Secondary office supply threatens recovery
It is not clear where the drivers of office space take-up will come from in the UK’s regional office markets this year, says Jones Lang LaSalle. Insurance, recruitment and media companies have been the most active sectors in the regional office market during the first quarter, but things are much less certain for the full year.
The group, which expects more alignment between the occupational and property investment markets in future, says take-up in the first quarter was relatively weak and new enquiries for office space are falling. Government-related enquiries were particularly low as a result of the election and uncertainty about where public-sector spending cuts will fall.
Grade A vacancy rates are expected to peak over the next six months, so supply in this category will be a key driver of recovery. Jones Lang LaSalle says 70% of the current development pipeline is expected to complete in the second quarter, which will lead to a tightening in the market for good-quality space. Secondary space, on the other hand, is already in oversupply and any increase in this category will pose a threat to the market’s recovery.
James Finnis, head of the group’s National Offices team, said: “Whilst providing a boost to take-up levels, any consolidation activity will also release second-hand space back on to the market. Some public-sector occupiers are already reviewing their occupational needs, which could result in space being brought onto the market in the short term. This will outweigh any benefits from the plans to move civil servants out of London, which will be seen in the longer term.”
On the positive side, the group notes that advertising and communications companies have been reporting good results and that banks have also been posting “very strong returns”. “So much restructuring has taken place within the financial sectors, with more to come, that this is the one to watch in terms of property need,” it adds.
