UK Office Market Report Q4 2013

OnPoint

UK Office Market OutlookQ4 2013

Revival in RegionalOffice Market • A revival in the UK economy during 2013 has been mirrored in

activity levels across the Big 8 regional office markets.

• The intensification of the Grade A supply shortage is driving a more active development market.

• Prime rents increased by 3.8% over 2013, with an average of 2.2% per annum forecast over the period 2014-17, led by the Western Corridor.

OnPoint UK Office Market Outlook – Q4 2013 | 3

Summary

UK office rental clock

Summary statistics* 2012 2013 Change (Y-o-Y)12 monthoutlook

Take-up (000s sq ft) 5,342 7,531 +36%

Vacancy Rate (%) 12.6% 11.3% -130bps

Average Weighted Prime Rent (£ psf) £27.65 £28.70 +3.8%

U/C Spec (000s sq ft) 1,321 2,078 +57%

*Includes Birmingham, Bristol, Cardiff, Leeds, Manchester, Western Corridor, Edinburgh and Glasgow

Thames Valley

Rental Growth Slowing

Rents Falling

Rental Growth Accelerating

Rents Bottoming Out

Birmingham, Bristol, Cardiff Leeds

London West End London City

West London, Manchester, Edinburgh

Glasgow

For information on the Central London market, please see the Jones Lang LaSalle Central London Market Report

4 | OnPoint UK Office Market Outlook – Q4 2013

Highlights

• Occupier take-up totalled 7.5 million sq ft in 2013, up 36% compared to 2012.

• Continued shortage of Grade A supply in most markets• Rising confidence and an uptick in pre-letting activity boosts

development starts. • Investors look to the regional cities and secondary property as

prime product becomes scarce.

Rising confidence in UK economy

2013 saw a revival in fortunes for the UK economy that is set to continue into 2014. After several years of lacklustre performance, the economy recovered strongly in 2013 with the pace of growth accelerating through the year. GDP growth of 0.7% was recorded in Q4, bringing overall growth for the year to 1.9%, the strongest rate since 2007. On the back of this improvement, the economy is expected to grow by 2.9% this year - faster than any other major European economy - against its previous forecast of 1.9%. Bristol, Manchester and the South East region are all expected to outperform the UK average for growth in 2014.

Figure 1: GVA growth across the UK

-2%

-1%

0%

1%

2%

3%

4%

CardiffGlasgowLeedsBirminghamEdinburghUKSouthEast

ManchesterBristol

2013 2014 2015

Source: Oxford Economics

Strong increase in take-up

Office markets outside of London recovered strongly in 2013. Take-up across the core eight markets outside of London totalled 7.5 million sq ft, up 36% compared to 2012 and well ahead of the five and ten year average levels. Markets which have seen a particular turnaround in fortunes include Leeds, which recorded take-up of almost 800,000 sq ft, almost double the level achieved in 2012. Elsewhere, Glasgow and the Western Corridor also witnessed substantial growth in volumes with leasing activity up 96% and 48% respectively.

Revival in office markets outside of London in 2013

The professional services sector was responsible for some notable deals, particularly in Leeds and Glasgow, with the legal and accounting sub-sectors actively acquiring space. 2013 also witnessed an uptick in activity within the banking & finance sector. In 2012 the banking & finance sector was responsible for just 13 deals over 10,000 sq ft (295,000 sq ft) across the Big 6. In 2013 this increased to 21 deals and 569,500 sq ft. Notable transactions include the acquisition of 83,000 sq ft by Sainsbury’s Bank at 3 Lochside Avenue, Edinburgh. The Yorkshire Building Society was also responsible for the largest deal in Leeds in 2013, taking 76,413 sq ft at Broad Gate, The Headrow.

Volumes in 2013 were boosted by a return of larger lettings with the number of deals over 10,000 sq ft up substantially. Across the Big 6 markets alone, deals over 10,000 sq ft increased from 56 in 2012 to 79 in 2013. In Glasgow, Scottish Power signed a deal to build a new 14 storey headquarters building on St Vincent Street totalling 220,000 sq ft. Deutsche Bank also brought a boost to the Birmingham office market after it signed up to take 134,000 sq ft of space at 5 Brindleyplace. The Western Corridor saw the largest deal of the year with BMW consolidating its subsidiaries into one office complex of over 300,000 sq ft at Nokia’s former campus, in Farnborough.

Return of larger deals boosts volumes

Figure 2: Big 8 office take-up 2003-2013

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

20132012201120102009200820072006200520042003

000s

sq ft

5 year average

Source: Jones Lang LaSalleBig 8: Birmingham, Bristol, Cardiff, Leeds, Manchester, Edinburgh, Glasgow & Western Corridor

This momentum is expected to continue into 2014 as occupational requirements come to a head. There are a number of substantial active requirements as well as pent up demand, as a result of short term regears, which could come back to the market in 2014. There are also a number of significant lease events in the next 2-3 years which should drive occupational markets forward. In 2014 alone we track around 2.5 million sq ft of structural events across the key English cities outside of London (Birmingham, Bristol, Leeds, Manchester) While some

UK Outlook


occupiers may seek to preserve flexibility by regearing on shorter leases, improved business confidence will encourage other occupiers to acquire new space.

Further contraction in Grade A supply

The need for occupiers to act on office space requirements will become more pressing in 2014 due to further intensification of Grade A shortages in the major cities outside of London. We are now beginning to see a real shortage of Grade A office space in most locations, with the shortage particularly acute in the Western Corridor, Edinburgh and Leeds.

In the Western Corridor Grade A vacancy rates are at their lowest level since 2001. Leeds saw a significant contraction in Grade A supply in 2013 with the Grade A vacancy rate falling from 3.8% at the end of 2012 to just 1.9% at the end of 2013. Similarly in Edinburgh city centre, the new build Grade A vacancy rate is just 0.9%.

Intensification of Grade A supply shortages will encourage development activity With Grade A supply continuing to contract in most locations we expect occupiers, particularly those with larger requirements, to consider pre-let options. The lack of Grade A space is already driving a much more active development market than has been the case in recent years. At the end of 2013 there was over 2 million sq ft of space under construction on a speculative basis, up 57% compared to the equivalent period in 2012.

Of the total space currently under construction, around half is within the Western Corridor market alone. In Glasgow, construction commenced on 485,000 sq ft of much needed new Grade A office space in 2013. In Leeds, pre-let commitments from KPMG at Sovereign Square and Shulmans at Wellington Place helped to kick start development activity and have provided the stimulus to other schemes; and in Bristol 184,000 sq ft of speculative space is now under construction in 3 schemes.

Figure 3: Big 8 speculative development activity

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

201620152014201320122011201020092008

Completed U/C Definite Spec Start

Likely Spec Start Likely Spec Start

000’s

sq ft

Source: Jones Lang LaSalle

Rents and rental expectations

While there is still further to go before occupational markets have fully recovered the limited Grade A supply drove rental growth of 3.8% in the UK Regional Office Rental Index over the year to end-2013. Average weighted prime rents stood at £28.70 at the end of Q4 as increasesin the Western Corridor, Edinburgh, Manchester and Glasgow supported growth.

The lack of Grade A supply will continue to drive rents for the very best space. On aggregate, we forecast growth of 2.2% per annum over 2014-2017 in the major UK cities. The Western Corridor is predicted to outperform this, with growth of 4.2% per annum over the same period. Turning to the secondary market, rental growth is expected to be far more limited, although some growth is anticipated. Jones Lang LaSalle’s forecasts of IPD data indicate rental growth to a lesser extent of just 1.5% per annum over 2014-2017 for UK Offices.

Investment volumes and yields

Recovery in the investment market has moved ahead of the occupational market as Investor demand has spread from London to the South East and beyond to the core regional cities. The sheer weight of money now targeting the Western Corridor and prime regional cities has driven yields inwards in most locations over the course of 2013. Prime yields in the Western Corridor moved in to 5.70% at the end of 2013, from 6.25% a year earlier. Yields also moved in by as much as 50 basis points (compared to end 2012) in Leeds, Birmingham and Manchester to 6.00%. We expect yields to trend keener over the course of 2014.

Figure 4: UK prime weighted office yields index

3%

4%

5%

6%

7%

8%

9%

4Q134Q124Q114Q104Q094Q084Q074Q064Q054Q044Q03

UK incl. London UK excl. London

Source: Jones Lang LaSalle

Investment volumes in the core eight markets outside of London totalled £3.5 billion in 2013, almost three times the level achieved in 2012. A significant proportion of this was targeted at the Western Corridor, which accounted for over 60% of the total. That said 2013 has seen greater interest in the regional cities from a wide range of sources. There is a considerable weight of money competing for limited investment product in London and the South East. Investors are increasingly looking to the Western Corridor and key regional cities in search of better returns.


Summary statistics 2013Change 12 month

outlookY-o-YTake-up (000s sq ft) 664

Vacancy Rate (%) 12.6%

Prime Rent (£ psf) £28.50

U/C Spec (000s sq ft) 0

Investment market 2013 Change 12 monthoutlookY-o-Y

Investment Vol. (£m) £206

Prime Yield (%) 6.00%

Figure 5: Take-up

0

100

200

300

400

500

600

700

800

900

1,000

201320122011201020092008

Take-up 5 year average00

0’s sq

ft

Figure 6: Supply and vacancy rates

0

500

1000

1500

2000

2500

3000

3500

201320122011201020092008

Supply (lhs) Vacancy rate (rhs)

0%

4%

8%

12%

16%

20%

000’s

sq ft

Figure 7: Prime rents and rental growth

-20%

-15%

-10%

-5%

0%

5%

201320122011201020092008

Rental growth (y-on-y) (lhs) Prime rent (rhs)

24

26

28

30

32

34

£ per

sq ft

Figure 8: Prime yields

4%

5%

6%

7%

8%

201320122011201020092008

Prime yields 10 year average 20 year average

Source all Charts: Jones Lang LaSalle

Market overview• Leasing volumes in 2013 exceed five and ten year average. • Availability now at its lowest level since 2008. • Prime rents stable, with slight growth anticipated in net effective

rents in 2014.

Take-up totalled c150,000 sq ft in the fourth quarter, bringing the 2013 year-end total to just over 664,000 sq ft. Leasing volumes were 10% ahead of the 10 year average (605,000 sq ft). Volumes were boosted by the acquisition of 134,000 sq ft at 5 Brindleyplace by Deutsche Bank in the second quarter. This was the most substantial deal in 2013, however there were a further eleven deals over 10,000 sq ft, an improvement on 2012. Sentiment in the occupational market has gradually improved throughout 2013, however corporates remain relatively cautious with deals still protracted. In some instances a lack of confidence continues to prevent some deals from crossing the line and we continue to see some occupiers opting to renew or regear leases. Overall supply has fallen substantially over 2013 as a result of increased take-up and the removal of outdated stock for alternative uses. Vacancy rates currently stand at 12.6%, with Grade A vacancy rates in the region of just 2.6%. At present there is sufficient Grade A supply in the market to meet demand. However it would take only a couple of substantial deals for this to change. The market remains broadly tenant favourable with prime rents stable at £28.50 per sq ft. Incentives remain generous although we expect these to move inwards over 2014 as supply tightens. Recovery in the investment market has been more rapid, with the sheer weight of money now targeting the regions driving down pricing. Prime office yields moved in 50 basis points over the course of 2013 and are currently at 6.00% but trending keener. The most significant deal in Q4 involved the sale of One Snowhill to Union Investment for £125 million, reflecting a NIY of 6.20%.

Birmingham










Figure 9: Take-up

0

200

400

600

800

201320122011201020092008

Take-up 5 year average

0

000’s

sq ft


0

400

800

1,200

1,600

2,000

201320122011201020092008


0%

2%

4%

6%

8%

10%

12%

000’s

sq ft


-8%

-4%

0%

4%

8%

201320122011201020092008


20

22

24

26

28

30

£ per

sq ft


4%

5%

6%

7%

8%

201320122011201020092008

Prime yields 10 year average


Market overview• City centre take-up exceeds the 5-year average.• Development activity addresses the Grade A shortage.• Rental growth forecast during 2014.

Bristol experienced a strong 2013 with total take-up for the year reaching 504,500 sq ft, some 19% higher than the 5-year average of 425,200 sq ft. However, a closer look shows the city centre only saw a handful of Grade A transactions over the whole year. The largest deal during 2013 was Imperial Tobacco’s move into its owner-occupied new headquarters (85,000 sq ft), although this is a grey area of take-up as Imperial Tobacco already owned the site. Looking ahead to 2014, sentiment in the market is improving with the organic growth of existing occupiers showing strength in the local economy. Overall supply in Bristol has fallen significantly over the course of 2013 with the vacancy rate coming in by 150 basis points to stand at 9.8%. The Grade A vacancy rate is just 1.7% but with 184,000 sq ft under construction on a speculative basis the shortage may be eased slightly, although latent demand could soon absorb this. The Bristol market is undergoing a period of structural change with up to 1 million sq ft of planning applications for student housing or residential uses submitted during 2013; this has been reflected in a revision to our total stock figure at end-2013. The introduction of Controlled Parking Zones during 2014 will also add a new dynamic to the market with businesses on the periphery of the city centre likely to be most impacted. Prime rents in the city centre remain stable at £27.50 per sq ft with up to three months’ rent free for each year of lease commitment.Bristol’s investment market recorded a strong year with a total of £121.2 million invested, almost half of this in Q4 when Portwall Place was sold for £51.5 million. Prime yields stood at 6.50% at end-2013, moving in by 25 basis points over the course of the year and will move in further during 2014.

Bristol










Market overview• Subdued take-up below the 5-year average.• Market needs to address Grade A supply pinch point through

refurbishment opportunities .• Potential for growth in prime rents during 2014.

Take-up levels were relatively subdued in Cardiff during 2013 with a total of 248,400 sq ft transacted, compared to a 5-year average of 305,700 sq ft. Key Grade A transactions included ITV and the Life Science Hub (Welsh Government), collectively acquiring 23,000 sq ft at 3 Assembly Square. Although a drop in take-up, the outlook for 2014 is more positive with a number of large requirements remaining active, including the BBC (140,000 sq ft), Legal & General (up to 100,000 sq ft), Geldards (40,000 sq ft), Morgan Cole (35,000 sq ft) and the AA (up to 30,000 sq ft).Total supply reduced over 2013 with the overall vacancy rate falling by 90 basis points to 9.0%. The supply of new Grade A space has diminished substantially with only 37,000 sq ft available in 2 schemes at end-2013. There is only 76,000 sq ft under construction on a speculative basis (Capital Quarter, Phase 2), which is due to complete in Q2 2014. It is essential that the market maximises refurbishment opportunities to bridge the gap in Grade A supply as the Welsh Government’s and Cardiff Council/Rightacres/JR Smart’s respective schemes will not bring new office stock to the market until 2015/2016. Prime rents in the city centre remain at £21 to £22 per sq ft with rent free incentives tightening from the previous 24 month level for a typical 10-year term. With headline rents of £22 per sq ft achieved during 2013, there is room for some rental growth. The largest investment transaction during 2013 was the sale of Helmont House for £25.5m. During Q4 the key transaction was the sale of Hodge House by Aberdeen Asset Management to Legal & General Property for £18.8m. Activity levels are certainly increasing, with large investments such as Crickhowell House and Willcox House under offer to foreign funds. Prime yields at year-end were in the region of 6.50%, but with limited activity in the prime sector, and are expected to move in during 2014 in response to increased investor demand for regional office products.

Cardiff

Figure 13: Take-up

0

100

200

300

400

500

600

201320122011201020092008


0’s sq

ft


0

200

400

600

800

1,000

1,200

1,400

201320122011201020092008


0%

2%

4%

6%

8%

10%

12%

14%

000’s

sq ft


0%

2%

4%

6%

8%

10%

201320122011201020092008


16

18

20

22

24

£ per

sq ft


4%

5%

6%

7%

8%

9%

201320122011201020092008

Prime yields 10 year average











Market overview• Leasing volumes reach highest level in more than ten years. • Grade A supply well below average levels. • Improved optimism encourages development activity.

2013 was a bumper year for the Leeds office market, with take-up volumes of almost 800,000 sq ft. Leasing volumes were almost double the level achieved in 2012, and exceeded both 10 and 15 year average levels. Volumes were boosted by a clutch of pre-lets and by a substantial increase in the number of larger deals. Leeds outpaced all other markets in the Big 6 with the greatest number and volume of deals over 10,000 sq ft in 2013. There were 18 deals over 10,000 sq ft equating to over 510,000 sq ft, compared with just 7 deals in 2012 (191,000 sq ft). Leeds City Council was responsible for the largest deal in the fourth quarter, acquiring a further 50,000 sq ft at Merrion House. The professional service sector was also active in Q4 with KPMG acquiring 28,271 sq ft at Broad Gate, The Headrow and accountants Hentons, taking 22,627 sq ft at 118 North Street.Overall vacancy rates are now at their lowest level since 2006 and well below average levels. Grade A supply is particularly constrained with vacancy rates falling to less than 2.0%. The lack of Grade A supply has driven pre-letting activity in Leeds over 2013, with commitments from KPMG at Sovereign Square and Shulmans at Wellington Place. This has kick started much needed development activity and has provided the stimulus to other schemes. There is currently 118,000 sq ft under construction on a speculative basis, all of which is scheduled to complete in 2014. Prime rents were static over 2013 at £25.00 per sq ft. Incentives remain in the region of up to 30 months rent free based on a 10 year term. Looking ahead we anticipate modest rental growth over the course of 2014 with incentives reducing. City centre investment volumes improved significantly over 2013. In the fourth quarter key investment deals include the sale of Sovereign House for circa £20 million, reflecting a NIY of 7.82%. CBREGi also purchased 2 The Embankment for £7.3 million (9.5% NIY).

Leeds

Figure 17: Take-up

0

100

200

300

400

500

600

700

800

900

201320122011201020092008


0’s sq

ft


0

200

400

600

800

1,000

1,200

1,400

1,600

201320122011201020092008


0%

2%

4%

6%

8%

10%

12%

14%

000’s

sq ft


0%

2%

4%

6%

8%

10%

201320122011201020092008


21

22

23

24

25

26

27

£ per

sq ft


4%

5%

6%

7%

8%

201320122011201020092008












Market overview• Leasing volumes broadly in line with average levels. • Overall supply down 9% year on year.• Prime rents edge upwards to £31.00 per sq ft.

A strong end to the year resulted in leasing volumes of 860,000 sq ft in 2013. This was broadly in line with average levels and 9% above 2012 levels. Activity was dominated by a number of larger deals with 16 deals over 10,000 sq ft, totalling 306,000 sq ft (37% total take-up). The most significant deal in Q4 involved the acquisition of 20,000 sq ft at 3 Picadilly Place by engineering firm Arup. Conveyancer myhomemove, acquired c.20,000 sq ft at Linley House. Barclays bank is also under offer on 80,000 sq ft at 4 Piccadilly place in a deal which is likely to complete in Q1 2014. Activity continues to be driven by a broad sectoral base although there have been a number of notable deals from within the service and professional services subsector. Supply continued to fall, with vacancy rates edging down to just 9.1%, compared to an average of around 10.0%. The vast majority of available supply is of Grade B quality. Grade A vacancy rates are now in the region of 2.7% in the city centre. Despite the contraction in Grade A space, there has been very little change to the development pipeline this year with no new starts recorded. One St Peters square remains the only scheme under construction delivering 268,000 sq ft of new Grade A space in 2014. We could well see another spurt of development activity in 2014, although this is likely to be underpinned by pre-lets. Prime rents increased to £31.00 per sq ft in the fourth quarter, up 3.3% compared to the equivalent period in 2012. Incentives are in the region of around 30 months rent free on a 10 year term for existing space and are expected to gradually move inwards over the course of 2014. In the investment market volumes totalled £353 million in 2013, more than three times the level seen in 2012. There were 6 notable transactions in Q4 one of which was the sale of Vantage Point for £19.9 million to Lothbury Property Trust, reflecting a NIY of 6%. We anticipate continued interest from investors in the regional office market as investors become priced out of London and the South East.

Manchester

Figure 21: Take-up

0

200

400

600

800

1,000

1,200

1,400

201320122011201020092008


0’s sq

ft


0

500

1,000

1,500

2,000

2,500

3,000

201320122011201020092008


0%

2%

4%

6%

8%

10%

12%

14%

000’s

sq ft


-8%

-4%

0%

4%

8%

12%

16%

201320122011201020092008


20

22

24

26

28

30

32

£ per

sq ft


4%

5%

6%

7%

8%

201320122011201020092008












Market overview• Leasing activity comfortably exceeds 10 year average levels. • New Grade A supply is severely constrained.• Prime rents increase to £29.50 per sq ft.

Take-up volumes in the Edinburgh office market exceeded 770,000 sq ft in 2013, the greatest level of activity since 2007 and 5% ahead of the 10 year average level (740,000 sq ft). The number of larger deals was fairly consistent with the previous year, with 11 deals in excess of 10,000 sq ft, equating to 357,500 sq ft or around 46% of the total take-up. 2013 saw the return of the financial sector with the most significant deal of 2013 involving the acquistion of 83,000 sq ft by Sainsbury’s Bank at 3 Lochside Avenue. Other notable deals include Bank of New York Mellon’s acquisition of 54,600 sq ft at Capital House. Optimisim in the occupational market has improved over 2013 however there remains some uncertainty with regards to current requirements with a limited number of big enquiries. Overall availability fell slightly over 2013, reflecting a vacancy rate of 7.1% at the end of Q4. New Grade A space is particularly constrained within the city centre where vacancy rates have now dropped below 1.0%. There is currently nothing under construction in the Edinburgh Office market, however developers are gearing up for the next wave of activity with work likely to start at several high profile developments in 2014. This will be key to ensuring that the market continues to provide a good level of choice for corporates going forward. Prime rents increased to £29.50 at the end of 2013, driven by the lack of new Grade A supply within the city centre. Looking ahead to 2014 we expect to see further growth in prime rents as the supply of quality office space continues to tighten. In the investment market one of the most significant deals of the year was Prupim’s purchase of 2-4 Waterloo place for £46 million, reflecting a NIY of c.7.3%. GLL also purchased Calton Square for £56.75 million in the third quarter. As a result of this renewed investor interest, prime yields moved inwards by 25 bps over the course of the year. Quarter 4 saw a number of significant deals totalling c£75 million including Interpoint (Aviva Investors), 3-5 Morrison Street (AXA Real Estate) and Excel House (CBREGi ).

Edinburgh

Figure 25: Take-up

0

100

200

300

400

500

600

700

800

900

201320122011201020092008


0’s sq

ft


0

500

1,000

1,500

2,000

2,500

201320122011201020092008


0%

2%

4%

6%

8%

10%

000’s

sq ft


-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

201320122011201020092008


24

25

26

27

28

29

30

£ per

sq ft


4%

5%

6%

7%

8%

201320122011201020092008












Market overview• Strong end to 2013 results in the best year for take-up volumes

since 2007. • Availability falls by 9% year-on-year. • Prime rents edge up to £28.00 per sq ft.

Take-up in the Glasgow office market exceeded 348,000 sq ft in Q4, bringing the 2013 year-end total to just over 701,000 sq ft. Volumes were boosted by two significant pre-lets in the final quarter of the year. Scottish Power signed a deal to build a new 14 storey headquarter building on St Vincent Street totalling 220,000 sq ft. Legal firm Brodies, also acquired 24,449 sq ft of space at 110 Queen Street, which is currently under construction and will deliver 165,000 sq ft in 2015. While these two deals alone account for around 35% of total take-up, even if these deals are stripped out, volumes are well in excess of the 5 year average. Overall supply continued to fall in 2013, with vacancy rates edging down to 10.7%, compared to 11.8% at the end of 2012. While this is still slightly ahead of the 10 year average, there is limited supply of the right quality of space. Grade A vacancy rates are now at their lowest level since 2008 and there is limited supply of quality Grade B stock within the right locations. This has stimulated activity in the development market with a total of 485,000 sq ft currently under construction of which 460,000 remains available. This is the most substantial amount of space currently under construction on a speculative basis across the Big 6 and underlines the need for good quality space in the city centre. Prime rents edged upwards to £28.00 at the end of 2013 as the market begins to rebalance itself and demand prospects improve. We expect greater optimism moving into 2014 with incentives beginning to gradually move inwards over the course of the year. Investor appetite for regional office assets picked up in 2013, with investor interest driving prime yields inwards by 25 basis points to 6.00%. Israeli investor CLAL Insurance purchased 150 Broomielaw for £42 million, reflecting a NIY of 6.35%. M&G also reached a deal with Scottish Power in excess of £100 million to fund the development of the utilities company’s headquarters.

Glasgow

Figure 29: Take-up

0

100

200

300

400

500

600

700

800

201320122011201020092008


0’s sq

ft


0

400

800

1,200

1,600

2,000

201320122011201020092008


0%

2%

4%

6%

8%

10%

12%

14%

000’s

sq ft


-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

201320122011201020092008


20

22

24

26

28

30

£ per

sq ft


4%

5%

6%

7%

8%

201320122011201020092008





outlookY-o-YTake-up (000s sq ft) 2,960



U/C Spec (000s sq ft) 1,035


Investment Vol. (£m) £2,138


Market overview• Annual take-up reaches highest level since 2008.• Grade A supply shortage continues although developer

confidence is returning.• Exceptional investment volumes achieved during 2013 with an

increasingly international purchaser profile.

Total take up in the Western Corridor was 3 million sq ft in 2013, exceeding the five year average of 2 million sq ft. Take up during 2013 was characterised by a number of larger deals from a diverse range of occupiers including BMW, BP, Rackspace and Reading Borough Council. However, during Q4 occupier activity was dominated by smaller deals with only 3 transactions over 50,000 sq ft: Bechtel (75,000 sq ft) at First Central, Park Royal; Honda (69,825 sq ft) at Reflex, Bracknell and Abbott Laboratories (53,000 sq ft) at Vanwall Business Park, Maidenhead. At end-2013 there was 3 million sq ft of named active demand circulating in the Western Corridor, providing a solid base going into 2014. Service sector industries account for 48% of requirements by floorspace. Overall supply in the Western Corridor has remained largely static over 2013, with the 12.3 million sq ft available at year-end reflecting a 5% fall on end-2012. However, there continues to be a shortage of Grade A space with the West London Grade A vacancy rate at just 3.3%. The equivalent rate for the Thames Valley remains consistently higher at 7.5% but has fallen by 80 basis points over the course of the year as new supply is taken-up. Development activity is returning to the market and at end-2013 there was 1.0 million sq ft under construction on a speculative basis, of which 75% is due to complete during 2014. The Western Corridor saw solid rental growth over 2013, led by the West London sub market. The Western Corridor prime average rent increased by 5.0% y-on-y, and is forecast to increase by an average of 4.2% per annum over the period 2014-17. Investment volumes in 2013 reached a high of £2,138 million, boosted by the sale of Chiswick Park at the end of Q4 (£780m) and IQ Winnersh (£250m) earlier in the year. Prime yields tightened over the course of the year, moving in by 55 basis points to 5.70%. There is evidence in the London Boroughs of deals at sharper levels with a mixed-use element.

Western Corridor

Figure 33: Take-up

0

500

1,000

1,500

2,000

2,500

3,000

3,500

201320122011201020092008


0’s sq

ft


0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

201320122011201020092008


0%

2%

4%

6%

8%

10%

12%

14%

16%

000’s

sq ft


-12

-10

-8

-6

-4

-2

0

2

4

6

201320122011201020092008


20

22

24

26

28

30

£ per

sq ft


4%

5%

6%

7%

8%

201320122011201020092008

Thames Valley prime yields TV 10 year averageWest London prime yields WL 10 year average



Definitions

Take-upFloor space acquired for occupation by lease, prelease, freehold or long leasehold sale in the City Centre (unless otherwise stated). All deals are included with the exception of Western Corridor and Bristol where 5,000 sq ft and 1,000 sq ft thresholds are applied respectively. Cardiff Take-up includes City Centre and Cardiff Bay.

SupplyFloorspace on the market and available for occupation. It includes space that is under offer.

Under ConstructionSpeculative development of new building or substantial refurbishment where construction activity is ongoing.

DemandNew enquiries logged on a quarterly basis, over 20,000 sq ft for London and the South East and over 10,000 sq ft for the regional markets

Prime RentThe Jones Lang LaSalle view of the highest rent achievable for a hypothetical 10,000 sq ft unit of Grade A space in a prime location, without any adjustment for incentives.

Business SectorsBroad business sectors are classified as:Banking & Finance: Banks and other financial institutions Professional Services: Accountants, legal, management consultants etc Service Industries: Advertising and PR, broadcasting, internet services, printing and publishing, software houses and data processing, telecommunications services, transport, retail, leisure etc Manufacturing Industries: Pharmaceuticals, computer hardware, electronics, construction, mining, engineering, food and drink etc Public Administration & Institutions: Central and local government, institutions, charities, quangos, health and social etc

Investment VolumesInvestment volumes include city centre investment volumes, quoted in GBP (grossed up)


Business contacts

Jeremy RichardsNational OfficesBristol+44 (0)117 930 [email protected]

Angus MinfordDirectorNational Offices+44 (0)20 7087 5350 [email protected]

Leasing contacts

Jonathan CarmaltDirectorBirmingham +44 (0)121 214 [email protected]

Andrew PearceDirectorExeter+44 (0)139 242 [email protected]

Matthew SmithDirectorNottingham+44 (0)115 908 [email protected]

Ian WillsDirectorBristol+44 (0)117 930 [email protected]

Mike BuchanDirectorGlasgow +44 (0)141 567 [email protected]

Jason WebbDirectorSouthampton+44 (0)23 8038 [email protected]

Rhydian MorrisDirectorCardiff+44 (0)29 2072 [email protected]

Jeff PeareyDirectorLeeds +44 (0)113 261 [email protected]

James FinnisDirectorWestern Corridor+44 (0)20 8283 [email protected]

Cameron StottDirectorEdinburgh +44 (0)131 301 [email protected]

Chris MulcahyDirectorManchester +44 (0)161 238 [email protected]

Chris HiattNational OfficesLondon West End+44 (0)20 7399 [email protected]

Investment Contacts

Research Contacts

COPYRIGHT © JONES LANG LASALLE IP, INC. 2014. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without prior written consent of Jones Lang LaSalle. It is based on material that we believe to be reliable. Whilst every effort has been made to ensure its accuracy, we cannot offer any warranty that it contains no factual errors. We would like to be told of any such errors in order to correct them.

UK Office Market Outlook – Q4 2013

On Point reports from Jones Lang LaSalle include quarterly and annual highlights of real estate activity, performance and specialised surveys and forecasts that uncover emerging trends.

www.jll.co.uk

Mark WilsonDirectorNational Offices+44 (0)20 7399 5874 [email protected]

Simon MerryDirectorNorth West+44 (0)161 238 6213 [email protected]

Ben KellyDirectorMidlands+44 (0)121 634 6527 [email protected]

Olly PaineDirectorSouth West+44 (0)117 930 5718 [email protected]

Karen WilliamsonAssociate DirectorUK Research+44 (0)20 3147 [email protected]

Vicky HeathAssociate DirectorUK Research+44 (0)117 930 [email protected]

Ross BurnsDirectorGlasgow+44 (0)141 567 6625 [email protected]

Andrew SummersgillDirectorNorth East+44 (0)113 235 5209 [email protected]

Chris MacfarlaneDirectorEdinburgh+44 (0)131 243 2201 [email protected]

Colin FinlaysonDirectorEdinburgh+44 (0)131 301 6721 [email protected]

Justin MillettDirectorCardiff+44 (0)292 072 [email protected]

UK Office Market Report Q4 2013

Documents

Transcript of UK Office Market Report Q4 2013