The latest data from the global real estate firm, Cushman & Wakefield, shows that “a fear of missing out on the opportunity to acquire office space” is causing rental values in the UK to remain stable despite the ongoing pandemic-related woes.
According to the firms’ research, prime headline rents either remained stable or rose in the big eight UK regional office markets of Birmingham, Bristol, Cardiff, Edinburgh, Glasgow, Leeds, Manchester and Newcastle.
Patrick Scanlon, Head of UK Offices Insight at Cushman & Wakefield, said: “Data for the third quarter suggests that demand for office space is now almost half of average levels. Despite this, supply remains under control with such a limited development pipeline and little evidence of any significant release of space by distressed tenants. In previous real estate cycles, a combination of falling demand and rising levels of supply have dragged rents down; so far in this cycle only one of those factors is present, which has supported values for new and refurbished space.”
Despite the positive evidence, Cushman is keen to stress that COVID-19 has caused a rise in construction costs as well as a relative lack of funding for speculative developments. The firm also adds that this has led to low levels of new, quality office stock across the regional markets.
In some cities, Grade A space is at generationally low levels, including in Leeds, where vacancy rates for Grade A space are at 0.8% with only 95,000 sq ft of space available.
Commenting on the situation in the city, Harry Finney of Cushman & Wakefield’s Office Agency team in Leeds, said: “Demand for Grade A office accommodation across Leeds city centre remains strong, despite the lockdown restrictions facing the region. Occupiers are continuing to focus their attention on the best available space, which can support state- of-the-art air conditioning and social distancing measures to provide a safer working environment. The paucity of space in the pipeline has led tenants to a realisation that if they don’t act now, they may find themselves forced to consider less suitable options, which will make it more difficult to attract and retain staff in the future.”