Market snapshot

Office Market Pulse M1 Corridor Q2 2014

Q2 saw continued shortage of grade A supply for the M1 Corridor office market and despite fluctuating levels of occupier demand across the region, Milton Keynes achieved stellar results with 143,000 sq ft take-up recorded.

You can download a PDF version of this M1 Corridor Office Market Pulse, or to read and sign-up to receive Office Market Pulses from other UK centres, click here.

In this issue:

Stellar Q2 results for Milton Keynes

Milton Keynes saw a significant increase in office take-up during Q2, with stellar results of 143,000 sq ft in comparison to just over 40,000 sq ft in Q1. We now expect the Milton Keynes office market to outperform 2013 annual take-up (381,000 sq ft) and return to the long-term average of circa 400,000 sq ft.

The majority of this take-up was either new or recently refurbished space.

Northampton saw 30,666 sq ft take-up in Q2 which was down on previous quarters. This total comprised 15 transactions; six of which were freehold sales.

Offices to residential conversions continue to fuel take-up in Luton, with 54,000 sq ft transacted during Q2. There was no take-up of grade A space but that looks set to change as we are expecting a number of deals to complete during Q3.

For an annual comparison of take-up, click here.

Key transactions Q2 2014

Property      Size (sq ft) Landlord/Vendor  Tenant/Purchaser  Lease information 
CBXII
Milton Keynes
 30,800 XLB  Ingam Micro  10 year lease with no break option
£16.25 per sq ft with circa 26 months’ rent free
CBXII
Milton Keynes
22,235 XLB  New Era 10 year lease with no break option
£15.75 per sq ft with circa 32 months’ rent free
Bank House
Milton Keynes
13,670 Hermes  Xero  5 year lease with tenant only option to break end of year 3
£12.75 per sq ft with total of 15 months’ rent free (split 9 and 6 months)
Park Sq Chambers
Luton

15,000
Wellbeck AM N/A Sale for PDR conversion
Upper George Street
Luton
7,649  Johnson Publishing Undisclosed  Sale for PDR conversion
1600 Pavilion Drive
Northampton
3,447 Undisclosed vendor Portman Asset Finance Freehold purchase equal to £134.17 per sq ft
7 Basset Court
Northampton
2,200 LPA Receiver Winfield Freehold purchase equal to £92.96 per sq ft

Erosion of office supply continues

The M1 Corridor continues to suffer from the lowest levels of supply since 2009.

In Milton Keynes, where the surge in Q2 activity has further depleted available grade A stock, there is a great opportunity to recycle early generation buildings in order to fill the void left by deals at CBX II and Exchange House.

The continued lack of supply is hindering the flight to quality that is driving current occupier demand. Schemes such as Kier Property’s Four Waterside in Northampton, which can deliver 250,000 sq ft of grade A stock to the market, will be a hugely attractive option to occupiers looking to enhance their office space.

For a comparison of supply by location and grade, click here.

Increase in occupier demand

The first half of the year has seen the levels of occupier demand fluctuate along the southern M1 Corridor, but we are now seeing a return to occupiers opening discussions about new build and pre-let opportunities.

We expect this trend to continue during the rest of the year as the availability of quality options becomes more constrained.

The biggest impact on occupier demand will be the return of rental growth and the reduced gap between gross and net rents as incentives are reined back in response to the fall in availability.

For an annual comparison of demand, click here.

Commercial property builds momentum

Investment in the UK commercial property sector totalled £11.9bn during the second quarter of 2014 - a 10% increase on the first quarter of the year and 45% higher than in the corresponding period last year.

Investment in the regions has mirrored this trend, with a 39% increase in regional UK offices investment in Q2 compared with Q1. This increase in spending has been predominately led by UK institutional investors as the lack of prime office stock and increasing occupier confidence is continuing to put downward pressure on prime office yields.

Read our latest UK Investment Transactions (UKIT) report here.

Contact us now

Ian Leather
Head of Office Agency (Northampton - Milton Keynes - Luton)

01604 664399

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