Regional office market outlook: JLL’s Big 6 breakfast

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Jones Lang LaSalle’s Big 6 Office Market Outlook Breakfast this morning was packed out. 


If that’s a sign no-one really knows what’s going on in the region then I don’t know what is. 


Things learnt from this morning’s presentation: Manchester has completely overtaken Birmingham as the number 1 city (in terms of take-up, see pie chart below) this year; overseas investors are ‘irrantional and emotional’ (JLL’s words not mine); and they need a bigger room for next year’s breakfast.




Source: JLL


Headline bullet points are below:


Job creation
London been the driver but, have seen job creation in wider regional economy.


Regional job creation winners: Leeds & Manchester, led by professional services.


Others have more reliance on public services so are losing a bit more ground.


Grade A take-up for all the Big 6 grade would fit in the Shard with 100,000 sq ft left over. 


Birmingham deals down 5% Grade A down 40%


Bristol Grade A down 80%. JLL will be passing round a hat later for the Bristol agents


Scotland
Edinburgh Grade A up 60%
Glasgow deals up grade A down 60%
One city seen more pre lets than anywhere else in big 6 and even London – yes, you’ve guessed it Aberdeen. Out of town rents £27 per sq ft and JLL believe it will remain buoyant and robust. Take up was 850,000 sq ft in 2012, but there is no Grade A supply left.




Refurbishment market is picking up. Expecting refurbs in 2013 in Bristol, Edinburgh and Leeds.

Spec is also happening in pockets: Bristol 60,000 sq ft; Edinburgh 26,000 sq ft; Glasgow 315,000 sq ft.


Total Big 6 requirements = 1.8m sq ft with an average size of 60,000 sq ft. But as JLL carefully point out a requirement is not a deal, the markets need about half to be converted.


There were 5 pre-lets in last 24 months. Last year there was one city centre – and there’s some question over whether it really was a prelet as construction had started. 


Rents will need to be £30 per sq ft to justify spec dev.



Out of town: 40% take up over 10,000 sq ft is out of town. Sadly because it is too cheap to ignore. In 2000 there was a £2 per sq ft differential between out of town and city centre. In 2012 it’s £10.


But future is definitely in city centres.


Issues:
Energy act of 2011
98% stock needs decarbonising
67% of regional buildings are band D-G


Obselence and alternative uses
Grade B availability is up 50% in last 5 years or 9m sq ft


Workplace evolution: occupiers want better space but less of it.


Price WaterhouseCooper did a short video. It has 18 leases set to expire and the plan is to ‘replace offices where we can’. It is looking at pre-let opportunities. But,  ’is our requirement enough to kick start or should we partner with other occupiers.’


Investment
2006: £2.8bn 125 transactions
2012: £511m 30 transaction


Myth of prime: There are now only 7 buildings in all big 6 cities that fall into classic prime definition. Definition needs to change.


Regional asset cost 22% less than those in central London. They are 40% cheaper than Frankfurt and Moscow.


Lowest initial yield went to Hardman Sq Manchester 6.4% £24m


In Leeds, the best deal was for 6.7% at Princes Exchange at £37m. It’s the second time Credit Suisse had owned the builing, as in 2005 bought it at 4.75%


2013-2014 purchasers will be US, German and Israeli. Yields will harden.
Will witness more exotic equity come in. Chinese, Korean, Malaysian, and Thailand.


Relaxation of chinese insurance company rules means 15% can be invested overseas. 15% =£ 90bn. In Thailand setting up of REITs will drive £bn of cash coming to us.


Is London expensive? Real value is in the regions. High running yields and not driven yet by ‘emotional and irrational overseas investors’.

Picture by Calixto on Flickr

About Nadia Elghamry

Data Editor and deputy Regional Editor at Estates Gazette with more than 15 years experience in business journalism. I currently look after Property in Numbers and the month in numbers section of the magazine as well as drawing out stories from the numbers for every section of the magazine. As deputy regional features, working on the Focus features section of the magazine, hosting our receptions around the country and writing for the Focus blog.

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