Given the economic backdrop, it is unsurprising that most markets experienced lower take-up in Q2 2012 compared with the 2011 quarterly average. The three exceptions are Aberdeen, Edinburgh and Glasgow, which all experienced above average activity during the quarter.
Despite the challenging economic environment, occupier demand is anticipated to remain at current levels over the summer, although a number of active requirements provide a source of optimism.
The on-going lack of debt funding is still hampering new development, while more secondary property is becoming available. Speculative development activity remains limited, confined to only four of the 11 regional markets as at the end of Q2. Moreover, only two cities, namely Birmingham and Manchester, have in excess of 100,000 sq ft underway.
As a result, Grade A supply remains ever more constrained. At the end of Q2 2012, total Grade A supply across the 11 cities was down 4% on Q1 2012 and down 24% on Q2 2011.
David Porter, Partner, head of Manchester office, Knight Frank said: “The lack of high quality available space across the regional markets, particularly in prime areas, is slowly leading to deals hardening. There is no doubt that it still remains an ‘occupiers market’ with heavily incentivised deals on offer. However, choice is becoming limited, especially at the larger size range, which is leading to some occupiers having to consider Design and Build options. This continued demand may trigger some speculative development albeit it is only likely on the back of a part prelet deal. We do still remain optimistic as demand has continued to remain stable over the first half of the year.”
Looking forward, the latest Knight Frank ROMP confidence indictor for the regional markets suggests that the next 12 months will see little change to investor sentiment in the prime office market, with the outlook remaining generally cautious.
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