a reported 8 million metres squared of space within the city. In Q1 2016 alone, CBRE reported 3.1 million sq ft of office take-up.

The latest findings from Savills’ May edition of the ‘City Office Market Watch’ found that so far this year, there have been more deals over £70 per sq ft than the whole of 2014 combined. April gave a good indication as we move into the second half of the year.

Below are some of the highlights from April’s performance:

Supply – 5,619,663 sq ft

Vacancy Rate – 4.5%

Top Rent – £72.50/sq ft

April Take-up – 316,885 Sq ft

The number of transactions so far this year is 162, which is slightly lower than 2015’s figure of 188 at the same point. It was found that 87% of the transactions were Grade A standard. The insurance and financial services had the greatest amount of take up, with 31%, followed by Tech & Media (11%), Retail & Leisure (11%) and Professional with (11%). Meanwhile, serviced offices have only accounted for just 1% of the total take up so far in 2016.

The City in the Next Three Years

According to the report, between now and the end of 2019, there is 17.5m sq ft of refurbishments and developments, which is due to arrive on the market and already 26% pre-let.

However, the report goes on to say: “At no point in the next five years will development completions in the city exceed 80% of forecasted take-up.” It says that this will keep the city vacancy rate below 8%, which “historically has been a key marker to indicate oversupply.”

Regional’s Positive Outlook

Stepping out of the capital, things look positive in the office market. Cushman & Wakefield’s UK Regional Offices Q1 2016 report found that the quarter saw the highest take-up since 2000. It says that the regional office market has “robust” occupier confidence, with take-up reaching 1.5 million sq ft in Q1.

Birmingham and Glasgow were responsible for two of the biggest deals of development space. PwC acquired 90,000 sq ft of space in the Paradise offices, while Morgan Stanley acquired 154,000 sq ft at Bothwell Exchange.

The availability of space fell 8% in the first quarter and continues to outpace the supply. Grade A space is the most popular and if the pace continues at its current rate, the space will not last more than a year.

Regional – Looking Ahead

Rate of development has increased, however, there is 6.1 million sq ft that is to be completed over the next three years. This is a 68% increase compared to the last three years.

With the amount of high quality space coming to market, over the next three years, prime rents are “expected to rise by 9% on average.” Bristol will see the largest increase in rents of 18% by 2018, going from £28.50 per sq ft to £33 per sq ft.

What does the Future Hold?

It’s clear that the biggest obstacle plaguing the office market, in any region, is supply outpacing demand. The more space that’s required, the chance prices get increased. The second half of 2016 is set to be an interesting one. Will we see major changes for the better or continue on a somewhat uncertain loop? Stay invested in Movehut throughout the rest of the year as we uncover the latest goings on.

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