Like in the residential property market, demand is high for prime rental office space in the UK’s main regional cities. Growth across such markets have experience an average increase of 4.3% in the year to June 2015.
Property consultants JLL’s data reflects a solid outlook for the next 12 months for demand and tight supply of new space.
“Sustained levels of occupier demand combined with the decreasing availability of Grade A office supply has contributed to healthy rental growth with year on year increases witnessed in all bar one of the core eight cities,” said Jeremy Richards, dead of national office agency at JLL.
Interestingly, JLL’s data shows that two of the north’s largest cities – Manchester and Leeds – saw the most significant increases with rents up 6.5% in 12 months to £33 per square foot and 6% to £26.50 per square feet respectively.
Furthermore, both Manchester and Birmingham dominated activity during the first half of the year with 18% and 17% of take up respectively.
Lack of quality supply
One of the main reasons for the recent rise in rents has been the falling supply of good quality office space. Available office space across the core markets stands at 19.5 million square feet with an average overall vacancy rate of just 8.2%, which is down 9.1% on last year.
Grade A vacancy is at a staggeringly low 2.4% average with Leeds and Cardiff the lowest at 1.5% and 1.3% respectively.
Investment on the up
The lack of supply has seen office investment volumes across the UK’s core cities hit almost £2b, well up on the £1.5b traded during the first half of last year.
Domestic investors accounted for three quarters of investment volumes with the weight of money targeting the regions continuing to place inward pressure on prime yields.