Commercial
EDGE
Welcome to the first Commercial Edge for 2023, our quarterly update on the outlook of the office and industrial markets across the key regional cities in which we operate.
Q1 2023
34 offices across the UK, including 9 in central London
National
Head of Research
Daniel Francis
020 7518 3301 | EMAIL >
Associate Research Analyst
Rad Radev
020 7518 3270 | EMAIL >
Head of Commercial
Scott Harkness
020 7518 3236 | EMAIL >
Research
Partner, Leeds
Chris Hartnell
0113 203 1079 | EMAIL >
Leeds
Bath
Partner, Bath
Philip Marshall
01225 747261 | EMAIL >
Bristol
Partner, Bristol
Andrew Hardwick
0117 363 5694 | EMAIL >
Oxfordshire
Partner, Oxford
Jon Silversides
01865 404458 | EMAIL >
Cambridge
Partner, Cambridge
Will Rooke
01223 326815 | EMAIL >
Birmingham
Partner, Birmingham
Nick Waddington
0121 824 0771 | EMAIL >
National Overview
Birmingham / Midlands
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Total office take-up across the Commercial Edge cities amounted to 953,420 sq ft in Q1 2023, which was 5% up quarter on quarter, 10% down year on year and broadly in line with the five-year quarterly average. Quarterly office take-up since the start of the pandemic has been around 20% lower than over the five years prior to 2020.
Activity remained relatively robust in Leeds city centre and Cambridge, which fared better than the rest of the Commercial Edge cities, while out-of-town leasing activity was weaker in all the cities.
Despite uncertainties around future levels of office occupation amid the current economic environment, we have not seen any falls in prime rental levels. Indeed, prime city-centre rents have continued to climb in most locations and are above their pre-pandemic levels. Oxfordshire and Cambridge recorded some of the strongest rental growth year-on-year thanks to robust demand for office/lab space amid an almost total absence of available prime stock in those markets. Elsewhere, new developments in Bath and Leeds achieved a new benchmark for office rents, with prime rents in those cities now sitting at £36 psf and £37 psf, respectively.
Industrial take-up across the commercial edge cities picked up in Q1 2023 after a weaker previous quarter. At 2.1 million sq ft, take-up in the first quarter of the year was 9% up quarter on quarter but 25% down compared with Q1 2022 after recording exceptionally strong levels over the previous year.
A number of key indicators have headed in the wrong direction over the past year. The share of online spending has fallen back to about 25% but remains well above its pre-pandemic level of around 20%, although consumer confidence improved in recent months it is still in negative territory, while weaker business conditions and rising operating costs have led to some occupiers postponing their expansion plans, downsizing or releasing surplus space. All of those factors have contributed to a decline in overall industrial demand.
However, despite these challenges, the sector as a whole is still benefiting from the ongoing structural shift towards e-commerce, including the increasing shift towards "just in case" rather than "just in time" supply chains. Moreover, sustainability and technology are becoming ever more important factors, with many companies now looking for newer and greener space to satisfy their ESG agendas.
Data source: Carter Jonas
"Industrial rental growth across most of the Commercial Edge industrial markets has continued its upward trajectory, amid strong occupier demand and tight vacancies."
Offices
Industrial
"Prime city-centre rents have continued to climb in most locations and are above their pre-pandemic levels"
Industrial rental growth across most of the Commercial Edge industrial markets has continued its upward trajectory, amid strong occupier demand and tight vacancies. Leeds, Oxfordshire and the Midlands recorded some of the strongest rental growth year-on-year.
The prevailing trend is the tighter supply of stock and development activity exacerbated by factors such as high borrowing costs, inflation, supply chain challenges, and labour shortages. This supply/demand imbalance is continuing to drive up rental values. However, occupier sentiment is being impacted by rising operating costs and the business rates revaluation that came into effect in April, in addition to the current economic uncertainty. While we expect rents to continue increasing in the upcoming quarters, the pace of growth is likely to slow.
7.5%
£36 psf
Prime office rent Q1
11,966 sq ft
Office take up Q1
11%
5%
Vacancy rate
Availability rate
Prime yields
Office take-up in Bath eased in Q1 2023. Just over 10,000 sq ft were leased in the first quarter, which was 30% down quarter on quarter, 34% below the five-year quarterly average but up 35% year on year.
Prime office rents lifted to £36 psf, with recent stock coming to the market setting a new quality benchmark.
The investment market was, as is usual in Bath, lacking in stock. Only a handful of smaller sub-£1 million deals were completed in the first quarter.
Office key lease transactions Q1 2023
Data sources: Carter Jonas, CoStar
Newark Works Riverside South Newark Works
Property
Readygo Phenutest Monahans Financials Services
Tenant
3,003 2,958 2,298
Area (sq ft)
CC CC CC
CC/OOT
BANES
*2022 forecast
Monahans Financials Services
8.7%
8.9%
5.75%
£40 psf
153,550 sq ft
City centre
Out of town
£26 psf
27,603 sq ft
Take-up in the city centre totalled 153,550 sq ft in Q1 2023, a decrease of 27% quarter on quarter, and 10% below the five-year quarterly average, according to the Birmingham Office Forum. Educational/training and professional and business services occupiers supported leasing in Q1, a continuing theme from late 2022.
Prime headline rents continued to grow year on year and were sitting at £40 psf in Q1, while incentive packages remained at 12 months rent-free for a five-year lease and 24 months on a 10-year term. Meanwhile, the out of town market has remained resilient with prime rents stable at £26 psf.
There are around 320,000 sq ft of new space under construction and 320,000 sq ft under renovation. One Centenary Way was completed at the beginning of 2023, which combined with the schemes underway will bring the total of new and refurbished space to 660,000 sq ft by the end of the year.
Louisa Ryland House The Citadel The Colmore Building 103 Colmore Row 3 Brindley Place
Confidential Aston University AON Weightmans Reach Regionals Media
45,100 27,006 22,709 12,158 11,983
CC CC CC CC CC
Fradley Park Impact Park Maple House
Legal & General ACRE Capital Acre Capital / M7 Real Estate
Seller
Ares Management Mayfair Capital Linden Hill Capital
Buyer
£140 million £42.60 million £10 million
Price
Data sources: Carter Jonas, CoStar, RCA
£10.00 psf
Prime industrial rent Q1
4.3 million sq ft
Industrial take up Q1
Midlands’ industrial leasing eased for the third consecutive quarter in Q1 2023, mainly due to a lack of supply. Just under 4.5 million sq ft of industrial space was leased in the first quarter of the year, 16% down quarter on quarter and 40% below the five-year quarterly average.
Industrial rental growth has continued to move on an upward trajectory in the Midlands. The shift towards e-commerce has supported rental growth as companies are taking more space amid a shortage of available stock. Prime industrial rents sit at £10 psf for big-box units of 150,000 sq ft and above.
Coventry Gateway Prologis Apex Park Mercia Park Canal Ln
Syncreon Hankook Tyre DSV Bathroom Mountain
595,000 357,221 315,000 175,000
Coventry Daventry Swadlincote Stoke-on-Trent
Submarket
Pallet Network hub Morrisons Distribution Centre Wilko Distribution Hub
Mulberry Developments Morrisons DHL
The Blackstone Group ICG Wilko
£64 million Part of portfolio £48 million
Midlands key sale transactions Q4 2022
Data sources: Carter Jonas, CoStar, EG Radius, RCA
Swadlincote Kettering Worksop
Associate, Birmingham
Sam Cooke
0121 3899675 | EMAIL >
Birmingham offices
Office, Industrial and retail investment volumes in Q1 2023 totalled £320 million, which was broadly on par with the previous quarter, but 10% below the five-year quarterly average. Industrial deals accounted for 70% of the total in the first quarter, while only a handful of sub-£20 million office and retail deals were completed in that period.
Type
Industrial Industrial Office
Yield
5.70% 5% 10%
Office, Industrial and retail volumes in Q1 2023 totalled £320 million, which was broadly on par with the previous quarter, but 10% below the five-year quarterly average. Industrial deals accounted for 70% of the total in the first quarter, while only a handful of sub-£20 million office and retail deals were completed in that period.
£140 million £42.6 million £10 million
3.3%
Midlands
5.4%
3000
2500
2000
1500
1000
500
Millions
8.25%
Data sources: Carter Jonas, Experian, Bristol Office Agents Society, RCA, CoStar, EG Radius
10.5%
6%
£42.50 psf
£28.50 psf
Prime office rent Q4
82,694 sq ft
34,370 sq ft
Take-up in the city centre eased for the fifth consecutive quarter in Q1 2023. Leasing levels in the city centre totalled 82,694 sq ft in the first quarter of the year, down 26% quarter on quarter and 42% below the five-year quarterly average, according to Bristol Office Agents Society. The out-of-town market recorded the weakest take-up since 2020, with 34,700 sq ft leased in Q1.
Prime city centre headline rents have risen to £42.50 per sq ft. In the out-of-town market, quoting rents at Aztec West have risen to £28.50 psf, from a previous headline level of £23.00 psf, again principally due to the lack of available product.
Bristol’s city centre has one of the largest pipelines across the regional markets, with around 600,000 sq ft under construction.
Protheroes House, Denmark St 10 Victoria Street 220 Bristol Business Park Building 200, The Paintworks Unit 10 Woodlands Court
Nelson Trust Michelmores LLP Ascent Training Robert McAlpine Sirona Care & Health
12,169 11,371 10,098 5,955 5,724
CC CC OOT CC OOT
Nuffield Health Bristol North 1-3 Westons Way
Natwest Pension Trustee Waypoint Asset Management
Fides Properties Confidential
£6.75 million £1.46 million
Office key sale transactions Q1 2023
£9.00 psf
473,779 sq ft
Industrial leasing activity in Bristol picked up in the first quarter of 2023. Take-up in Q1 2023 totalled 473,779 sq ft (IAS), up 36% quarter on quarter. Take-up in Q1 was supported by smaller transactions with no deals over 100,000 sq ft and only one deal over 50,000 sq ft.
Prime industrial headline rents in Bristol have risen by 16% over the past five years. Prime industrial rents are now £9.00 psf. The supply imbalance has been a prevailing trend in Bristol with rents expected to continue their upward trajectory in the upcoming quarters.
The Link, Smoke Lane Western Approach Distribution Park Lodge Causeway Trading Estate
Confidential PICS Telecom Surge Padel
83,637 66,091 54,938
New Lease New Lease New Lease
Data sources: Carter Jonas, IAS, CoStar, EG Radius, RCA
The completion of so much space is likely to put upward pressure on vacancies, which have already increased from a low of 3.7% in 2020 to 8.2% in Q1 2023. This will provide occupiers with a greater choice of high quality buildings.
Bristol office, industrial and retail investment eased further in Q1 2023 with only a handful of sub-£10 million retail deals completed in that period. The fall comes after nearly £700 was spent in the first half of last year.
4%
7.3%
1200
800
400
200
Data sources: Carter Jonas, RCA, Costar
Office take-up in Cambridge totalled 133,167 sq ft in Q1, broadly in line with the previous quarter but 10% below the five-year quarterly average. In Q1, just over 90% of the office/lab space leased was by technology and life sciences companies. The lack of available space rather than weaker demand has been affecting leasing levels in recent quarters.
Prime grade A office rents have increased from £41.50 psf in 2018 to £55 psf in the first quarter of 2023, while prime lab rents have now reached 70 psf. Northern Fringe rents have increased from £30.00 psf five years ago to £37.25 psf in Q1 2023, reflecting the strength of demand for business /science park accommodation outside the city centre.
The vacancy rate has decreased year on year and now sits at 3.3%. In contrast, available space in the market has increased to 7.8%, reflecting the number of speculative schemes under construction.
Evolution Business Park One Cambridge Square Granta Park Cambridge Science Park Kett House
Nyobolt Samsung Sphere Fluidics Toshiba Europe Robert Bosch UK Holdings
36,114 33,624 15,000 11,670 9,028
OOT OOT OOT OOT CC
Westbrook Centre 163 Cambridge Science Park DFS, 442 Newmarket Rd
HSBC Norwich City Council Tesco Pension Fund
UBS Cadillac Fairview / Stanhope PLC British Land
£75 million £12.2 million £7.4 million
Activity in the industrial market is dictated by a lack of supply. Take-up in Q1 totalled 147,095 sq ft, down 30% quarter on quarter, but 10% above the five-year quarterly average.
Industrial rents remain stable and sit at £12.50 psf on average, while trade occupier space saw a marginal increase over the past 12 months to £16.80 psf on average. Rents are likely to remain stable given the tight supply across the market.
Studlands Park Industrial Estate Gateway Cambridge
Mckinleys Group Trading Limited Johnsons 1871
47,548 20,423
New Lease New Lease
Industrial key lease transactions Q1 2023
Data sources: Carter Jonas, CoStar, Egi, CoStar
2023 is set to deliver more than half a million sq ft, which is more than the two previous years combined. Schemes to complete this year include 1000 Discovery Drive and Unity Campus.
Cambridge office, industrial and retail investment eased in Q1 2023 totalling £139 million. Although this was down from a strong previous quarter it was 46% above the 5-year quarterly average. Office and retail assets were in demand in the first quarter with the largest deal being the sale of Westbrook Centre for £75 million. Notably, the 2.2% yield paid for 163 Cambridge Science Park indicates persistent and robust demand for life sciences properties in the market.
Confidential 2.2% 7.1%
Office Office Retail
£12.50 psf
4.5%
4.7%
5.25%
147,095 sq ft
Seller (S) & Buyer (B)
HSBC UBS (B) Norwich City Council (S) Cadillac Fairview (B) Tesco Pension Fund (S) British Land (B)
7.8%
£55.00 psf
Northern fringe
£37.50 psf
133,167 sq ft
Labs
£70.00 psf
£37.50
£70.00
600
Data sources: Carter Jonas, Experian, RCA, CoStar, EG Radius
Leeds city centre take-up totalled 266,714 sq ft in Q1 2023, which was up 27% quarter on quarter and 75% above the five-year quarterly average. The letting of 124,400 sq ft to Lloyds Banking Group at 11-12 Wellington Place ensured a strong start to 2023. The out-of-town market recorded leasing activity totalling 60,283 sq ft in the first quarter of 2023, which was broadly in line with Q4 2022, but 24% below the five-year quarterly average.
Market sentiment has improved throughout the past 12 months and prime headline city centre rents have moved upwards, sitting at £37.00 psf, with rent-free periods based on a 10-year new lease sitting at about 24 months. Out-of-town rents remain stable at £24.75 psf.
The vacancy rate has marginally increased to 5.5%, compared to 5.2% a year ago but was below the national figures of 7.5%.
Wellington Place City Square House Cast House 8 St Paul's Street
Lloyds Banking Group Markel Non wovens Innovation & Research W D Dennis Insurance Hisense
124,400 19,956 19,827 16,500 12,414
CC CC OOT CC CC
2 City Walk Prima House Unit 3, Benyon Park Way
Aegon Asset Management First World Hybrid Real Estate BNP Paribas Depositary Services
David Samuel Properties Cabot Properties Inflection Real Estate
Office Industrial Industrial
Take-up in Q1 2023 totalled 382,476 sq ft, which was 30% up from a weaker Q4 2022 but 60% below the five-year quarterly average. There were no deals above 50,000 sq ft signed in the first quarter, while seven deals above 20,000 sq ft were recorded.
With an ongoing supply and demand imbalance, we expect further rental increases, although at a slower pace than the past two years. Prime rents are likely to surpass their current level of £8.00 psf in the coming quarters although the lack of supply is holding back demand.
Gelder Park Unit 1, Pheasant Dr Unit 2, Pheasant Dr SKA Business Park Hansen Business Park
smuk Igloo Thermo Neolith UK Hitchfields Trojan Plastic
38,500 36,383 33,020 24,878 15,326
New Lease New Lease New Lease New Lease New Lease
Data sources: Carter Jonas, RCA, EG Radius, CoStar
5.5%
8.3%
£37 psf
£24.75
266,714 sq ft
60,283 sq ft
Around 600,000 sq ft of new and renovated space is expected to complete in 2023. The 138,000 sq ft City Square House is the largest new build to deliver this year, while the redevelopment of West Village by Bruntwood is also expected to complete.
Office, industrial and retail investment in Leeds eased further to about £30 million in Q1 2023, the lowest quarter for investment since 2009. No deals above £10 million were recorded in the first quarter with only three industrial deals above £5 million completed.
£10.5 million £8 million £7 million
9.1% Confidential 6.93%
1.9%
3%
£8.00 psf
382,476 sq ft
£24.75 psf
1266,714 sq ft
Industrial Office Industrial
1 Monroe Court
1400
1600
1800
£49.50 psf
Science parks
183,073 sq ft
Oxfordshire’s office and lab take-up for space above 5,000 sq ft surged in the first quarter due to Moderna’s 145,000 sq ft pre-let at Harwell Science & Innovation Campus. Take-up totalled 183,073 sq ft in Q1 2023, a 240% increase from the previous quarter and 112% up on the five-year quarterly average. Around 95% of the take-up in Q1 was from life science companies. A continuing theme was the lack of available stock in the market, while demand remains strong.
Prime headline city centre rents have surged year on year and are sitting at £49.50 psf, but several deals at £55-£60 psf are expected to complete in the upcoming months. Rents for grade A laboratory-enabled space (shell and core) are heading towards £55.00 psf, as demand continues to increase and availability remains tight.
Vacancy sits at 4%. The majority of available space on the market is of lower quality, which cannot satisfy current demand.
Harwell Campus Oxford Business Park The Foundry
Moderna MiroBio Brill Power
145,000 11,547 8,000
OOT OOT CC
Industrial leasing activity spiked in the first quarter, due to one large deal at Tritax Symmetry Park, take-up in Q1 2023 totalled 370,118 sq ft, up 110% quarter on quarter and 73% above the five-year quarterly average.
A notable lack of available stock is now evident across the market, and consequently, the upward pressure on rents continues with headline industrial rents in Oxfordshire now sitting at £15.00 psf. This excludes deals to R&D occupiers where rental levels of up to £27.00 psf are now being achieved.
£15.00 psf
370,118 sq ft
Tritax Symmetry Park A40 Trade Park Nurfield Way Verda Park
Syncreon Travis Perkins Volker Highways Menwell Limited
270,000 26,469 10,843 9,679
New Lease New Lease New Lease New Lease
4.0%
9.4%
The development pipeline looks healthy, with two schemes to complete this year, the Iversen Building at Oxford Science Park and Inventa at Botley Road.
Office, retail and industrial investment totalled £128 million in Q1 2023. Although that was 78% up quarter on quarter, it was 9% below the five-year quarterly average. Unlike other quarters spending on industrial and retail assets supported volumes, while office investment accounted for 20% of the total in the first quarter.
Banbury 200 Hinshelwood Building Chalker Way, Banbury
Paloma Capital /Graftongate Mayfair Capital Investment Management Prodrive Motorsport
Greenpoint Partners GIC Real Estate Leftfield
£28 million £19.4 million £15.2 million
5.50% n/a 5.59%
3.9%
6.1%
5.2%
Science Parks