The North West was a key focus of activity. Volume amounted to £383m, more than double the same period last year and 65% above the five year quarterly average.
Institutions were particularly active in the regions investing £207m, with key deals including Legal & General acquiring the India Buildings, Liverpool for £125m from Shelborn Asset Management, and Aviva purchasing Two New Bailey Square, Manchester for £113m from English Cities Fund. In contrast, Central London once again provided the focus for institutional disposals with sales hitting £1.1bn.
Despite strong activity in the regions, a subdued quarter for Central London offices weighed on the UK’s overall total, with Q1 volume of £5.3bn and 19% below the quarterly average. Reflecting the greater share of activity in the regions, the UK office average transaction yield moved out by 16bps Q1 to stand at 5.08%.
The other major investors in UK offices were REITS - bouncing back post 2016’s Brexit vote - ploughing £365m into the sector representing the highest quarterly volume since Q4 2015, and local authorities acquiring £229m of stock. Although relatively quiet by recent standards, overseas investors remain the dominant purchaser of UK offices, accounting for 53% of total Q1 volume. At £2.8bn, overseas volume into offices across the quarter was its lowest in 18 months, and 25% below trend. This reflects the below average investment in London and lack of major office deals across the quarter.
Meanwhile, the UK occupier market also saw a positive start to the year with total UK-wide take-up of 6.1m sq ft in Q1. Again, the UK’s major regional cities continue to thrive with the ‘Big Six’ markets – Birmingham, Bristol, Edinburgh, Glasgow, Leeds and Manchester – seeing take up reach 1.9m sq ft, up 21% on the same period last year, and 14% above the ten-year quarterly average.
The largest deal was GPU/HMRC’s 157,000 sq ft pre-let of 3 New Bailey, Manchester, which took the city centre take-up to 442,000 sq ft in Q1, 66% above trend. Another outstanding performer is Glasgow, with the GPU/HMRC’s 187,200 sq ft pre-let at Atlantic Square boosting take-up in the city centre to 252,000 sq ft, almost double the ten-year quarterly average. Outside the ’Big Six’, Belfast had an impressive Q1, with take-up of 270,000 sq ft one of its strongest on record. This was underpinned by Allstate’s new 138,225 sq ft headquarters, the second largest deal outside London.
Meanwhile, continuing the overall trend, Central London had a sluggish start to the year with Q1 take-up of 2.7m sq ft, 12% below average. Office availability has though improved across the capital, rising 3% since the beginning of the year due to a large amount of second-hand space returning to the market.
Overall office availability fell 1% outside London, with each of the ‘Big Six’ recording falls in supply. Bristol witnessed one of the strongest reductions, with its city centre availability falling by 9% and equating to just over one year of supply. Total UK-wide availability increased by 1% over Q1 to stand at 50.6m sq ft, but stands well below the ten-year average.
Ryan Dean, National Head of Office Advisory, at Lambert Smith Hampton, commented:
“There is a real window of opportunity for investors to reposition well-located assets in growth markets through good quality refurbishment. At the same time, we continue to see healthy demand from SME occupiers seeking quality premises which are affordable, have character and are located near to amenities to attract the best talent.”
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