We forecast that take-up could reach 30m sq ft this year, following a 33% increase in activity to 25.6m sq ft during 2013. Central London and the larger regional markets such as Manchester, Birmingham, Glasgow and the Thames Valley are expected to be the main beneficiaries of this growth.
Demand fuelled by business expansion
Our analysis reveals that this demand is being partly driven by businesses seeking additional space for expansion - as well as the natural turnover created by occupiers reaching the end of their leases - for the first time since the start of the recession.
Unprecedented conversion of obsolete offices into residential
As we predicted last year, the report also finds that an unprecedented amount of obsolete office space in many locations throughout the UK is being taken off the market and converted into residential accommodation. 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 taken off the market for conversion into residential accommodation than through lettings to commercial occupiers.
A bow wave of conversions expected in 2014
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.
This acceleration of the conversion process together with strong occupier demand will push up rents in many locations and drive speculative development.