The latest UK office market report from international real estate advisor Savills has found that, driven by London, office rental growth at a national level in the UK will move into positive territory over the next 12 months. The research forecasts that headline rents in the City of London and the West End will lead this trend with an increase of 14% and 20% respectively by 2011 as a result of a restricted supply of Grade A space. 

Nick Williams, office agency director at Savills Birmingham, comments: "Like many UK cities, a restricted development pipeline in Birmingham will be the main catalyst for net effective rental growth. We are also expecting to see an increase in demand throughout 2011, which has remained stable over the last 12 months and will place downward pressure on vacancy rates.

"The public sector austerity is undoubtedly causing some uncertainty in the medium term with those towns and cities dominated by the private sector expected to see the greatest levels of upward rental pressure." 

Looking at the supply pipeline, Savills reports that current office availability across the majority of the UK fell over the course of 2010 with the average years of supply currently standing at 2.9 years, compared to 3.3 years at the same time in 2009. In addition, the firm states that the UK office vacancy rate has fallen to 13.3% from its peak of 15.8% in 2009.  This, combined with a stagnant development pipeline throughout most locations, will result in a significant shortage of office space from 2011 onwards. 

In terms of the office investment market, Savills research indicates that pricing recovered substantially at the beginning of 2010 and while transaction volumes have not yet returned to the larger pre-recession figures, investment levels increased throughout 2010 particularly in Birmingham and Leeds.  Clare Burke, associate director in Savills commercial research team, says: "The majority of office investors remain relatively risk averse focussing on acquiring prime, well secured assets displaying strong property fundamentals. Prime yields hardened throughout 2010 and we have seen some stabilisation over the last six months with current prime yields standing at 6.03%."