COMMENT: Co-working is for London what Brexit is for news. It has been impossible to avoid since 2016, and it’s not going away any time soon.
But if you’re a serviced office provider, it’s worth remembering there is a whole world outside the M25 – as there is a world outside of Brexit. It’s an oft forgotten world, but it’s out there. I’ve been, and it’s lovely.
But where do you go if you’re a serviced office provider? Or, in other words, where should traditional agents start quaking in their boots over a dearth of deals going forward?
Even if you narrow down the options to six major markets – Manchester, Birmingham, Bristol, Edinburgh, Glasgow and Leeds – that is a lot to wrap your head around.
But the answer might just lie in five years of take-up data.
If you look at average quarterly take-up since 2013, Leeds has had the most activity in the sub-5,000 sq ft market as a proportion of total take-up. A whopping 81% of all deals have been small ones, and that proportion has been as high as 88% recently.
The chart below plots average quarterly take-up for those six markets against the average percentage of small deals (both in terms of deal count and total space let). It shows a negative trend, the larger the average take-up, the smaller the proportion of sub-5,000 sq ft deals.
It is a consistent trend – except in the case of Leeds. Despite averaging 40,000 sq ft more quarterly take-up than Edinburgh or Bristol, Leeds has a similar proportion of small deals.
What does that tell us? Leeds is an active city with a disproportionately active sub-5,000 sq ft market. That means a lot of SME activity. And who thrives off SME activity?
There’s more. The sub-5,000 sq ft market has been fairly steady across the six major regional markets over the last five years (with the exception of Leeds). The number of deals under 5,000 sq ft as a percent of total has steadily increased since 2013.
The question now is are we going to see availability in the sub-5,000 sq ft market shoot up in the next few years? It happened in London when serviced offices marched in – and it could happen outside the M25.
And while we’re on the topic of deal size…
How often have you come across a city with a deal so massive that it accounts for a third of total take-up in the quarter (ahem, Manchester? And when you question whether that paints an accurate picture of the health of that market, someone will come along and say: “Well, big deals happen every quarter. You can’t discount them.”
Maybe not, but there’s got to be a point at which a deal is so large that it does skew the long-term view of the market a little bit. Deals of this size do happen, as the GPU showed time and time again last year, but might occur once every year or two, if not even more rarely.
In an attempt to stop these quibbles once and for all, I’ve put together a handy guide showing the range into which the biggest deal in a quarter can fall and still be considered normal. If the largest deal in a quarter falls above that range, we can safely say it is an outlier. It happened, but let’s not pretend it’s a sign that the market in general is getting more active.
