2018 was an outstanding year of office take-up across the UK regional and SE office markets. Can 2019 reach the same dizzying heights?
CBRE’s new UK Office Property Perspective reveals record breaking take-up activity (of nearly 7.5 million sq ft) in 2018 across the ten core regional cities. The South East also saw a significant uplift in occupier activity with 3.5 million sq ft of office space acquired, the highest level since 2007.
Half the ten regional markets monitored by CBRE outperformed against their five-year average. These included: Belfast, Edinburgh, Glasgow, Liverpool and Manchester. Others such as Birmingham and Leeds also saw healthy levels of occupier activity, albeit at slightly below their five-year average.
For the second consecutive year the public sector set a new record, accounting for a quarter of all space taken in the regional cities. The majority of demand, however, was again driven by business and professional services. Of particular note, 2018 saw record take-up from flexible office operators, representing the leading portion of business services take-up. This was the year the co-working revolution surged into the South East and regional cities. In the South East key expansion locations included Slough, Hammersmith, Stockley Park and Reading, whilst in regional cities, it was Birmingham, Bristol and Glasgow.
Following the exceptional year of 2018, how will regional office markets perform in 2019?
Softer economic growth and Brexit-related uncertainty could slow decision making. Overall, we are likely to see an edging down in UK office occupier activity. The effect should however be moderate rather than dramatic as confidence in regional office markets is still healthy.
Further activity is anticipated from both the public sector and flexible office space providers although not at the same pace. HMRC currently have live requirements in both Bristol and Birmingham, which could result in a significant boost to take-up figures for these cities in 2019. Flexible office operators will also take more space over the year, although at a lower level as markets start to saturate.
We also expect more from the creative sector in 2019. The creative industries are a growing presence in core regional cities and the south east. They are attracted by quality talent pools, lower costs of living for employees, more affordable housing, and lower operating costs compared with London. They support thousands of smaller start-up and medium sized businesses as well as proving a big draw for larger organisations.
One key constraint in core cities such as Manchester, Birmingham, Bristol, Edinburgh and Leeds will be the lack of the right quality stock. There will be some new stock delivered in 2019 but the development pipeline overall is at a low point in this cycle. These shortages will drive further pre-lets in regional cities.
More positively, key infrastructure projects, will benefit many of these office markets in the longer term. From national projects such as HS2 and Crossrail which could finally open later this year, through to smaller local projects, such as the extension of the Midland metro through the streets of Birmingham to Brindley Place and beyond.