2017 UK Office Market Forecast
Some of the trends affecting the British real estate market in general are expected to have an impact in the performance of the country’s office market too. The most notable of these include:
- Generalised market volatility linked to the political and economic ramifications of the Brexit process
- A low GDP growth index (currently set at 1.4 per cent) may result in a tight job market and increased inflation, which in turn may cause business owners and investors to postpone the acquisition of new office properties or to downsize
- A drop in overall investment volumes, especially when compared to the first half of 2016. However, the central London office market remains an attractive option for investors due to high prime yields that average 5.5 per cent
- Across all regions, growth and transaction volumes are mainly driven by the creative and fintech sectors
- Shortage of Grade A across all key markets due to the limited number of new developments, particularly in Aberdeen, Edinburgh, Leeds, Bristol, and areas north of the M25. The current estimates show that there is just over a years’ worth of Grade A supply in these cities. At the other end of the spectrum, regional office markets in the Thames Valley, south of the M25, and Birmingham appear to have an adequate supply of Grade A space
- An increase in the number of office refurbishment projects that will cater to the rising numbers of small businesses and start-ups
- Increased take-up volume by companies in alternative, creative, and specialist sectors, as well as by companies involved in innovation and technology projects
- Continued growth of the serviced office sector across the main office sub-markets in London and elsewhere. This trend became evident in 2015, and market analysts predict serviced offices will continue to grow in popularity this year and may have a special appeal for companies involved in finance and the creative sectors
Office Market Overview in Key UK Regions
Over the past couple of years, the London office market has been characterised by a tendency towards relocation away from the West End and into other city sub-markets. This has been mainly caused by upward pressures on rent and by improved transportation links between different parts of the city, and it mostly affects large companies. According to data gathered by CBRE, approximately 21 per cent of all office occupiers who leave the West End do so in favour of Southbank locations, whereas 17 per cent move to the City and 16 per cent relocate to Midtown. Moreover, 2017 will be the year when occupiers will begin to move into the new developments in and around King’s Cross, so this is another sub-market worth watching.
A CBRE market report also suggested that demand for office space will weaken in London as a result of the Brexit vote, although this may be offset by increased demand for suitable office accommodation in other regions coming from the public sector. In this regard, some market analysts have noted that the current move towards the decentralisation of government departments will cause a surge in the number of office property pre-lets in many UK regional markets. This factor, along with an overall healthy PMI Index, may be a bearer of good news for the following regional office markets:
- The West Midlands
- The East of England
- The East Midlands
By contrast, in Scotland the market may slow down due to the low prices of oil, and this will be particularly noticeable in cities like Aberdeen. On the other hand, the Edinburgh office market is expected to perform strongly this year thanks to growing demand coming from the tech, travel, and leisure sectors.
Broadly speaking, the prospects for the UK’s office market during 2017 are positive, although growth is unlikely to be outstanding. Overall, the performance of this commercial property sub-market during the current year is expected to follow the patterns that emerged in 2016.