Office update 20th December 2012

There is currently 1.75m sq ft of office space under construction across the UK’s major regional office markets, according to a new research report from CBRE.

This volume equates to just over 600,000 sq ft due to be delivered each year between 2012 and 2014. This is down sharply on the long-run annual average of 1.9m sq ft since 2000. Not only is this level of development low by regional historic standards, but it is also very low relative to development activity in the Central London office market, another measure of the twin-speed UK office market. This relatively low level of space is being delivered into markets where Grade A space is increasingly in short supply. This will begin to have a material impact as we progress through 2013.

Steady levels of take-up over recent years have eroded supply levels of the very best office space to the extent that a requirement of 75,000 sq ft or over has a choice of less than two buildings, with the exception of Birmingham. With confidence in the UK economy expected to grow during 2013, these supply levels are only likely to be eroded further, thereby restricting choice, even for smaller requirements.

There are three large schemes (of 200,000 sq ft +) currently under construction in the regional city centres: Two Snowhill in Birmingham, Atria in Edinburgh and One St Peter’s Square in Manchester.

Other construction work taking place is of considerably smaller buildings and the schemes are typically refurbishments of existing buildings. Audrey Dobson, Senior Director at CBRE in Glasgow, said: “Whilst the prospect of constrained Grade A supply may be attractive to developers, the many challenges of delivering a major construction project at the present time remain in place. At the top of this list are funding issues, with the availability of debt funding particularly restricted.

“However, on a positive note the Grade A supply constraints in Glasgow will be eased with the recent announcements of two major speculative office developments including One West Regent Street by Mountgrange and Prupim and 110 Queen Street by BAM. “Both decisions are testament to the city’s broad business base and availability of skilled labour making it a popular choice with occupiers.”