As securing prime, city centre offices becomes more of a challenge across the UK, a growing number of companies are opting to pre-let.
After becoming a common feature of the London office market, pre-letting in the regional Big 6 markets of Glasgow, Birmingham, Bristol, Leeds, Manchester and Edinburgh has become increasingly prominent over the past three years as vacancy rates have moved well below historic averages.
It’s being driven by a shortage of high-quality supply in central locations and rising demand among companies for amenity-rich office space close to transport links.
“The ongoing office supply shortage could lead to a surge in both rents and pre-letting activity across the regional city markets in 2020,” says Barrie David, associate director in UK Research.
“In some locations, such as Edinburgh and Leeds, it’s no exaggeration to talk of a crisis in supply, while in cities like Manchester, the sustained occupier demand suggests the relatively high level of new build will be easily absorbed.”
Staying ahead of the crowd
Pre-letting is one-way companies are planning ahead to ensure they’re in their preferred location – and in some cases having a say in what their offices will look like, whether that’s offering amenities like coffee bars and bicycle racks or providing the flexible workplaces that today’s workforce increasingly expects.
Telecoms firm BT opted for pre-let space at Three Snowhill in Birmingham, as well as in Assembly in Bristol. Meanwhile, legal firm BLM pre-let space at Manchester’s 2 New Bailey Square and Northern Lights pre-leased space at Heron House.
The growth of pre-letting equally reflects wider notes of caution in the market as Brexit uncertainty weighs on decision-making.
“With Brexit looming, we’ve seen developers being more wary and building less speculatively, unless they could pre-let. We now have a potentially clearer path forward, but even if developers build more, it takes time for that to filter through, so good quality space remains scarce,” says David.
Nevertheless, all six regional markets will welcome additional new-build and refurbished offices open by the end of 2020; Edinburgh, for example, will host four new build developments while Birmingham will see the completion of 3 Snowhill and 2 Chamberlain Square.
This lack of high-quality office buildings has also impacted investment volumes across the six UK cities. Volumes fell 16 percent year-on-year despite investment reaching £2 billion in 2019 – the fifth highest year on record, according to JLL.
Emerging city centre clusters
With competition among companies for prime office space showing no signs of abating, the Big 6 markets are predicted to see further rises in pre-letting.
Today’s companies know that high-quality, sustainable office space in the right location plays an increasingly important role in attracting and retaining high-calibre staff.
“There are only so many city centre locations in these markets,” adds David. “Occupiers reaching the end of their lease in older premises see pre-letting as a way to get the space they want. However, we are also seeing new clusters forming in under-developed areas of regional cities and I think this will continue and we’ll see new business districts forming.”
Wellington Place, in Leeds, is a high-spec mixed-use development in an area not previously renowned as a destination for office workers. Last year it signed Sky Bet on a pre-let while also welcoming the likes of the Government Property Agency and Equifax. Meanwhile, in Bristol, a new enterprise cluster is emerging around the University of Bristol’s Digital Futures Institute.
For the regional office market, such new supply will offer more choice. Equally, supply constraints will remain – and more companies will need to plan ahead to secure space and get the new-build offices they want.