Take-up could reach 30m sq ft
The latest edition of the company’s annual Office Market Review predicts that take-up across the UK could reach 30m sq ft this year, despite preliminary figures revealing that 2014 got off to slow start with take-up during Q1 falling to 4.5m sq ft - a 19% reduction compared to the same period last year.
The report finds that take-up in 2013 increased by 33% to 25.6m sq ft – the highest level since 2007. This activity is being driven by businesses seeking additional space for expansion as well as the natural turnover created by occupiers reaching the end of their leases within obsolete stock.
The authors expect Central London and the larger regional markets such as Manchester, Birmingham, Glasgow and the Thames Valley to be the main beneficiaries of growth during 2014.
Conversion of offices into residential at unprecedented levels
The report also finds that an unprecedented amount of obsolete office space in many locations throughout the UK is being removed from the market and converted into residential accommodation. This follows a temporary relaxation of planning rules in May 2013 that has streamlined the process for applying to change a building’s designated use.
Across the country as a whole, the number of notifications for office-to-residential conversion increased by 500% in the first six months following the introduction of the new rules. Over 4m sq ft of office space has been taken off the market and earmarked for new homes outside of London – potentially leading to the creation of as many as 6,000 new homes in these destinations.
Tony Fisher, national head of office agency at Lambert Smith Hampton, said: “The office market has been a major beneficiary of the economic recovery and improving business confidence. Despite a slow start to the year, we expect that demand will reach its highest level for more than a decade as the corporate sector continues to hire new staff and invest for growth.
“The reduction in activity during Q1 may seem counterintuitive given the positive economic outlook, but quarterly activity has a tendency to oscillate, so it’s important not to read too much into a single set of figures. Fundamentally, the market remains in good shape and on an upward trend in both rents and take-up.
“At the same time, we’re seeing an exponential increase in the number of obsolete office buildings being removed from the market and earmarked for conversion into new homes. Landlords and developers across the country are taking advantage of a temporary relaxation of the planning rules and a strong housing market to transform lower quality space into more profitable uses. In Nottingham city centre, for example, three times more office space was removed for conversion into residential accommodation than through lettings to commercial occupiers.
“Technically speaking, conversions undertaken within the new rules need to be completed by May 2016, so we expect the withdrawal of office stock to reach a peak in 2014.
“With thousands of new homes being created as a result of the streamlined conversion process, extending the deadline beyond 2016 would seem like a sensible way of tackling the UK’s chronic housing shortage.
“This acceleration of the conversion process together with strong occupier demand will push up rents in many locations – such as Leeds and Edinburgh - and drive speculative development.”