Many of us can count on one hand the number of times we’ve ventured more than 10 miles from our front doors in the past 12 months. But as we become unshackled from our homes, or from our desk in a socially distanced office, and are able to travel more widely again, we may be shocked by the transformation that’s taken place in some of the UK’s key regional city centres in the past year.
Once sites were able to reopen after the UK’s first lockdown many developers used quieter streets to press ahead on construction projects, and plans that were only at the CGI stage 18 months ago have now become a reality across the country. Notable examples of schemes that have come on in leaps and bounds include Paradise Birmingham, where the recently completed Chamberlain Square reopened in March 2021, and Circle Square in Manchester, where No.1 and No.2 Circle Square also completed this year. Bruntwood SciTech has now accelerated plans for the development of No.3 Circle Square in response to soaring levels of demand for workspace from science and tech businesses looking to invest in Manchester.
Meanwhile in Bristol, The Distillery, BS2, also completed during 2020, adding a much-needed 90,000 sq ft of grade-A office space to the city’s office availability schedule.
Confidence in the city
This construction activity is a vote of confidence in the future of the UK’s regions and in the fact that the city will continue to be the epicentre of business activity, despite all the working from home, working near home debates of the past year. Some may argue that the developers that are currently seeing their schemes coming out of the ground achieved planning and started on site long before Covid-19 changed the way we’re going to work and live forever, and these projects could now be expensive white elephants. The counter-argument, however, is that planning applications and schemes have continued to be brought forward, and prelets have continued, even in the last few months.
At the end of March, for instance, Vastint submitted plans including 581,000 sq ft of business space on a 40-acre brownfield site in Cardiff city centre, indicating that it sees a future for cities even in light of any Covid-19 changes to working life. In Leeds, developer and asset manager MEPC has recommenced works on 11 and 12 Wellington Place, putting it on track for completion in Q4 2022, when it will provide the Leeds office market with 245,000 sq ft of grade-A, BREEAM outstanding offices, retail and leisure space.
City Square House, a 140,000 sq ft speculative £85m project – the largest private sector prelet deal in Leeds in the last 20 years – started on site in January 2021 and has already secured DLA Piper as its tenant. Goldman Sachs, meanwhile, announced in April that it plans to open a new technology hub in Birmingham in anticipation of expansion and several hundred new staff being added to its headcount. With all the major regional cities reporting positive announcements in the first quarter of 2021 it’s hard to be cynical about the future of their office markets.
Bristol’s Halo, and EQ and Assembly, built in 2020 and fully let to BT during its construction, have the features previously associated with a top grade-A London office building
But our cities are at different points in the cycle. Manchester saw a lot of new space come on stream during 2020. Glasgow, meanwhile, may have just 272,000 sq ft of space currently under construction still available to let, but has approximately a further 1.3m sq ft of offices due to complete between 2025 and 2027, which are likely to come to the market later this year. In contrast, however, there is still only just over nine months of grade-A supply in the Leeds market when using the five-year average take-up, illustrating the city’s supply constraints.
The regional office vacancy rate has increased very slightly due to the Covid-19 pandemic, moving from 10% in 2019 to 11% as of April 2021. However, it remains extremely low in a historic context as generally there’s an undersupply of space. During the global financial crash, the situation in the regions was very different as there was a big over-supply, with the regional vacancy rate moving from 14% to 18% between 2007 and 2009. The regional markets are therefore now at significantly less at risk of downward rental pressure than they were during 2009, evidenced by the fact that virtually all regional markets experienced prime rental growth during 2020 and Manchester even saw rental growth during Q1 2021 with top rents increasing from £37.50 to £38.50 sq ft.
Competing with the capital
While flexible working policies and an increase in working from home days are almost inevitable, overall the total quantum of office space required is unlikely to shift as dramatically as immediately anticipated as the limitations of a fully virtual workforce became clear as the pandemic dragged on. Requirements in the main UK regional cities would seem to support confidence in the future of the city centre office – occupiers remain strongly influenced by the level of talent available in big urban centres, often driven by the high quality of life on offer for younger workers, and frequently supported by the presence of universities and start-up networks.
However, as many are aware, the demand is not just for any office space. Quality comes above all else. As some occupiers consider relocating some staff to cheaper locations outside London, regional cities have had to improve the quality of workspace on offer. Workplaces that provide better air quality, access to outdoor space, and facilities for running or cycling to work look increasingly attractive.
Regional grade-A space is therefore at a premium. The constraints are most notable in Bristol and Glasgow, with only approximately six months of grade-A supply available assuming the five-year average take-up, but developers are taking note and are rushing to bring schemes forward, and those that are moving ahead now offer a similar specification to the best new blocks in London. Bristol’s Halo, and EQ and Assembly, built in 2020 and fully let to BT during its construction, have the features previously associated with a top grade-A London office building. The latter has external terraces, which can be used as breakout areas and green rooftop spaces to make the most of its waterside location and offering panoramic views. The difference is stark when compared to grade-A Bristol offices built 10 years ago, which focused on floorplate size, high-quality finishes and car parking without any of the wellbeing or sustainability features they have today.
The future of the office markets in the UK’s regional cities therefore appears bright, although it pays to consider the unique dynamics of each market, as the picture is not quite uniform across the board, and to ensure any new space delivered is at the top end of the quality spectrum. In the meantime, as we continue to “return to normal”, the new spaces and schemes that have emerged in the past year await their new tenants and the return of that city centre “buzz” that many of us have missed.
Clare Bailey, director, Savills commercial research
