Property is basically a numbers business: whether its square feet or pounds sterling or yield percentages, its all numbers. Which is why the annual publication of big city office take-up figures gets the property industry so excited. David Thame does the maths.
With most of the big cities now reporting their 2018 take-up figures, what do these particular numbers tell us?
The answer is that some cities (Manchester, Glasgow) are clearly riding a wave, but for others (Leeds, Birmingham) things can only get better after 2018 turned out to be a big disappointment. And in London? In London, everyone is holding their breath as the tide begins to turn on coworking.
So let’s begin our journey through the UK’s workplace markets in Glasgow.
Glasgow’s office occupier market has just posted its most active year since records began, with 1.43 million sq ft of city centre space leased in 2018, according to figures from JLL. This is more than double the 627,000 sq ft recorded in 2017. Significantly, the 2017 figure felt fairly good at the time since it was more or less equal to the longterm (meaning 10-year) average take-up.
Why the sudden surge? A cluster of big finance sector deals are responsible. These included Barclays 470,000 sq ft purchase at Buchanan Wharf, a major pre-let of 187,000 sq ft to HMRC at Atlantic Square and Clydesdale Bank’s 110,955 sq ft pre-let at 177 Bothwell Street.
It was an amazing year of pre-lets, and it is unlikely to be repeated, not least because of the lack of the kind of new in-progress office development that tends to inspire big pre-let deals. Alistair Reid, Director at JLL in Glasgow, explains: ‘Last year’s success will be difficult to replicate over the next 12 months given the unique circumstances which led to this record breaking year, he tells us. ‘But even if the major pre-let deals,’ such as Barclays and HMRC, are removed from the figures, 2018’s year-end total is still ahead of the five year average.’
Manchester’s story is the easiest to tell, and this year’s record city centre take-up of 1.7 million sq ft the most significant in the UK regions. That is because Manchester is now pulling away fast from the pack of 10 leading regional cities.
The total office take-up in the city, including the city centre and the suburban and city-fringe office markets, is 2.8 million sq ft, putting Manchester in a special category of its own, a long way behind London’s 13 million sq ft, but some way ahead of the other regional cities.
The Manchester Office Agents Forum say the 2017 figure is nearly 70% up on 2017, and beats even the previous high (of 1.3m sq ft in 2014). It is the fifth successive year the city has scored takeup over 1 million sq ft, suggesting a real change has taken place.
Sizeable transactions included Amazon taking 89,500 sq ft, WeWork taking another 76,174 sq ft (their third Manchester base), HMRC taking a pre-let of 157,000 sq ft at 3 New Bailey Street and Booking.com announcing their new 225,000 sq ft base at Allied London’s Manchester Good’s Yard.
MOAF expect the pace of deal-making to continue into 2019 with some big requirements still unsatisfied.
Harry Skinner, Associate Director at Avison Young, says: ‘The performance of the market in 2018 clearly demonstrates that, despite the backdrop of political uncertainty, Manchester is going from strength to strength. Proactive landlords and developers who have been willing to invest in buildings to provide a quality product have achieved success.’
It is a measure of the city’s success that the south Manchester business park market saw take-up of 790,000 sq ft in 2018, meaning that, on its own, it is larger than the entire Birmingham office market. Indeed, you could add Leeds and Birmingham and Glasgow together, and it would still come to less than Manchester.
All of which is a bit of a disappointment for Birmingham and Leeds. Both saw take-up rise to just over 1 million sq ft in 2017, only to see it drop back sharply in 2018.
Birmingham ended the year with 754,000 sq ft of office deals, 25% down on 2017 but roughly in line with the near-term average, which has ranged from 692,000 sq ft (in 2016) to 970,000 sq ft (in 2017).
‘Office enquiries remain encouraging across a number of sectors moving into 2019. With scarcity of current grade A office supply, the delivery of the next generation of new build developments completing at Three Snowhill and Chamberlain Square, Paradise later this year will be well received,’ says Birmingham Office Market Forum (and JLL Partner) Jonathan Carmalt.
Further north in Leeds, take-up tumbled from 1 million sq ft to 663,000 sq ft. However, the spin from the Leeds Office Agents’ Forum suggested what appeared to be a bad year was in fact a fairly good one. The figure was just a shade down on the five-year average of 667,081 sq ft and 18% above the 10-year average of 560,932 sq ft. Out of town, the figures were somewhat brighter, with take-up of 399,582 sq ft, a 24% increase on the previous year.
Carter Jonas Associate Chris Hartness says: ‘2017 was an exceptional year for office take-up, which saw over one million sq ft transacted. If you take out the largest letting from that year’s total – 378,000 sq ft – 2018 was every bit as good, in terms of occupier activity.’
And finally, what of London? Take-up in London is remarkably healthy. According to CBRE, 2018 ended on a flourish with a Q4 take-up total of 3.9 million sq ft, an increase on Q3 of 13% (and to put this is context, that means London transacted in one quarter as much as the other four cities managed over the entire year). The availability of office space nudged up a little, to 2%, a sign that the market might be softening.
But perhaps the most significant number in the London market comes not in the global take-up calculations, but in the requirements of one single occupier: WeWork. The coworking giant has been super-aggressive about the acquisition of London office space.
This time last year, coworking was the big story, with Cushman & Wakefield reporting that, in 2017, central London saw 2.5 million sq ft leased to flexible workspace providers – a 190% increase on 2016. But 2018 turned out to be rather different: according to JLL, it halved its take-up from 1.2 million sq ft to just over 651,000 sq ft. Is this a sign that one of the major props underpinning the London office market is about to crumble? As we await the Q1 2019 data, due at the end of March, nobody really knows.