With reference to Savills’ latest Regional Office Market Review & Outlook report, there are growing concerns as to how competition for Grade A space is grossly outstripping the supply presently, and to be made available. With less than one year’s supply of such space confirmed for the market over the course of the next three years, rents, specifically in regions such as Cardiff and Bristol is set to spike considerably.
Presently, the average take-up across UK regions sits at approximately 4.6m, with availability down by circa 18% from the levels reported back in 2007. Speculative figures on developments have also risen by approximately 128% from last year, coming in at approximately 3.5m sq ft, yet, with 28% of that pre-let, it is expected that it will be mostly absorbed over the course of 2016. This lack of space has proven to be one of the key, driving factors for rising demands amongst value-add office opportunities to help cover the excess demand as opposed to supply – in fact, this January represented the 41st month of considerable refurbishment activity in a row.
As a clear consequence of the demand and supply gap, so too has the gap between new-build rents and refurbished rents, with a deprecating differentiation between the average figures. This is a clear result of increasing rents, with Bristol potentially seeing the highest growth in rents of 12% by the end of 2016, as reported by Savills. Attributing the rise in UK-wide job creation as a driving factor behind the rising demand for quality space in prime locations, Claire Bailey, Associate Director of Savills Commercial Research has highlighted the potential for a pinch on new-builds between 2016 and 2017 due to the sheer quantity of developments already being pre-let and the rising demands for those in prime locations.
As explained by Richard Merryweather, Joint Head of UK Investment at Savills, it is expected that occupier demands for space is more than likely to persist onto and into the future, where investors are then likely to continue looking into securing secondary assets in prime positions. This is effectively to take advantage of opportunities that may exist and to help fill the gap left open by limited available new developments; however, it may also develop a gap in the supply pipeline itself.