Demand for regional offices at 10-year high

By Paul Norman - Wednesday, March 14, 2018 7:00

Demand for office space in the UK’s leading regional cities is at a ten year high suggesting business confidence has held firm despite distractions from Brexit, according to analysis from Knight Frank.

The Knight Frank Regional Office Market Review 2018 shows office take-up across the key regional cities exceeded 7m sq ft in 2017, the highest total in a decade and 24% ahead of the ten year average.

The report reflects on a particularly buoyant market in Leeds in 2017, where over 1m sq ft of office space was transacted, 88% higher than the ten year average.

Take-up in Birmingham and Manchester also exceeded 1m sq ft, with take-up in each market 34% and 13% above the ten year average respectively. In addition, Sheffield, Edinburgh and Cardiff all recorded take-up at least 25% above their respective ten year average.

Demand for office space has been driven in part by growth in the TMT and professional services sectors, with firms establishing regional hubs in some cases to complement their presence in London.

In 2017 companies in the TMT sector accounted for 18% of all office space let in key regional cities, with professional services accounting for a further 20%.

Knight Frank also reports that the centralisation of the Government’s office estate has had a significant bearing on regional office take-up, with public sector requirements accounting for a quarter of the space let overall.

Alastair Graham-Campbell, Partner, Head of UK Cities at Knight Frank said: “Analysis of the key UK office markets tells us that business confidence is strong and Government policy to support and enable regional growth is starting to bear fruit.

“Demand for office space in the regions it at its highest in a decade, supported by headcount growth, business restructuring and new market entrants.

“The volume of office space leased in 2017 underlines that the reinvention of our regional city centres is delivering the right product to attract major occupiers. The challenge is to continue to deliver the space needed to meet demand.”

The surge in demand in the regions could see many cities facing a shortage of Grade A office space. Knight Frank’s analysis shows just 5m sq ft is scheduled to be delivered by 2020, with the supply-demand dynamics expected to keep upward pressure on rents.

This in turn is driving investor appetite for regional office assets. Investment outside of London reached £7.7bn in 2017, 62% above the ten year average and a third more than 2016.

Whilst overseas interest has been sustained, significantly, UK institutions have returned on the buying side – accounting for 42% of transactions in 2017 across the ten major regional cities - meaning increased competition for the best opportunities.

Alastair Graham-Campbell added: “The strong demand for office space in regional cities is driving up rents, and leading to many investors to broaden their attention beyond just London.

“Although the gap is narrowing, the regional cities’ offer of high quality assets and covenants at higher yields is proving an attractive proposition and one consistent with current investor strategy.”

Knight Frank’s Regional Office Market Review 2018 examines occupational, investment and development activity across Manchester, Birmingham, Sheffield, Leeds, Aberdeen, Edinburgh, Glasgow, Cardiff, Newcastle, Bristol.



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