Pictured: Jon Carmalt

Activity levels across the UK's regional office market is heading towards a year of 'much the same as the last ' with aggregate take-up levels for the first nine months of 2011 indicating that year-end totals will be similar to 2010 levels according to new research by property consultants Jones Lang LaSalle.

Across the eight key markets of Birmingham, Bristol, Cardiff, Edinburgh, Glasgow, Leeds, Manchester and the Western Corridor region monitored by Jones Lang LaSalle combined office take-up totalled over 1.5 million sq ft in the third quarter of 2011 (Q3 2011).  This reflected an increase of 22.9 percent compared to the previous quarter (Q2 2011) however volumes were down by -36.3 percent compared to the equivalent period last year (Q3 2010). The economic frailties, which have been evident over recent months, have not yet been reflected in regional office take-up volumes.  

Jon Carmalt, Director, National Offices at the Birmingham office of Jones Lang LaSalle said: "Despite a quiet start to the year, take-up activity held up well in Birmingham with 220,000 sq ft let during the third quarter.  Leasing activity increased 40 per cent compared to the previous quarter, but was down slightly on the equivalent period last year.  However, it is worth noting that Q3 2010 was boosted by some larger deals which have been noticeably absent from take-up over 2011.

"Grade B space which remains competitively priced, accounted for 63% of take-up activity in Q3.  The most significant deal this quarter in Grade A was 24,000 sq ft let to Vax at Two Colmore Square."

Across the regional markets supply increased slightly, with vacancy rates reaching highs of 20.1 per cent.  In contrast Grade A supply continued to fall reflecting a vacancy rate of just 3.6 per cent compared to an average of 4.2 per cent over the last three years. The news that HINES is investing £100m in Two Snowhill provides a welcome boost to the speculative market in Birmingham and supply of quality offices.  Two Snowhill is now one of the only speculative schemes in the region.

Currently there is just over 1.0 million sq ft of space under construction speculatively across the eight key UK regional markets which reflect an increase of 14 percent compared with the previous quarter. This was driven by increased development activity with a number of new starts in Glasgow, Cardiff and Leeds underpinned in part by pre-lets.

The research states that with real estate, which typically accounts for 7-12% of a business' total operating cost base, cost control has remained a consistent theme for occupiers over the last 12 months,. This will continue to impact on real estate decision making and occupiers will continue to seek efficiency savings in the market.

Jon Carmalt added, "In Birmingham prime rents stabilised at £28.50 per sq ft reinforced by deals at 45 Church Street, although typically involving smaller units of accommodation."

Across the regions prime rents increased quarter- on-quarter in Manchester and the Western Corridor, by 5.3 percent and 1.4 percent respectively, driven largely by the lack of suitable Grade A supply. In contrast, Edinburgh experienced slight rental softening as take-up activity continued to fall. Prime rents remain heavily supported by incentives. On aggregate UK regional rents have increased by 1.7 percent compared to the equivalent period last year. 

In the regional office investment market, city centre office investment volumes across the eight regional markets totalled over £450 million in Q3, an increase of 21 percent compared to the equivalent period last year (Q3 2010). There was just one investment transaction in Birmingham in Q3, which involved the sale of 111 Edmund Street to HINES for £17.4million. Prime yields remained stable in the majority of markets, however Q3 witnessed a slight outward movement of 25 basis points in Glasgow and Leeds to 6.25 percent however investors have continued to focus primarily on Central London and the South East markets.