A Regional 'Office' Renaissance
Office leasing activity across regional cities has been robust in 2019. The high level of demand is expected to further fuel a renaissance for office locations outside of London over the coming years, as businesses both domestic and global eye the benefits of the regions.
In 2019, leasing activity totalled 780,095 sq ft across Birmingham city centre, representing a 3% uplift on the previous year. Similarly, Manchester city centre takeup in 2019 surpassed its long-term average by 23% to total 1.4 million sq ft, and in Leeds demand for office space grew 7% to 743,192 sq ft. These volumes indicate the buoyancy of the top three office markets outside of London. Behind these numbers are some significant deals listed below.
• Platform 21, Stephenson Street: 110,800 sq ft leased by UK Government as a regional hub
• WeWork lease 3 spaces totalling 232,500 sq ft as the flexible office provider expands its coverage
• 125 Deansgate: 117,030 sq ft leased by Spaces, the flexible office provider as expansion space
• Amazon take 92,000 sq ft on Hanover Street, its first office outside of London to house its software and research development teams
• GCHQ, the government intelligence unit lease 63,000 sq ft on Albert Square, to tap into the burgeoning student population
• Sky Betting & Gaming have pre-let 136,000 sq ft at 4 Wellington Place in order to consolidate operations
• BSKYB have taken 31,000 sq ft on Whitehall Road
• Channel 4 have pre-let 26,000 sq ft on City Square to house its new corporate HQ that will move from London. They have taken an additional 11,700 sq ft on West Gate, Grade Street
Businesses that have chosen to lease office space outside of London include HSBC that opened a new HQ in Birmingham in 2018 – out of the capital. Similarly, Barclays Bank who moved several hundred jobs out of London to be based in Birmingham. Channel 4 is currently doing the same with its move to Leeds, and banking giant Goldman Sachs is looking at moving its technology division northwards to either Birmingham or Manchester. UK cities are no longer viewed as the back-offices for corporate UK, and London is no longer viewed as the only place to get jobs in certain sectors.
The regional office markets have several key attributes that appeal to businesses. The rental difference between space in London and other UK cities possibly being the most appealing. Prime rents in Manchester and Birmingham can be between £32.00 and £36.00 per sq ft. This is nearly half of what is asked for in the City of London market. Whilst appealing, it is not the only factor. The access to talent is a growing need for businesses and with some of the largest student populations outside of the south east of England, cities in the Midlands and the North have such a talent pool. Access to housing (relatively affordable) is also a driver for firms that look to the regions, giving the optionality for its workforce to get on the housing ladder or have shorter commutes and access to countryside – all of which can be more easily achieved out of London.
The latest raft of deals is also seeing the growth of serviced/flexible provision by the large operators such as WeWork and Spaces branching out of their preferred London submarkets. Such moves indicate they are hoping to get ahead of the curve of their competitors, but more importantly follow occupier trends towards flexibility.
Whilst much of the narrative of this prediction majors on businesses looking outside of the capital to house its office functions, it should equally be viewed as regional office markets are continuing to grow their appeal, their office base and becoming more relevant to firms of all sizes and sectors.