Over the past three years, HMRC have taken over 2.2 million sq ft of new office space across 11 regional centres. But have these deals been pivotal to the success of the UK regional office markets or have they simply added to the already growing popularity of regional cities?
In 2014 the Government Property Unit (GPU) announced ambitious plans to restructure their real estate portfolio, in a move to reduce surplus space and spending, with a large focus on flexible working. Since 2016, when the first deal took place, GPU transactions have accounted for approximately 13% of take-up across eight UK regional cities. With the exception of India Buildings Liverpool, all sites selected have been early marketed or newly completed developments, with a lease length of 25 years. This reflects HMRC’s commitment to creating an effective property model, providing efficient buildings that enhance user experience with spacious, open plan offices offering a range of amenities.
In 2016 GPU office take-up accounted for a minimal 2% of take-up, with a single transaction in Bristol. In 2017 GPU’s share of take-up increased to 19% with five deals across the country (totalling nearly 1.2 million sq ft). During the first three quarters of 2018, three GPU lettings have occurred (totalling almost 600,000 sq ft) which equates to 13% of all take-up. This was an expected slowdown in momentum from 2017 but still a significant contribution to regional office take-up volumes in 2018. Although an ongoing project, the bulk of significantly sized deals have now have taken place, with one in almost every key UK region.
Individually, their significance has varied region to region. Whilst the Manchester HMRC transaction at 3 New Bailey has taken a 13% share of take-up in the city centre so far in 2018, in Liverpool it has accounted for 54% of take-up. This can be attributed to the size of the market and size of selected development scheme (an additional 90,000 sq ft was taken at India Buildings than New Bailey). These deals have dominated take-up over 100,000 sq ft and in many cases, have been the only transaction in the region to exceed the 100,000 sq ft sizeband.
There is no doubt the recent wave GPU transactions have provided a huge boost to take-up figures, helping several cities push past the one million sq ft mark. During 2016 Manchester was the only region to exceed one million sq ft take-up. The following year Manchester, along with Birmingham, Edinburgh and Leeds surpassed this, demonstrating without such deals, take-up would certainly have appeared less impressive, with Leeds take-up dropping closer to 500,000 sq ft.
Despite this, regional office markets displayed above average performance in 2017, even with the GPU deals stripped out, with all locations outperforming the previous year and their five-year average. The boost in public sector take-up has certainly played a big part in the recent success of regional office markets but this is just part of the story.