The Big Nine

gvamidlands

2atweSD

Research

The

Big

Nine

Quarterly review of

the regional office

occupier markets

Q2 2016

Summary

Overall take-up figures have

held up reasonably well

during the second quarter

of the year in spite of the

referendum uncertainty.

Some significant deals

have completed in the

public and insurance

sectors and underlying

demand across the ‘Big

Nine’ remains strong,

particularly given the

reorganisation of the

public sector estate and

a large number of private

sector lease events. Some

occupiers have been

reviewing their position in

light of ‘Brexit’ and it is likely

that this will impact on

take-up for the second half

2 Kingsway, Cardiff

of the year but it is too early

to judge how significant

this will be. We expect

any impacts on the value

of grade A stock to be

insulated by the subdued

development pipeline.

Carl Potter,

National Head of Offices


City

centre

Q2 2016 total take-up

1.22m sq ft

–3%

Compared to the

five-year quarterly average

• Headline deals to public

and insurance sectors

• Above average take-up

in Birmingham, Bristol,

Cardiff and Glasgow but

disappointing activity

elsewhere

• Net effective headline

rents increased by 4.9% over

the year to Q2 2016 and

there was no change

during Q2

Out of

town

Q2 2016 total take-up

0.79m sq ft

–4%

Compared to the

five-year quarterly average

The largest deal was

41,700 sq ft to SKY at

City Park, Glasgow

• Strong take-up in Glasgow,

Birmingham and Manchester

• Headline rents between

£21 psf in north Bristol and

Solihull and £14 psf

in Liverpool

Top five city deals

(Q2 2016)

City/property Occupier Sq ft

Birmingham – Baskerville House Network Rail 83,400

Bristol – The Core Direct Line 63,100

Cardiff – Brunel House

Undisclosed

public sector

54,500

Glasgow – Cuprum, Argyle Street AXA Insurance 49,400

Newcastle – The Rocket Convergys 35,000

Top five out-of-town deals

(Q2 2016)

City/property Occupier Sq ft

Glasgow – City Park Sky 41,700

Birmingham Business Park –

2300 The Crescent

Uniper 32,700

Manchester – Turin Court, Stockport Standard Life 23,350

Newcastle – Cobalt 7b Leeds Building Society 20,100

Manchester – Two Didsbury Point Southway Housing Trust 20,000

Headline Rent

40

35

Big Nine average

headline rent

£27.78

(up 3.1% since

Q2 2015)

Average

rent free

20

months

(down from

22 months

at Q2 2015)

Net effective

headline rent

£23.80

(up 4.9% since

Q2 2015)

£ psf

30

25

20

15

10

5

0

Manchester Edinburgh Birmingham Glasgow Bristol Leeds Cardiff Newcastle

Rent free

value

Net effective

e

e rent

Liverpool


Q2 2016

Q2

The Big Nine

Regional office market review

Take-up across the ‘Big Nine

office markets during the

second quarter was 3%

below the five-year quarterly

average for both the city

centre and out-of-town.

This brings the total for the

half year to 3% above the

H1 average, following a

stronger start to the year.

In the city centre markets there were

a number of sizeable deals agreed

this quarter, with Cardiff, Bristol and

Birmingham recording well above

average take-up. Conversely other city

centres saw some slowing in activity, as

expected in the run up to the referendum.

The insurance sector made up just over

20% of all take-up in transactions over

5,000 sq ft in Q2 with key deals to Direct

Line and AXA, while the public sector also

provided some ballast to the figures (14%)

with Network Rail and an undisclosed

occupier being the largest deals.

Strong take-up levels continue in

Birmingham where the significant deal at

the beginning of Q2 was 83,000 sq ft to

Network Rail at Baskerville House, bringing

the half year figures to over 500,000 sq ft

for the second year in a row. Throughout

the quarter, viewing activity and enquiry

levels held up, while there was a slowdown

in the quantity of transactions, which

reflected the pre-referendum uncertainty.

This was the case across other cities

and the ‘Brexit’ vote will likely prolong this

uncertainty, causing some occupiers to

review their strategies. However the affects

across most markets will be somewhat

insulated by the shortage of quality stock

and constrained development pipeline,

with the prominence of more cautious

pre-let development activity witnessed

over the past two years.

Requirements for the 13 new regional

HMRC hubs and the GPU Hub programme,

the reorganisation of the public sector

estate, will present significant opportunities

across the regional markets for grade

A transactions. The grey space that will

be released back to the market will also

present challenges as well as refurbishment

and change of use opportunities.

Three sites have been short listed for the

170,000 sq ft HMRC/DWP potential pre-let

requirement in Bristol, with CEG’s Aspire

and AXA’s Assembly Bristol among the

options. In terms of deals Direct Line

stood out, purchasing the freehold of

The Core in Thomas Street at 63,000

sq ft, supported by a handful of deals

between 5 and 10,000 sq ft. OVO Energy

have also taken 23,000 sq ft in Temple

Back which is in addition to their main

office in Temple Quay. Other city centre

requirements include 25 - 30,000 sq ft for

Lyons Davidson Solicitors and a handful of

10 to 15,000 sq ft requirements.

Million sq ft

3.0

2.5

2.0

1.5

1.0

0.5

0.0

Big Nine take-up

Q3 2015 Q4 2015 Q1 2016 Q2 2016

Out of town City centre 5 year average

AXA’s relocation from Atlantic Quay was

the largest single letting in Glasgow and

creates full occupancy at Cuprum, a

large grade A office development that

competed in 2010. Take-up was supported

by serviced office provider Regus taking

29,000 sq ft at London and Scottish’s

flagship holding, Tay House and a string of

significant but smaller transactions.

The level of activity in Manchester over

the first half of the year has been lower

than the past two years. There is strong

underlying demand for the second half of

the year but it is uncertain what effect the

referendum result will have on this. Swinton

Insurance have 160,000 sq ft under offer

at 101 Embankment, Freshfields are due

to complete imminently on 80,000 sq ft

at New Bailey, DWP have a 80,000 sq ft

requirement and PwC are interested in

taking further space at 1 Spinningfields.

Total take-up has been subdued in

Edinburgh city centre, although the

number of deals was up on the previous

quarter. The largest deal was to the

Postcode Lottery, who acquired 33,000

sq ft on Charlotte Square, comprising

a combination of A-listed townhouses

and new build open plan space. Large

requirements for the GPU and HMRC

are joined by financial and professional

requirements such as Aberdeen Asset

Management, State Street Bank and

EY. The choice of grade A availability is

limited for all these deals, although M&G’s

final building at Quartermile, is now under

construction and due for completion at

the end of 2017. 1st September will see

the new energy regulations impact on the

sale and lettings of commercial property

in Scotland. This will affect buildings of

more than 1,000 square metres that do

not meet energy standards equivalent

to those introduced by the 2002 Building

Regulations.

Newcastle city centre was dominated

by the key deal of 35,000 sq ft to

Convergys at the newly completed

Rocket in the Stephenson Quarter. Space

continues to be absorbed in the out-oftown

market with Leeds Building Society

being the largest deal of 20,000 sq ft at

Cobalt Business Park.

In Liverpool there were two deals in excess

of 10,000 sq ft during Q2. Interserve took

17,234 sq ft at Cunard Building & Mott

MacDonald took 11,431 sq ft at Royal

Liver Building. Demand remains strong

and there are a number of large deals

currently in legals. During the first half

of the year there has been in excess of

a million sq ft of transactions, which is

primarily due to the sale of vacant or

lower grade office buildings for alternative

uses such as hotel & residential. The

most recent example was the sale of

Silkhouse Court (122,000 sq ft) to Fortis

Developments & Signature Living for

residential conversion.

A slowdown in activity in Leeds is

tempered by the knowledge of a

handful of mid-size requirements that

are expected to fall into the second half

of the year, including Ward Haddaway

taking a floor at 5 Wellington Place.

This quarter Addleshaw Goddard has

increased their presence at 3 Sovereign

Square by 8,000 sq ft, in addition to the

51,000 sq ft already taken.


Key

Office Take-up (sq ft)

Glasgow

Edinburgh

City Centre take-up Q2 2016

City Centre 5yr quarterly ave

Out-of-town take-up Q2 2016

Out-of-town 5yr quarterly ave

Newcastle

upon-Tyne

Liverpool

Manchester

Leeds

Birmingham

Cardiff

Bristol

City Centre

Q2 2016

Birmingham 217,295 188,852

Bristol 185,789 140,343

Cardiff 167,105 88,564

Edinburgh 105,139 151,247

Glasgow 161,527 147,322

Leeds 55,875 140,221

Liverpool 55,000 90,579

Manchester 220,587 256,156

Newcastle 53,962 52,445

5 year Quarterly

Average

Out of town

Q2 2016 5 year Quarterly

Average

Birmingham 102,649 90,142

Bristol 60,603 72,912

Cardiff 34,777 29,458

Edinburgh 52,253 48,750

Glasgow 146,208 91,784

Leeds 72,303 86,860

Liverpool 19,760 43,835

Manchester 221,870 228,410

Newcastle 75,553 123,685


In focus: Cardiff

Office demand remains

strong in Cardiff city centre.

The first half of 2016 has

maintained the high level

of take-up achieved in

2015, at a third above the

five year average.

The key deal in Q2 was to an

undisclosed public sector occupier who

took circa 55,000 sq ft over four floors at

the refurbished Brunel House. This deal,

which Bilfinger GVA acquired, leaves

Cardiff city centre with a shortage of

good quality grade B accommodation.

Cardiff University took another significant

deal of 29,000 sq ft at Friary House.

There were also a number of notable

out of town deals completed between

8,000 and 9,000 sq ft, in a market

where transactions tend to be up to

4,000 sq ft.

Immediately available grade A space

in the city centre has increased recently

to around 140,000 sq ft, from the very

low level of the past two years. This is

a result of a number of completions

including One Central Square and 2

Capital Quarter, as well as the grade

A refurbishment of 2 Kingsway. JR

Smart has also started on site with the

construction of circa 75,000 sq ft at 3

Capital Quarter.

Based on the ten year average grade

A take-up rate of 135,000 sq ft per

annum, this equates to about a year’s

existing grade A supply, although

there are strong expressions of interest

across the majority of it. There is also 7

months’ supply of speculative space

under construction. Headline rents have

increased markedly over the past 18

months rising from £21.50 to north of £24

psf, with rent frees falling from 21 to 15

months on a ten year term. This equates

to a net effective rent of £21.60 psf.

The outlook remains positive with a

number of notable potential active

requirements including Network Rail,

PwC, Cardiff University and Lewis Silkin

coupled with the on-going requirements

for the new public sector Hub.

Tom Merrifield

Director, Cardiff

Rents and Yields

City centre headline rents Q2 2016 (£psf)

Location Rents (£) Rent free (mths

on ten yr term)

Net effective

rent* (£)

Manchester 34.00 24 28.05 26.40

Edinburgh 32.00 18 28.00 27.13

Birmingham 32.00 24 26.40 23.25

Glasgow 30.00 21 25.50 25.08

Bristol 28.50 18 24.94 24.94

Leeds 26.50 18 23.19 23.85

Cardiff 24.00 15 21.60 19.13

Newcastle 21.50 9 20.43 18.28

Liverpool 21.50 33 16.13 16.28

Average 27.78 20.00 23.80 22.70

*Including rent free period less three month fit-out.

Net effective

rent (£) Q2 2015

Out-of-town headline

rents Q2 2016 (£psf)

Location

Rents

(£)

Manchester (South) 20.00

Bristol 21.00

Birmingham (Solihull) 21.00

Leeds 18.00

Newcastle 16.95

Glasgow 16.50

Edinburgh 16.50

Cardiff 14.50

Liverpool 14.00

Average 17.61

Prime city centre yields

Location

Q1

2016

Q2

2016

End

2016

Birmingham 5.00 5.00 5.25

Bristol 5.25 5.25 5.50

Cardiff 5.75 5.75 6.00

Edinburgh 5.25 5.25 5.50

Glasgow 5.25 5.25 5.50

Leeds 5.25 5.25 5.50

Liverpool 6.00 6.00 6.25

Manchester 4.75 4.75 5.00

Newcastle 6.00 6.25 6.50


London

Birmingham

Bristol

Cardiff

Dublin

Edinburgh

Glasgow

Leeds

Liverpool

Manchester

Newcastle

Published by Bilfinger GVA.

65 Gresham Street, London EC2V 7NQ.

©2016 Copyright Bilfinger GVA.

Bilfinger GVA is the trading name of

GVA Grimley Limited and is a principal

shareholder of GVA Worldwide Limited,

an independent partnership of property

advisers operating globally. Bilfinger GVA

is a Bilfinger Real Estate company.

Should you wish to discuss the findings

of our research in greater detail

please do not hesitate to contact:

Carl Potter

National Head of Offices

0121 609 8388

carl.potter@gva.co.uk

Mark Beaumont

National Head of Investment

020 7911 2183

mark.beaumont@gva.co.uk

Giles Tebbitts

Research

020 7911 2670

giles.tebbitts@gva.co.uk

@GVAOffices

08449 02 03 04

gva.co.uk

This report has been prepared by Bilfinger GVA for general information purposes only. Whilst Bilfinger GVA endeavour to ensure that the information in this report is correct it does not warrant

completeness or accuracy. You should not rely on it without seeking professional advice. Bilfinger GVA assumes no responsibility for errors or omissions in this publication or other documents

which are referenced by or linked to this report. To the maximum extent permitted by law and without limitation Bilfinger GVA exclude all representations, warranties and conditions relating

to this report and the use of this report. All intellectual property rights are reserved and prior written permission is required from Bilfinger GVA to reproduce material contained in this report.

Bilfinger GVA is the trading name of GVA Grimley Limited © Bilfinger GVA 2016.

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