UK REGIONAL CITIES OFFICE MARKET REVIEW 2018 - RESEARCH - Knight Frank
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RESEARCH UK REGIONAL CITIES OFFICE MARKET REVIEW 2018
UK REGIONAL CITIES REVIEW 2018
CONTENTS FOREWORD
The UK Regional Cities Office Market Review analyses not only
the performance of the ten major UK regional cities, but also gives
opinion and insight into future trends.
2-3 Foreword
4-5 UK Economic Outlook
ALASTAIR GRAHAM-CAMPBELL
6-7 The Renaissance Period
PARTNER, REGIONAL HEAD
8-9 Investment
10-11 City Markets
A common sentiment emerges from
discussions with our local offices: “Take-up reached
12-13 Aberdeen Positivity. The reason? The UK a fifteen year high
14-15 Birmingham
regions are prospering despite an
unprecedented breadth of challenge and supported by headcount
16-17 Bristol change. Regeneration and reinvention
through public and private investment is
growth, business
18-19 Cardiff
delivering results. New spaces are being restructuring and new
20-21 Edinburgh
Development Pipeline
22-23
created. New investment is forthcoming
for infrastructure. Our major regional
market entrants.”
cities have never been more in focus.
24-25 Glasgow
A reflection on the property market in
26-27 Leeds
2017 exudes this positive tone. Occupier Most remarkable perhaps, is that the
28-29 Manchester demand for office space defied wavering strong results have coincided with a
confidence, with take-up reaching a period of instability. Brexit is now just
30-31 Newcastle
fifteen year high supported by headcount thirteen months away, with optimism and
32-33 Sheffield pessimism toward the prospect expressed
growth, business restructuring and
34-35 Knight Frank View new market entrants. Office investment in equal measure. Whether for or against,
volumes were up by a third, as UK the trading relationships of the UK could
36-37 Data Dashboard profoundly change. Uncertainty will be
Institutions returned on the buying side
38-39 Key Contacts to accompany significant and sustained with us for some time yet.
interest from international investors. Not Nonetheless, it is clear that the UK
quite a boom marketplace, but certainly regional cities offer the right product
one that outstripped expectations. What to capture the prevailing mood of both
has been very noticeable is that target occupiers and investors. There is now
locations of occupiers and investors momentum behind creating the places
are now progressively more fluid. where innovation can flourish and
Opportunity searches are conducted on support growth. Whilst the political
a national and often international scale. arena is sure to dominate the headlines,
This has meant from a Knight Frank the transformation of the UK regional
perspective, our regional client base has cities will continue and provide a solid
grown, as cross market advice becomes foundation for an active property market
a prerequisite. in 2018.
2 3
UK REGIONAL CITIES REVIEW 2018
UK
“We believe that the uncertainty
surrounding the economy
makes a general rising tide
ECONOMIC for UK PLC unlikely.”
OUTLOOK
04 03
WRITTEN BY
The UK economy faces a year
of challenges and opportunities
in 2018, and while mindful of the
former, we should not overlook
the latter.
How one views the year ahead comes
down to whether you are a ‘glass half
JAMES ROBERTS full’ or a ‘glass half empty’ person.
Chief Economist
After all, there is plenty of evidence to
support either view. Those who take the
half empty view can draw justification
from the uncertainty surrounding Brexit, 01 02
sluggish GDP growth, and the squeeze
on consumer incomes. For those who
favour half full, there is the robust
labour market, the rapid growth of new
technology firms, and rising export
01 02 03 04
demand for manufacturers, to provide ROBOTICS AND ARTIFICIAL NEW WAVE FINANCE SHRINKING SUPPLY CHAINS GREEN INDUSTRIES
evidence to support their view. INTELLIGENCE (AI)
In China, some cities are rapidly turning Even prior to the vote for Brexit, there had In 2017, the UK had its first ever day
So who will be proved right: the optimist This part of the digital revolution has been cashless, as more people pay for goods been a movement towards shorter supply operating the electricity network without
or the pessimist? We believe that the a rising tide for some time, but it is about to with their mobile phones. Even the chains, reflecting more customisation in coal, drew 52% of its power from low
uncertainty surrounding the economy accelerate in the UK in particular as the result buskers accept electronic payments manufacturing and a desire to speed goods carbon sources during the summer
makes a general rising tide for UK PLC of the move towards Brexit. Firms will no now. A combination of ubiquitous smart to market. With the UK leaving the EU, more months, and broke records for wind power
unlikely. Our forecast for 2018 GDP longer be able to rely on labour from the EU, phones, and pressure on regulators to firms are looking to buy supplies locally, production, according to National Grid.
growth is 1.5%, which is less than but the tap is being switched off at a time when open up the market, means banking in which could result in new manufacturing A recent report from the International
the 20-year annual average of 2.0%. unemployment is at its lowest level in 42 years. the UK is set for huge disruption. We firms being established. These will need Renewable Energy Agency suggested
However, we expect to see pockets of As a result, firms will invest more in automation believe the new wave of fin-tech firms, office space for their HQ and design green energy could be cheaper than
outperformance that property investors and AI to fill the gap, creating demand for lacking the historic ties to London, will be functions. Also, we see the move towards fossil fuels by 2020. We see green
can target to achieve better returns. Here office space from the technology firms. We more open-minded on where they locate. customisation creating demand for city energy firms becoming more important
are the four sectors of the economy that see activity weighted towards cities with This could open up a new source of centre design offices, as manufacturing in the economy and office market
may deliver strong growth in 2018. universities that have strong IT departments. office demand for the regional cities. firms employ more creative workers. going forwards.
4 5
UK REGIONAL CITIES REVIEW 2018
THE
RENAISSANCE
“Business confidence, investment and hiring
intentions are all positive, relative to their position
a year ago, although the twists and turns of Brexit
PERIOD may well bring volatility to these indicators.”
01 02 03 04
WRITTEN BY commitment to Birmingham, while
cost and efficiency drivers influenced a
rethinking of the Government’s estate
and with it emerged sizeable deals in a
INCREASED OCCUPIER MOBILITY COST SENSITIVITY BUT NOT AT THE FURTHER DISRUPTION INCREASED DEMAND FOR SERVICE
number of regional markets. EXPENSE OF WORKPLACE QUALITY FUELLING DEMAND 2018 will be the year in which the co-working
The perfect storm was realised through
As supply tightens in some markets, OR EXPERIENCE A new wave of technology – revolution hits the UK regions. There will
but the need for cost effective business
two significant supply side drivers. Given prevailing economic conditions automation, AI, and robotics, will be a multiplication of co-working providers
transformation intensifies, we anticipate
DR. LEE ELLIOTT
First, the emergence of a strong cost sensitivity will be high, but occupiers create opportunities to enhance ranging from new challengers, established
a broadening of search areas and a
Partner, Head of Commercial Research pipeline of high quality, amenity rich increasingly accept that low cost, low business efficiency and productivity. operations and also traditional supply side
growing level of competition between
product located within city centres. quality real estate options are actually a Back and middle office functions will be players responding to the challenge with
regional centres for this mobile demand.
Occupier activity returned There was a clear step change in the
Occupiers will undertake extensive
false economy as they create expensive reshaped and talent requirements will their own offer. There will also be greater
to the UK regions in a major physical product found in regional research in relation to market dynamics
staff churn. It is on average ten times more shift away from clerical and processing demand from corporates seeking larger
expensive to replace a staff member in the skills and towards technical and creative scale solutions. The key point, however, is
way during 2017, but can the cities. Second, the vibrancy, cohesion and options, but also critically in respect
regions than it is to accommodate them. skills. As businesses make plans for this that co-working brings a new approach to
and relative affordability of the regional
momentum be maintained? of workforce availability and / or the
Real estate costs will be scrutinised but next cycle of disruption, new demand customer service within the industry. Highly
cities increasingly appeals to young impact of any relocation on core staff.
Against a backdrop of persistent geo- professionals. Different lifestyle choices not at the expense of creating a workplace will be generated. serviced, scalable environments that give the
political uncertainty and slow economic are creating a deepening supply of that supports staff recruitment, retention occupier a turn-key solution with no hidden
growth rates, occupier activity in the regional talent that occupiers recognise and their workplace experience. costs will be in great demand.
regional markets surprised on the upside. and buy-into.
More than 7 million sq ft of office space
was let across the ten core markets So, as we enter into 2018, a key
reviewed in this report. On this basis, the question must be, can the regional
markets were not simply resilient – the renaissance be sustained?
aggregate volume was, after all, some Business confidence, investment and
1.3 million sq ft above the ten-year hiring intentions are all positive, relative
average. Instead, 2017 represented to their position a year ago, although
a clear renaissance for occupational the twists and turns of Brexit may well
markets in the regions. bring volatility to these indicators. The
They were beneficiaries of a perfect potential brake on momentum is actually
storm. Businesses, under huge pressure on the supply side in select cities.
from digital disruption, brought change We do not envisage aggregate leasing
to business models which fuelled market volumes extending beyond the levels
demand. Furthermore, the economic reached in 2017. However, the structural
backdrop forced many to actively drivers underpinning occupier demand
consider and commit to locations that remain firmly in place. The outcome
presented a property and operational will therefore be strong enquiry and
cost advantage or a cost profile more requirement levels, intense competition
appropriate to the type of business amongst occupiers to secure preferred
function being fulfilled. Finally, regulatory
options and pent-up demand from those
and political pressures fuelled significant
unable or unwilling to compete.
regional requirements. The ring-
fencing of UK retail banking operations In our view, there will be four key
has supported increased financial characteristics of occupier demand in
55 COLMORE ROW
services activity, most notably HSBC’s the regional markets during 2018:
6 7
UK REGIONAL CITIES REVIEW 2018
NT
ME Figure 1
Office investment transactions by sizeband
strong competition from investors, but this
in turn will begin to erode the differential.
have been increasing their share of
regional offices purchases, and are under
significant pressure to deploy further
Ultimately, cautious optimism on
occupation markets, combined with capital. London and parts of the south
robust investor demand is supporting east markets remain too competitive
return expectations. Performance data and/or expensive for some such funds,
EST
from IPD shows that while capital growth meaning prime offices in regional
in regional markets typically lagged the locations will be an attractive alternative –
London market in 2017, values have been as long as the stock can be found. As the
steadily improving. This, combined with UK faces a period of moderating growth
a stronger income return than for London and uncertain politics, prime assets with
offices, has meant that total returns in attractive income profiles could prove
regional office markets have in many scarce, due to the difficulty that owners
INV
cases been higher than for London.
will face in recycling capital effectively.
Some will calculate that only premium
OUTLOOK pricing will compensate for the challenge
of reinvesting, and absent this, will prefer
The latest IPF consensus report shows to hold. As a result, demand for good
the range of forecasts for UK office quality secondary assets may pick up.
returns in 2018 is wider than for any
of the other major property sectors, Overseas investment rose up in the last
highlighting the degree of uncertainty quarter of 2017 and we expect further
about the outlook. However, recognising interest in 2018. One reason is that the
that 2018 is likely to see performance weight of capital targeting prime offices
moderate across all sectors, we in European cities has driven yields to
Under £10m- £25m- £50m- £75m- £100m+ nevertheless see plenty of reasons to
£10m £25m £50m £75m £100m unprecedented lows, and has left many
£1.1bn £1.3bn £1.5bn £0.9bn £0.4bn £2.5bn expect a buoyant regional office market UK office markets looking comparatively
(278deals) (81 deals) (43 deals) (15 deals) (4 deals) (13 deals)
in 2018, not least due to the variety of better value. We expect this will cause
122 WATERLOO STREET
capital sources active in the UK. some European investors to reappraise
Source: Knight Frank/Property Data
Having initially been less active buyers the UK, adding to the overseas demand
post-referendum, institutional funds already active in regional UK cities.
WRITTEN BY significant transactions were announced public sector relocations of office staff to
(but not completed) in the final months of regional cities. Meanwhile, on the supply
Figure 2 UK regional investment by capital source
the year. side, the delivery of new office space has
remained relatively subdued, exacerbating 4%
Overseas investors accounted for around
the shortages of modern office stock in
40% of purchases during 2017, with
many of the largest cities, and leading to
domestic institutions making up a further others 13%
stronger prospects for rental growth. OVERSEAS INVESTORS £3.1BN
22% – shares that on the face of it have
The ever-present hunt for yield SOUTHERN
changed little in previous years. Yet the AND EASTERN
WILLIAM MATTHEWS 15%
Partner, Capital Markets Research most recent quarterly statistics show a has clearly also been supportive of
clear rise in the share of both of these investor interest. Making the inevitable
comparison to London pricing, both
MARKET OVERVIEW
two purchaser types, to the extent that
ISource of capital (£ millions)
Destination of capital
they jointly accounted for well over 60% overseas and domestic investors alike 27%
UK INSTITUTIONS £1.7BN
of purchases by volume in the last two have benefited from higher yields when
Office investment outside of London
quarters of 2017. Meanwhile, private purchasing offices in the UK’s regional
reached £7.7bn in 2017, 30% more than cities, even when the assets and
in 2016, in a clear sign that the slowdown investors eased back. PRIVATE PROPERTY CO £1.1BN NORTHERN
covenants have been of similar quality. AND SCOTLAND
in office investment beyond the M25 has So what has been driving the interest But while prime office yields in London
begun to reverse. Indeed, the pace of in regional markets? On the occupier remained unchanged throughout 2017, OCCUPIERS £0.7BN 41%
activity is increasing. After a relatively demand side, there is no doubt that recently announced deals suggest that
slow start, investment in the second half OTHERS £0.6BN
the fundamentals have been improving for regional cities, yields are still under MIDLAND
AND WALES
of the year was over twice as high as in across a number of fronts. 2017 saw jobs downward pressure for the best stock. PRIVATE INVESTORS £0.3BN
the first, and the sense of momentum growth across most of the UK’s regions, The regional cities’ yield advantage over QUOTED PROPERTY CO £0.2BN
was heightened as a number of boosted by high-profile private and London remains sufficient to generate Source: Knight Frank/Property Data Note: Totals reflect office investment outside of Greater London in 2017
8 9
UK REGIONAL CITIES REVIEW 2018
S
ETK
AR
YM
CIT
10 11
UK REGIONAL CITIES REVIEW 2018
ABERDEEN
OCCUPIER MARKET In May, Chrysaor Holdings Limited
(Chrysaor), took 47,700 sq ft at The
PRIME RENT 2017 INVESTMENT VOLUMES 2017
INVESTMENT MARKET FCFM Group Ltd (FCFM) acquired two
properties in Aberdeen during the year.
With the worst of the oil & gas downturn Capitol on Union Street to establish a Following a subdued market in 2016, The first was Quattro House, bought for
now past and most rationalisation programs North Sea Operations HQ. Since opening
in 2016, the £30m redevelopment of
£ the impasse between buyer and seller £7.7m. The property is let to Petrofac
seemingly complete, occupier activity expectations finally began to soften in
showed steady improvement in 2017. Office a former cinema has now leased 85% £32.00 per sq ft £99m / +419% 2017. Office investment volumes for
Facilities Management until 2024.
Following this, FCFM acquired Trafalgar
take-up reached 468,250 sq ft by year end, of available space. Other tenants in (2016-2017) 0% the year fell just short of the £100m
House for £4m. The other deal to
a total that, although 18% below the 10-year the building include Price Waterhouse mark at £98.8m, this being the highest
% OF DOMESTIC INVESTORS complete was the acquisition of Ensco
annual average, reflects a 68% increase Coopers (PWC) and Dentons UKMEA LLP. PRIME RENT 2018 (FORECAST) total achieved since 2014. The offer of
when compared to 2016. House by a private investor for £6.5m
favourable pricing when compared to
A combination of development reflecting a yield of 7.34%.
Supporting the rise was 138,500 sq ft lease regional competitors in addition to signs
completions and ‘grey space’ coming
taken by Total E&P UK at West Campus, of an improving occupier market, is Similar to 2016, domestic money
back to market meant a further rise in
beginning to fuel renewed interest.
Westhill. Although agreement was reached
in March 2017, the energy firm moved
vacancy was recorded in 2017. Grade
A availability increased to 753,800 sq ft
£30.00 per sq ft 54% The sale of a 102,000 sq ft, newly
accounted for the highest percentage
of investment turnover, 54%. Given the
(2017-2018) -6%
into the property in Q4 2017 following during the year, a total twice that of the completed office at Prime Four Business low number of transactions however,
refurbishment of the building. With a long long-term average. This is the highest PRIME YIELD 2017 Park to LCN Partners was the largest of the skew toward UK investors isn’t
TAKE-UP 2017
term tenant secured, landlord M&G have level on record for the city. This total five transactions to complete during the truly reflective of the market, with
since sold the freehold on the campus to however, should represent the peak year. The asset sold for £41.3m, a price international buyer activity increasing.
Gulf Islamic Investments. in vacancy. The development pipeline which reflected a net initial yield of 6.8%.
consists of proposed schemes only, none Lloyds Register have a 15 year lease on Prime office yields remained at 6.50% in
The Total UK deal was one of three
transactions to complete over 30,000 sq ft of which are likely to begin works unless 468,250 sq ft 6.50% the building. 2017, meaning prime assets in Aberdeen
in 2017. a pre-let is secured or a sustained market Y-on-Y change +68% still offer a considerable discount when
In December, Gulf Islamic Investments
recovery is recognised. compared to other regional centres.
The second largest letting saw Somebody PRIME YIELD 2018 (FORECAST) purchased the freehold interest of West
GRADE A SUPPLY Notably, at this level, yields are 100
Cares extend their presence in Aberdeen. In 2017, prime headline rents held firm Campus, Westhill Business Park from
at £32.00 per sq ft, albeit occupier M&G Real Estate Ltd for £39.4m. The basis points above the market peak of
The charity agreed terms on a new 51,150
sq ft lease at John Wood House. This incentives remain particularly attractive. campus comprises of three properties, 5.50% recorded in 2007. Despite some
follows a 36,200 sq ft letting at Trafalgar Rental values are expected to come under with Total E&P UK the major tenant. The improvement to sentiment, pricing is
House in 2016, which was the largest pressure in 2018 driven by a continued 753,800 sq ft purchase price reflected a net initial yield expected to remain stable in the coming
single transaction of that year. market imbalance. Y-on-Y change +18% 6.50% of 7.87%. 12 months.
12 13
UK REGIONAL CITIES REVIEW 2018
BIRMINGHAM
OCCUPIER MARKET Square. The building will enable PWC
to relocate its existing Birmingham
PRIME RENT 2017 INVESTMENT VOLUMES 2017
INVESTMENT MARKET £33.8m back in 2014. Tenants include
Pinsent Masons LLP, Savills and the Royal
2017 proved to be an exceptional year based operation from 19 Cornwall Street Office investment turnover in Birmingham Institute of Chartered Surveyors (RICS).
for occupier activity in Birmingham, as as well as providing room for further £ reached £599m in 2017, 47% ahead of
Other notable deals over £25m to
both resident firms and new entrants growth. Occupation is scheduled for the 10-year average for the city. Although
vied for city centre space. Office take-up Q2 2019. £33.50 per sq ft £599m / +52% this total also represents a year-on
complete in 2017 include the sale of 19
Cornwall Street to Kier Property Group
increased by 45% to reach 1.01m sq ft (2016-2017) +3% year increase of 52%, the number of
Professional Services continue to transactions was fewer, with 17 office for £35.7m. The property is let to Price
by year end. This total is 34% ahead of
the 10-year annual average.
form the largest source of demand in PRIME RENT 2018 (FORECAST) % OF DOMESTIC INVESTORS sales completed compared to 18 last Waterhouse Coopers (PWC) and Pinsent
Birmingham. The sector accounted year. Nonetheless, 2017 has seen strong Masons LLP. Also at year-end, Royal
The 238,900 sq ft pre-let taken by for 30% of take-up, with the RICS investor interest sustained, with only London Asset Management acquired 5
the Government Property Unit (GPU) at (30,800 sq ft), Hogan Lovells (23,400 the limited number of opportunities, St Philips Place for £45m. The building
3 Arena Central underpinned the rise. sq ft) and Arcadis (22,900 sq ft) being particularly at the prime end, restricting is home to the Homes and Communities
The building will be the Midlands regional
hub for HM Revenue and Customs
other notable firms to take new space £35.00 per sq ft 47%
the market. Agency and the Criminal Cases Review
in 2017. Underpinned by the GPU (2017-2018) +4% Commission, with the sale reflecting a net
(HMRC), alongside other government The year did bring a landmark investment
letting, the public sector accounted for deal however. The acquisition of six initial yield of 4.7%.
departments. Occupation is scheduled PRIME YIELD 2017
the next highest proportion of take-up, CITY CENTRE TAKE-UP 2017 assets at Brindleyplace by HSBC (Hail) for
for 2020. In contrast to 2016, overseas money
comprising 27%. £265m stands as the largest office sale accounted for the largest percentage
With demand for flexible office solutions on record in Birmingham. Bought from
With large scale development delivering of office investment in Birmingham
continuing to grow nationwide, Regus Hines Global and Lone Star, the portfolio
new space to the market, Grade A during the year, 48%. This was largely
committed to two new leases in includes Three, Four, Five, Six and Nine
Birmingham during 2017. The largest saw availability increased to 250,000 sq ft, 1m sq ft 4.75% Brindleyplace, which comprise over
due to the HSBC (HAIL) purchase being
the serviced office provider agree terms although this is still 5% below the 10- Y-on-Y change +45% made on behalf of international clients.
470,000 sq ft of grade A offices, with retail
on 76,000 sq ft at the newly refurbished year average. At year-end, 1.6m sq ft UK Institutions accounted for 32% of
and leisure uses at ground level. The sale
was under construction with delivery due CITY CENTRE GRADE A SUPPLY PRIME YIELD 2018 (FORECAST) investment volumes in 2017.
Crossway. Regus also took 33,300 sq ft price reflected a net initial yield of 6%.
at the Lewis Building on a 12-year lease before the end of 2020. Of this total, 1m
In addition, as the year was closing, TH Prime city core yields reacted to the
for a reported rent of £26 per sq ft. sq ft is speculative.
Real Estate bought 55 Colmore Row for weight of investor interest during the year
Following an agreement in March 2016 Prime headline rents increased by 3% to circa £100m. The 161,000 sq ft building moving to 4.75%. At this level, prime
to take 90,000 sq ft, PWC took the £33.50 per sq ft. We anticipate a further 250,000 sq ft was renovated in 2016 by IM Properties, yields are 25 basis points above the
remaining 58,600 sq ft at 1 Chamberlain rise to £35.00 per sq ft in 2018. Y-on-Y change +96% 4.75% who themselves acquired the building for market peak of 4.50% recorded in 2007.
14 15
UK REGIONAL CITIES REVIEW 2018
BRISTOL
OCCUPIER MARKET Augustine’s Courtyard (31,800 sq ft) in
Q1, leasing 10,000 sq ft at 1-5 Whiteladies
PRIME RENT 2017 INVESTMENT VOLUMES 2017
INVESTMENT MARKET Bristol and Dyson Technology Ltd, with
Dyson Technology Ltd having agreed a
The ongoing supply shortage in Bristol Road in Q2 and taking a 27,300 sq ft Office investment volumes in Bristol record rent of £32.50 per sq ft.
served as a restraining factor for leasing lease in 1 Cathedral Square in Q4. Not £ reached the highest level since 2006,
In July, M&G Real Estate acquired
activity in 2017. Nevertheless, overall take- for profit organisation Eduserv also with £396m of assets sold during
up reached 614,000 sq ft, 12% above the acquired the 16,000 sq ft Gyldan House, £32.50 per sq ft £396m / +13% the year. This total reflects a 13%
the 62,000 sq ft, 66 Queen Square for
10-year average for the city and the third (2016-2017) +14% increase when compared to 2016 £30.5m. The property is let to KPMG
a purchase that will enable an operational
highest annual total of the past decade. and is 77% above the 10-year annual and Handelsbanken. M&G Real Estate
move from Bath. % OF DOMESTIC INVESTORS
PRIME RENT 2018 (FORECAST) average. Interestingly, the rate of sales also acquired 1 Georges Square in July
The growth of Bristol’s profile as a UK Professional Services however, continue increased sharply following the UK for £26m. The property is let to Clarke
technology hub was a significant feature to be the mainstay of activity in Bristol. General Election in June, with 75% of Willmott with 5.75 years unexpired. The
of the market in 2017. Dyson Technology The pre-lettings of 13,000 sq ft to transactions completing in the second other deal to complete above £25m was
Ltd’s leasing of 28,700 sq ft at Cathedral intellectual property specialists, Mewburn half of the year. the acquisition of 100 Bristol Business
Square was most notable, with a record
rent of £32.50 per sq ft agreed. The
Ellis, and of 27,000 sq ft to law firm, £35.00 per sq ft 59% Supporting the increase in activity was
Park by Lime Property Fund (Aviva) for
Simmons and Simmons, within Aurora at (2017-2018) +8%
building had been the subject of a £7 the sale of 10 Canons Way to a South £30.06m reflecting a yield of 5.25%.
Finzels Reach proved to be the flagship PRIME YIELD 2017
million refurbishment in 2017. This deal CITY CENTRE TAKE-UP 2017 Korean investor advised by Knight Frank Similar to 2016, domestic investors
deals of the year. In all, the sector
was one of 38 transactions to TMT Investment Management (KFIM). The accounted for 59% of investment in
accounted for 24% of take-up.
occupiers during the year, including sale price was £95.5m which reflected
2017, albeit overseas money would
local firm AMI agreeing terms on 12,000 At year end, just 3,272 sq ft of new a net initial yield of 5%. The 177,000
have contributed to funding in some
sq ft at One Brunswick Square and Grade A space was available for lease. sq ft property is entirely let to Scottish
Xmos taking 7,200 sq ft in Queens Good quality secondhand space has 614,000 sq ft 5.00% Widows Limited until November 2032.
deals. Direct international investment
increased, with overseas buyers
Quay. Overall the Technology Media also been in decline, with just 122,053 Y-on-Y change -22%
The £33.5m sale of a long lease interest accounting for 29% of volumes in 2017
and Telecoms sector accounted for a sq ft available at year end. In the next
PRIME YIELD 2018 (FORECAST) at One Cathedral Square to F&C up from 17% last year.
third of take-up. 12 months, the development pipeline is NEW GRADE A SUPPLY
Commercial Property Trust was one
Following the 107,000 sq ft lease to HMRC scheduled to deliver just 55,000 sq ft of of four other transactions to complete The sale of several prime assets has
in 2016, the public sector remained a new space together with 109,000 sq ft of above £25m. Notably, the 2017 total of evidenced a shift in yields in 2017.
strong source of demand. The University comprehensively refurbished space. It is five is the highest number of sales above Prime office yields have moved in by
of Bristol was responsible for three new widely anticipated that these totals will 3,272 sq ft this threshold since 2011. One Cathedral 25bps in 2017, finishing the year in the
transactions, acquiring the freehold of reduce before practical completion. Y-on-Y change -94% 4.85% Square is fully let to the University of region of 5.00%.
16 17
UK REGIONAL CITIES REVIEW 2018
CARDIFF
OCCUPIER MARKET Canal Parade, meaning the Public Sector
accounted for the three largest deals of
PRIME RENT 2017 INVESTMENT VOLUMES 2017
INVESTMENT MARKET of 5.5%. The 134,950 sq ft asset is let
to six tenants, including Blake Morgan
In a year punctuated by major political 2017 in Cardiff. 2017 proved to be the strongest year LLP, Julian Hodge Bank and MotoNovo
events, occupier demand for office space
In terms of deal numbers however, £ on record in terms of investment activity Finance. Following this, Credit Suisse
bought Two Central Square for £56.5m
in Cardiff proved encouragingly resilient. in Cardiff, with investment volumes
Take-up reached 703,900 sq ft by year
Technology, Media and Telecoms
occupiers continue to grow a presence
£25.00 per sq ft £289m / +170% reaching £289m by year end. This total reflecting an initial yield of 6.25%. Due to
end, this total being 38% above the not only reflects close to a threefold complete in Q3 2018, the 148,000 sq ft
in Cardiff. The sector represents 18% building is already fully let to Hugh James
10-year average and the highest total increase when compared to 2016, but
of the total deal count in 2017, albeit % OF DOMESTIC INVESTORS Solicitors and Cardiff University.
on record. PRIME RENT 2018 (FORECAST) is also 160% ahead of the 10-year
the average lease taken by this type of
average for the city. A total of 12 deals Supported by the L&G deal, UK investors
The 269,200 sq ft pre-let of 6 Central occupier was less than 3,000 sq ft.
were completed during the year, with accounted for 62% of turnover during
Square to the Government Property Unit
Grade A availability was 114,200 sq ft significantly, three exceeding £50m. the year up from 21% in 2016. Other
(GPU) was the largest transaction of
at the close of 2017, reflecting a 38% domestic deals include the acquisition
2017 and the largest on record for Wales.
The GPU took a 20-year lease at the
reduction since the turn of the year. £25.00 per sq ft 62%
The largest investment transaction
followed the announcement that the
of No.2 Capital Quarter by Tesco
Looking ahead, the development Pension Fund for £23.2m and the sale
Rightacres and Legal & General scheme UK Government had agreed a pre-let
pipeline remains strong with 733,200 PRIME YIELD 2017 of 1 Fusion Point to Fidelity UK for £8.9m.
which will, once completed, be a new TAKE-UP 2017 at 6 Central Square. Legal & General
sq ft recorded as under construction Overseas money represented 37% of
headquarters for HMRC. Occupation is is forward funding the development
at year-end. The majority of this new investment volumes.
expected in 2020. with the purchase price of £117.2m
space has already been leased however,
representing the largest single asset Prime office yields hardened by 25bps
Unsurprisingly, the public sector with only 168,200 sq ft still available
investment deal in Wales on record. in 2017, finishing the year in the region
accounted for 56% of total space leased.
Aside from the GPU pre-let, Cardiff
split across JR Smarts Number 3 & 4
Capital Quarter. Practical completion at 703,900 sq ft 5.50% Rightacres Property in partnership with of 5.50%. The spread between prime
Y-on-Y change +3% L&G and Cardiff Council are developing and good secondary has also continued
University also took space at the Central Number 3 is expected by Q2 2018 with
the site, with completion scheduled for to close as interest toward asset
Square regeneration scheme. The Number 4 due to complete in Q4 2018. PRIME YIELD 2018 (FORECAST) management opportunities has
GRADE A SUPPLY late 2019.
University took a 44,500 sq ft, 20-year Further ahead, JR Smarts, John Street been sustained. Yields on good
lease to accommodate plans to move development at Callaghan Square has The 12 acre mixed use Central Square secondary stock were between 8%
the School for Journalism, Media and been submitted for planning approval. development was also the subject of and 9% at the end of 2017.
Cultural Studies to 2 Central Square in The scheme includes two buildings the two other £50m plus transactions.
September 2018. In addition, Cardiff and that will provide a combined total of 114,200 sq ft In Q3, Aerium Finance Ltd acquired One
Vale College leased 54,000 sq ft at One 300,000 sq ft. Y-on-Y change -38% 5.50% Central Square for £51m reflecting a yield
18 19UK REGIONAL CITIES REVIEW 2018
EDINBURGH
OCCUPIER MARKET in H1 2018, with both deals further evidence
of Edinburgh’s continued status as a hub for
PRIME RENT 2017 INVESTMENT VOLUMES 2017
INVESTMENT MARKET sq ft property up for sale in September
2016. The eventual sale reflected a yield
Occupier interest in Edinburgh held firm the financial services. Total investment volumes exceeded of 6.3%.
despite several political distractions in 2017.
A total of 781,900 sq ft was transacted in
In fact, occupiers that fall under the Finance, £ £400m for the second consecutive year
in Edinburgh reaching £411m by year-
The Saltire Court acquisition provides
further evidence of the continued
the city centre across the year, 32% above
Banking and Insurance umbrella were
responsible for the highest percentage
£33.50 per sq ft £411m / -8% end. Although this represents a small strength of overseas interest. In fact,
the 10-year average and the highest total (2016-2017) +2% decrease from 2016, the 2017 total is overseas buyers were responsible for
of space let in the city centre, 30%. This
recorded since 2003. In the wider Edinburgh 63% above the 10-year average for the four of the seven transactions over
represents a sharp increase when compared % OF DOMESTIC INVESTORS
market, office take-up levels exceed 1m sq PRIME RENT 2018 (FORECAST) city. Interestingly, the actual number of £25m. Other notable acquisitions in 2017
ft for the first time since 2004. to 2016, when the sector accounted for just transactions completed was at the lowest
8% of take-up. The Public sector accounted include, the sale of Exchange Place 1
for five years. Even so, seven assets with
The pre-let of 181,300 sq ft by the for 25% of take-up, with the GPU pre- to GLL Real Estate for £47m reflecting
a price tag over £25m were traded during
Government Property Unit (GPU) at New a yield of 5.57% and the acquisition of
let added to by a small lease to Scottish the year, the highest number at this price
Waverley Place underpinned the take- Exchange Place 2&3 by an overseas
up increase in 2017. Notably, this is the
Ministers at Roseberry House. The continued
strength of activity from Technology, Media
£34.50 per sq ft 54%
level since 2006.
client of HSBC for £36m. In total,
(2017-2018) +3% overseas capital accounted for 46% of
largest single occupier deal completed in The acquisition of New Waverley for a
or Telecoms occupiers was also notable.
Edinburgh for 20 years. Works on the office PRIME YIELD 2017 purchase price exceeding £100m by Legal investment volumes in 2017. Supported
The sector represented 21% of transacted CITY CENTRE TAKE-UP 2017
development are ongoing with completion and General was the largest investment by the New Waverley acquisition,
city centre space in 2017.
scheduled for summer 2019. transaction of 2017 and indeed, domestic money accounted for 54%
Despite reaching a three year high in Q2, represents the largest single office sale in of investment in 2017.
Interestingly, the three largest deals of 2017
Grade A availability in the city centre reduced Edinburgh on record. The Grade A office
were all pre-let agreements, demonstrating Prime office yields came under pressure
development is expected to complete in
the strength of demand for the best quality
space. Following the GPU agreement,
back to 266,900 sq ft by year end, broadly
the same as 2016. This level is 15% below 781,900 sq ft 5.25% June 2019 and will include HMRC, which
at the end of 2017, finishing the year
in the region of 5.00%-5.25%. Prime
Y-on-Y change +34% will run one of their 13 regional centres
Aberdeen Standard agreed terms on a the long-term average. The development asset opportunities have become scarce
pipeline remains limited with only 396,000 from the development, under the terms of
69,000 sq ft pre-let at 10 George Street. CITY CENTRE GRADE A SUPPLY PRIME YIELD 2018 (FORECAST)* however, and this has meant that interest
sq ft under construction. Of this total, a 25-year lease.
Prior to occupation, landlord Sampension in the Grade B market has grown, with
will undertake a major refurbishment of the 216,000 sq ft is speculative. Significantly, just The sale of Saltire Court to Al Rashed & yields hardening significantly. For 2018,
building. The other saw State Street secure 95,500 sq ft of speculative space is due to Sons Group for £71m was the second the increasingly competitive marketplace
65,600 sq ft at Quartermile 3. The financial complete within the next two years meaning largest transaction of 2017. The asset was could see yields sharpen further, with
services firm has taken the top five floors of competition for better quality space will 266,900 sq ft bought from the Abu Dhabi Investment both UK and international buyers vying
the M&G development. Occupation will be intensify supporting rental growth. Y-on-Y change 0% 5.00% Authority who had initially put the 180,000 for opportunities.
* Quarter 1
20 21UK REGIONAL CITIES REVIEW 2018
DEVELOPMENT
PIPELINE 2018-2020 GLASGOW
257k
SQ FT EDINBURGH
ABERDEEN
0
396k SQ FT
SQ FT
KEY
TOTAL SPACE
NEWCASTLE
LET 107k
SQ FT
MANCHESTER
SPECULATIVE
619k
SQ FT
LEEDS
BIRMINGHAM 916k
SQ FT
CARDIFF 1.63m
733k SQ FT
SQ FT
SHEFFIELD
221k
SQ FT
BRISTOL
190k
SQ FT Combined
regional total
(2018-2020)
5.0msq ft
2018 2019 2020
2.7msq ft 1.4msq ft 0.9msq ft
The statistics on this page represent office space known to be under construction with a delivery date before year-end 2020.
Both new and comprehensive refurbishment schemes are included in the development pipeline.
22 23UK REGIONAL CITIES REVIEW 2018
GLASGOW
OCCUPIER MARKET an active market participant. The sector
accounted for 18% of take-up in 2017, a
PRIME RENT 2017 INVESTMENT VOLUMES 2017
INVESTMENT MARKET and Mackay, Scottish Ministers, Mott
Macdonald and Wood Group.
With letting activity picking up in the percentage consistent with the long-term The sustained strength of the
second half of the year, city centre take-up average. The 40,850 sq ft lease agreed by
the Student Loans Company at the Europa
£ occupational market, combined with
The £65.5m purchase of HFD Groups 122
Waterloo Street by Knight Frank IM on
reached 633,700 sq ft. Although this total favourable pricing and the weakening
represents a marginal decrease from 2016, Building was the largest transaction to £29.50 per sq ft £453m / +313% prospect of an imminent second Scottish
behalf of a Korean consortium was the
second largest deal of the year. Upon its
the 2017 total is 19% above the 10-year complete. Other notable deals included, (2016-2017) 0% independence vote served to fuel completion in 2018, the building will be the
average, a statistic that demonstrates the JP Morgan taking a total of 29,000 sq ft investment appetite in Glasgow in 2017. new headquarters of Morgan Stanley. The
PRIME RENT 2018 (FORECAST) % OF DOMESTIC INVESTORS
continued strength of occupier demand. across two deals at 141 Bothwell Street Investment volumes registered a four- deal reflects an initial yield of 5.6%. Other
and Zurich Insurance leasing 17,250 sq ft fold increase when compared to 2016 to notable deals to complete include the
Public Sector occupiers proved
at St Vincent Plaza. reach £453m by year end. This total is purchase of the mixed use, 48 St Vincent
a significant source of demand in
117% ahead of the 10-year average for St by PonteGadea for £48.5m and Wirefox
2017 accounting for 31% of space New Grade A availability fell to 61,000
the city and represents the highest level
transacted, up from 8% in 2016. The
biggest deal of the year saw Moorfield
sq ft by the close of 2017, 78% below
the 5-year average for the city. The
£31.00 per sq ft 43% of investment since 2006.
Investments buying both 60 York Street for
£43.5m and City Park for £41m.
(2017-2018) +5%
Group and Resonance Capital secure development pipeline remains limited, The second half of 2017 in particular Similar to 2016, overseas money
the Department of Work and Pensions with only 257,000 sq ft of speculative PRIME YIELD 2017 registered a sharp increase in activity,
CITY CENTRE TAKE-UP 2017 accounted for the largest percentage
(DWP) as a long term tenant at 1 Atlantic space under construction at year end. with 82% of investment committed of office investment in Glasgow during
Quay. The government department Significantly, this comprises entirely of during the final six months of the year. 2017, 47%. In fact international buyers
agreed terms for a 15-year lease on comprehensive refurbishment schemes. Significantly, during this period, six were responsible for the three largest
84,500 sq ft. In addition, the Scottish This means that, given average build transactions with a price tag above deals of the year. It was the return of UK
Courts & Tribunals service agreed to times, Glasgow will not see any new space 633,700 sq ft 5.50% £25m were completed. buyers however, that supported the sharp
take a 25-year lease on 80,000 sq ft at 3 until 2020 at the earliest. Y-on-Y change -8% increase in investor activity. UK buyers
The acquisition of St Vincent Plaza by
Atlantic Quay. Occupation is expected completed 13 of 23 deals, up from just two
Prime rents remained at £29.50 per sq ft in PRIME YIELD 2018 (FORECAST) US firm Starwood Capital for £73m was
in late 2018 following the completion NEW CITY CENTRE GRADE A SUPPLY in 2016. Domestic money accounted for
Glasgow, unchanged for two years. Given the largest office transaction in 2017.
of refurbishment works. Interestingly, 43% of investment volumes in 2017.
the low supply environment, 2018 is likely The sale of the 172,300 sq ft property
Legal & General have since acquired the
to be characterised by greater competition completed following Zurich Insurance Despite the increase in activity, prime
building (No3) for £50m.
for the better quality space. As such, rents agreeing terms on a 17,250 sq ft yields remained at 5.50% in 2017, although
Glasgow’s traditional demand base are expected to breach the £30 mark 61,026 sq ft 10-year lease commencing Q2 2018. exceptional prime buildings would be
however, the Financial Services, remained within the next 12 months. Y-on-Y change -51% 5.25% Other tenants include KPMG, Whyte expected to trade below this level.
24 25Permission for the use of this image has been approved by Atkins
UK REGIONAL CITIES REVIEW 2018
LEEDS
OCCUPIER MARKET Sovereign House as the year was
finishing. The building is the former home
PRIME RENT 2017 INVESTMENT VOLUMES 2017
INVESTMENT MARKET from Sterling Capitol, with the sale price
reflecting net initial yield of 8.9%. In July,
For the first time on record, office take- of Addleshaw Goddard who moved to A lack of available stock at the upper end Schroders UK Real Estate Fund, through
up in Leeds passed the 1m sq ft mark in Bruntwood’s 3 Sovereign Square in one
of the largest deals in the city in 2016.
£ of the market rather than low investor Regional Office Unit Trust bought the
2017. This total is more than double the appetite served to limit investment freehold of 1 East Parade and 8 St Pauls
amount registered in 2016 and is 88% Earlier in the year, Burberry took 46,000
£30.00 per sq ft £127m / -27% volumes in 2017. Although overall deal Street for £12.7m reflecting a net initial
ahead of the 10-year annual average for (2016-2017) +9% number was up when compared to 2016,
sq ft at 6 Queen Street on a 10-year yield of 6.75%.
the city. an example of an office sale above £25m
lease. The deal was of major significance % OF DOMESTIC INVESTORS
PRIME RENT 2018 (FORECAST) was absent from the year. This meant In contrast to the previous year, domestic
Leeds was another of the major to the Leeds market with £30 per sq ft
that investment volumes reached only money accounted for the majority of
regional cities to accommodate a major being agreed. Prime rents in the city have
£127m, 25% below the 10-year average investment in 2017, 47%. Nonetheless,
requirement from the Government now shifted upward on the back of
for the city. international interest remain strong, with
Property Unit (GPU). In September, the this transaction.
overseas buyers accounting for 40% of
GPU on behalf of HMRC and the Cabinet
Office agreed terms for a 25-year lease
Underpinned by the GPU, the public £30.00 per sq ft 47%
The acquisition of 9 Bond Court by a
confidential purchaser for £24.5m was
investment volumes.
sector accounted for the highest (2017-2018) 0%
on 378,000 sq ft at 7-8 Wellington Place. the largest office sale in 2017. Bought Prime city core yields remained
percentage of take-up in 2017, 39%.
This is the biggest ever commercial PRIME YIELD 2017 from Legal and General, the 66,000 unchanged at 5.25% in 2017. At this
Occupiers from a Technology, Media or CITY CENTRE TAKE-UP 2017
property letting in Leeds. NHS Digital sq ft building is multi let with Redmayne level, prime yields are 50 basis points
Telecoms (TMT) background continue
will also relocate to the new office, with & Bentley LLP, Knight Frank and above the market peak of 4.75%
to have a significant influence on market
occupation scheduled for 2020. Stewarts Law, the principal tenants.
activity. The TMT sector accounted for recorded in 2007. Given the strong
Whilst the GPU letting has attracted the 16% of take-up during the year, with new In March, JPMorgan Chase acquired the interest and limited availability of prime
majority of market attention, occupier deals to Sky (25,700 sq ft) and Tech Hub 1m sq ft 5.25% freehold interest of Toronto Square from opportunities however, should the best
activity was strong across all sectors. (19,600 sq ft) the largest to complete. Y-on-Y change +133% M&G Real Estate Ltd for £22.2m. Tenants buildings come to market, a sharper
Significantly, three deals above 40,000 of the 88,000 sq ft property include yield would be expected. For secondary
Prime headline rents increased by PRIME YIELD 2018 (FORECAST)
sq ft were completed during the year, CITY CENTRE GRADE A SUPPLY CBRE Ltd, Capsticks Solicitors LLP and assets, refurbishment opportunities
9% during 2017 to £30.00 per sq ft.
a feature of the market that was absent Towry Services Ltd. remained highly sought in order to re-
This movement re-establishes the gap
from 2016. institutionalise assets and thus make
between good quality secondary and Other notable deals to complete in
In a deal that will enable a move from prime space, with rents on good quality 2017 include the sale of five buildings a profit. Yields for good quality, well
Albion Place, Leeds Building Society secondary space having increased to £26 324,000 sq ft at Capitol Park to Squarestone Growth located secondary stock ranged between
took control of the 80,600 sq ft per sq ft in 2017. Y-on-Y change -27% 5.00% for £18.2m. The properties were bought 6.50% and 7.50% at year end.
26 27UK REGIONAL CITIES REVIEW 2018
MANCHESTER
OCCUPIER MARKET provides circa 100,000 sq ft of office space
and 148,000 sq ft of retail.
PRIME RENT 2017 INVESTMENT VOLUMES 2017
INVESTMENT MARKET £105m. The 165,000 sq ft office built by
Ask Developments, Carillion and Tristan
Leasing activity increased by 50% in the Although the number of office investment Capital Partners is the headquarters of
second half of 2017, to push total office
take-up in Manchester well above 1m
Manchester also became the first city
outside of London to see WeWork £ transactions completed in 2017 was Swinton Insurance.
broadly in line with 2016 (33), investment
sq ft for the fourth consecutive year. A
establish an operational hub. The co-
working provider took 55,800 sq ft at £34.00 per sq ft £917m / +48% volumes increased by 48% to reach
A notable change in 2017 has been
the source of capital investing into
total of 1.2m sq ft was let during (2016-2017) 0% £917m by year-end. This total represents
No.1 Spinningfields in June 2017 and
2017, 13% above the 10-year average Manchester offices. UK institutions
quickly secured a further 44,000 sq ft at the highest since the record year of 2014
for the city. PRIME RENT 2018 (FORECAST) % OF DOMESTIC INVESTORS have returned to the market in number,
One St Peters Square in Q3. A third site is and is 93% above the 10-year average
reportedly now being sought. for the city. representing 76% of investment during
After several years of relative inactivity, the
the year. In contrast, direct overseas
Public Sector proved a significant source For the first time, Technology, Media Supporting the increase were three investment accounted for just 8%, down
of occupier demand in 2017. The 77,450 and Telecoms (TMT) occupiers were the transactions with a sale price exceeding from 70% in 2016. Interestingly, UK
sq ft lease taken by the Department of
Work and Pensions (DWP) at Two St
most active business group. The sector
accounted for one third of all deals and
£37.00 per sq ft 91%
£100m. The acquisition of No.1
Spinningfields for £203m by Schroders
buyers were responsible for all of the five
Peters Square in Q3 was the largest (2017-2018) +9% acquisitions over £50m in 2017, albeit
29% of space let. Firms from the was the largest investment transaction of
transaction to complete during the year. Professional Services remained active in PRIME YIELD 2017 international capital would have formed
CITY CENTRE TAKE-UP 2017 2017 and indeed, represents the largest
DWP are expected to take occupancy Manchester, with the sector accounting part of the purchasing fund.
in March 2018, joining Ernst & Young single asset sale in the region on record.
for 25% of take-up in 2017.
and Distrelec as tenants in the building. The 300,000 sq ft tower is home to PWC, Prime office yields have hardened by
Furthermore, the Government Property Grade A availability increased to 306,500 Squire Patton Bogg and now co-working 25bps in 2017, finishing the year in
Unit continues to search for 200,000 sq ft in 2017, driven by two occupiers provider WeWork. the region of 4.75%- 5.00%. Prime
sq ft which may which may ultimately releasing space as part of a consolidation. 1.2m sq ft 5.00% In September, Aviva Investors agreed refurbished yields have also sharpened,
rise to 900,000 sq ft. New Bailey is likely Nonetheless, this total represents less Y-on-Y change -7%
to forward fund the construction of Two dipping to 5.50% from 6.25% (2016),
to be selected for the initial phase. than 12 months of supply based on the
New Bailey for £108m. The development, reflective of pent up investor demand
typical annual rate of Grade A take-up. CITY CENTRE GRADE A SUPPLY PRIME YIELD 2018 (FORECAST)
In Q3, Clyde and Co expanded its once built, will offer 188,500 sq ft of net and a lack of city centre stock. In 2018,
The development pipeline is scheduled to
presence at Manchester’s Royal Exchange deliver a further 552,000 sq ft to market space across 10 floors. Completion is the relative lack of buying opportunities
taking 69,000 sq ft across 6 floors. The over the next 2 years. Given the sustained scheduled for Q2 2019. The other £100m combined with a sustained level of
new lease follows the firm taking an initial level of demand for high quality space in plus sale was the acquisition of 101 investment seeking deployment in
11,000 sq ft in 2015. The law firm have the Manchester, the majority of this will be 306,500 sq ft Embankment by an M&G Real Estate Manchester will continue to apply upward
largest occupation at the building, which leased prior to practical completion. Y-on-Y change +39% 4.75% led consortium. The purchase price was pressure on pricing.
28 29UK REGIONAL CITIES REVIEW 2018
NEWCASTLE
OCCUPIER MARKET The second biggest office letting of the
year however, was the 19,000 sq ft lease
PRIME RENT 2017 INVESTMENT VOLUMES 2017
INVESTMENT MARKET Notably, the deal reflected a net initial
yield of 5.57%, a record low for the city.
Although office take-up in Newcastle city taken by Frank Recruitment Group at the Following a relatively strong 2016 in
centre registered a 19% decrease in 2017,
a more positive market tone was evident
St Nicholas Building. The firm agreed
terms on an 11-year lease with the space
£ terms of trading activity, the reluctance
Maya Capital LLP extended their
portfolio in the North East in September,
of landlords to bring assets to market
as the year ended. A total of 177,900 sq ft split over two floors. Sir Robert McAlpine £23.50 per sq ft £50m / -72% in the absence of suitable alternative
with the acquisition of Bede House at
All Saints Business Park for £4m. The
was transacted during the year, with the Ltd and the National Audit Office are also (2016-2017) +2% opportunities meant overall volumes
number of deals broadly similar to 2016. tenants in the buildings. 38,000 sq ft property is multi-let, with
suffered. Investment turnover for
Encouragingly, both the level of enquiries PRIME RENT 2018 (FORECAST) % OF DOMESTIC INVESTORS tenants including Wealth Management
The Professional Services accounted the year reached £50m, 49% below
and number of viewings increased as the Systems Ltd, Turner & Townsend
for the largest percentage of let space the 10-year average for the city.
year progressed, suggesting a strong start Group Ltd, Ingeus UK Ltd, and London
in 2017, 30%. Representation from Interestingly, actual deal number was
to 2018. & Country Mortgages. Assets already
Technology Media or Telecoms occupiers up when compared to 2016, but it was
owned by Maya Capital include, units
The 21,300 sq ft lease at 2 St James Gate the absence of higher value sales that
taken by Eldon Insurance was the largest
however, continues to grow. The sector
accounted for 28% of take-up, with Trinity
£24.00 per sq ft 87% meant investment volumes remained 9 and 15b&c at Cobalt Business Park,
city centre transaction to complete in 2017. (2017-2018) +2%
below the long-term trend. both bought in 2015.
Mirror North East (12,500 sq ft) and The
Eldon Insurance relocated from Cale Cross Communicator Corporation Ltd (5,700 PRIME YIELD 2017 In a year of few transactions, domestic
CITY CENTRE TAKE-UP 2017 Arising from the all issued share
House, which was home for the company sq ft) notable firms to take new space money continued to dominate activity.
purchase of SM Newcastle, the
for 10 years. Other tenants at St James in 2017. UK buyers accounted for 87% of
acquisition of 1-3 St James Gate by
Gate include, the Big Lottery Fund, WYG
Palace Capital PLC for £20m was the investment in 2017. The only sale to an
Group Ltd, UBS and Listening Company Whilst fluctuating during the year, Grade
A availability finished 2017 at 175,000 only sale to complete over £10m in international buyer was the acquisition
Ltd. Subsequent to the letting, the property
has been acquired by Palace Capital. sq ft. This total is 15% below the 10-year 177,900 sq ft 5.75% 2017. The mixed use development of Maybrook House to Chinese firm
average, but more notably none of this Y-on-Y change -19% comprises of a 61,000 sq ft office and TusPark for £5.65m.
Demand for flexible office solutions two retail units. The purchase price
is made up by new buildings. Supply will Following the Keel Row House sale,
continues to be a feature of the market and CITY CENTRE GRADE A SUPPLY PRIME YIELD 2018 (FORECAST) reflected a net initial yield of 8.6%.
therefore come under increased pressure prime yields moved to 5.75%. At this
has meant that Citibase took further space,
in the coming 12 months, with the level, prime yields are 100 basis points
acquiring 13,100 sq ft at the Broadacre In August, Watkin Jones Group, via
development of 107,000 sq ft at Science
House. Newcastle City Centre is also their SPV Planehouse Ltd purchased above the market peak of 4.75%
Central not due until H2 2019.
rapidly becoming a target city for co- Keel Row House from Aviva Investors recorded in 2007. Yields for good
working operators looking to benefit from Prime headline rent increased by 2% in 175,000 sq ft for £8.85m. The 23,794 sq ft property quality, well located secondary stock
the burgeoning digital and tech sector. 2017 to £23.50 per sq ft. Y-on-Y change +1% 5.75% is fully let to Ward Hadaway until 2030. were around 8.25% at year end.
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