Availability of secondary office space in the UK’s major regional cities has increased by 97% since 2007, according to a new report by global property advisor CBRE. Conversely, prime space is now in very short supply, in part due to a lack of development funding since the onset of the economic crisis of 2007.
Examining nine regional business centres (Aberdeen, Birmingham, Bristol, Edinburgh, Glasgow, Leeds, Liverpool, Manchester and Southampton), CBRE found that across all the regional cities there is an average of 4.5 years of supply in the secondhand market. This contrasts with the constricted development cycle and healthy demand for newly completed, Grade A stock, of which there is an average of only 2.3 years of supply. Availability of prime stock in Aberdeen currently stands at one year, whilst Manchester and Glasgow currently have approximately 1.4 years of prime supply to support their growing occupiers markets.
The CBRE report has concludes that in order to retain and attract new tenants in the hope of achieving rental and capital value growth as a property ages, investors need to look to repositioning strategies, which may include refurbishment or redevelopment to prime quality, or a complete change of use. Though it is clear that lack of capital is also frustrating many cash deprived Landlords who would ordinarily look to do this.
The CBRE research reveals that lettings of secondary office space across the UK over the past 12 years averaged 3,894 sq ft in size per deal, considerably smaller than the average for prime offices, which stood at 17,709 sq ft per letting over the same period. Prime properties tended to attract major corporate tenants, who typically seek large, open plan, flexible floorplates and offer flexibility for a larger workforce.
Ashley Hancox, Head of Regional Office Agency, CBRE said:
“Small and medium sized enterprises or larger businesses with satellite offices have exercised a cautious approach to taking office space since the start of the current economic downturn, and have aimed to minimise risk through delaying the expansion of their real estate portfolios. These types of companies are typically the biggest users of secondhand business space, and this reluctance to commit to new premises has left a large quantity of vacant secondary stock in the UK regional cities.
However, some savvy investors are finding new ways to manage their assets, increasing the capital value of their secondary stock by converting office space into other property types, such as hotels; sometimes selling on and taking advantage of a newer breed of investor that can benefit from (BPRA) Business Premise Renovation Allowance or enhanced Capital Allowances’ on significant capital spend required.
Elsewhere, by refurbishing or redeveloping well located tired stock, investors can take advantage of improving demand stemming from the lack of prime offices, and achieve premium rents and capital growth, as well as attracting the most desirable corporate occupiers. Often these physical improvements go hand in hand with enhanced levels of on-site service and a much improved customer experience that has often been sadly lacking in the property industry but will help to retain tenants in the future.”
