Welcome to the second quarter of Commercial Edge for 2023, our quarterly update on the outlook for the office and industrial markets across the key regional cities in which we operate.
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
Alex Tross
0121 306 0401 | EMAIL >
National Overview
Birmingham / Midlands
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Total office take-up across the Commercial Edge cities amounted to 755,469 sq ft in Q2 2023, which was 27% down quarter on quarter, 11% down year on year and 21% below the five-year quarterly average. Office take-up has remained below pre-pandemic levels, with an 18% decrease in the quarterly average since the start of the pandemic, compared to the five years leading up to 2020.
Leasing activity remained relatively robust in both Birmingham and Bath but was weaker than Q1 in all of the other Commercial Edge cities.
Since the pandemic began, rents have held steady, buoyed by sustained growth in prime market rents and in some places increased incentive packages from landlords. Oxfordshire and Cambridge have seen strong annual rental growth due to high demand and limited prime stock. New developments also set new benchmarks in Bath and Leeds, with prime rents now at £36 psf and £37 psf, respectively.
Industrial take-up across the Commercial Edge cities eased further in Q2 2023, but not by much compared to the previous few weaker quarters. The reduced take-up comes from exceptionally strong levels in 2020-2022 when the quarterly figures averaged 3.5 million sq ft. At 2 million sq ft, take-up in the second quarter of 2023 was 17% down quarter on quarter, 27% down compared with Q2 2022 and 37% below the five-year quarterly average.
The record demand for industrial property during the peak of the pandemic is now weakening due to factors including high inflation and interest rates. However, the sector is still expected to benefit from the continuing structural shift towards e-commerce and the push towards net-zero carbon emissions, which should support leasing activity and present continued opportunities for investors.
Industrial rental growth across some of the Commercial Edge industrial markets has continued its upward trajectory, amid strong occupier demand and low vacancy rates. Leeds, Oxfordshire and the Midlands recorded some of the strongest rental growth year-on-year.
Data source: Carter Jonas
"Industrial rental growth across some of the Commercial Edge industrial markets has continued its upward trajectory, amid strong occupier demand and low vacancy rates."
Nick Waddington
0121 824 0771 | EMAIL >
"Prime buildings are expected to outperform secondary ones as companies prioritise higher-quality spaces to attract staff, accommodate clients, and fulfil increasing environmental obligations."
Industrial properties with top BREEAM ratings are experiencing more robust rental growth compared to those with lower or no ratings, a trend that is expected to persist. While sector-wide rental growth is slowing from record highs due to slightly increased vacancies and growing cost pressures in a subdued economy, we anticipate further growth in many key markets, such as Birmingham, Bristol and Leeds.
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.
Looking ahead, rental growth performance is likely to wider. Prime buildings are expected to outperform secondary ones as companies prioritise higher-quality spaces to attract staff, accommodate clients, and fulfil increasing environmental obligations. This trend, along with a shift to hybrid working that often requires less overall space, is likely to hasten the removal of older stock. Additionally, the new energy performance regulations enforced from April 2023, and further proposed tightening, is likely to contribute to this trend.
7.7%
7.5%
11%
5%
Vacancy rate
Availability rate
Prime yields
Bath’s office market has seen a slight uptick in activity in recent months, but it is too early to say whether this is a sign of a sustained recovery.
Enquiry levels have remained largely the same, but viewings have increased and offers have slowly followed. We predict the market will continue along these lines into the autumn, and year-end figures will be largely around normal levels for the city.
The local authority, Bath & North East Somerset, needs to permit much more flexibility for listed buildings to be used as residential accommodation to allow the local market to absorb the newer, better-quality space. With just 3% unemployment, it is hard to see businesses growing materially to help this change take place through expansions and relocations.
Data sources: Carter Jonas, CoStar
51 First Ave Trim Street Charlotte Street Trim Street
Property
QCC Global Gradwell Communications Rebecca Revell Canned Wine Co
Tenant
5,700 2,960 2,298 2,103
Area (sq ft)
OOT CC CC CC
CC/OOT
BANES
*2022 forecast
£36 psf
Q-o-Q
Prime office rent Q2
22,550 sq ft
89%
5-Y average
23%
Office take up Q2
8.5%
9.7%
5.75%
£40 psf
177,665 sq ft
City centre
Out of town
£26 psf
111,093 sq ft
Louisa Ryland House 156 Great Charles Street 54 Hagley Road Birmingham Business Park One Centenary Way
Re-Defined Arden University UK CAB Holman JLL
36,343 22,924 21,500 16,000 13,815
CC CC CC OOT CC
Junction 6 Industrial Park Stirling 150 Block B, Jaguar Works
M&G Real Estate London Metric Property Columbia Threadneedle Investments
Seller
Tritax Big Box REIT City of Wolverhampton Council Block Industrial
Buyer
£58.5 million £20.5 million £20 million
Price
Data sources: Carter Jonas, CoStar, RCA
£10.00 psf
Prime industrial rent Q2
4.3 million sq ft
Industrial take up Q2
Rugby 661, Central Park Western Extension of i54 Prospero, Ansty Hilton Cross Business Park
Sainsbury's Fortune Brands Innovations Stairlift Ibstock
662,197 270,000 172,639 143,907
Rugby Wolverhampton Coventry Wolverhampton
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
Prime office rent Q1
Office take up Q1
Type
Industrial Industrial Industrial
Yield
4.50% 4.15% 6%
£140 million £42.6 million £10 million
3.9%
Midlands
5.7%
15%
210%
4%
-13%
-39%
2,500
Millions
2,000
1,000
1,500
500
0
Take up for city centre offices picked up in Q2 by 15% to 177,665 sq ft, after a tepid performance in the first quarter. The improvement in take-up figures was even more significant out of town, which saw a quarter-on-quarter improvement of 210%, albeit from a very low base. The focus of demand has been on new or refurbished accommodation, in line with the current flight to quality undertaken by many tenants. Buildings that offer space that encourages staff back to the office and satisfies the increasing requirement for ESG features and amenities have performed well. This activity means that stock levels of desirable properties are being depleted, so if demand continues to increase, satisfying it may present a challenge. The good news is that scarcity drives rental growth, and that could unlock appraisals that will see an improved development and refurbishment pipeline.
Activity in the Midlands industrial market is still positive with a healthy number of deals taking place across a range of unit sizes. A lack of supply, compounded by a slowdown in construction starts on site (which are still being held back by high inflation and the rise in the cost of debt) has meant that rents have remained strong and, in some locations, have continued to rise. There has been demand for modern speculative units such as the 172,000 sq ft unit at Prospero, Ansty and refurbished second-hand space such as the former 662,197 sq ft GAP warehouse at Central Park in Rugby. In Birmingham itself, the market is keen to see at what level the GKN site in Erdington has now been put under offer and to see where land values have re-settled.
Activity in the Midlands industrial market is still positive with a healthy number of deals taking place across a range of unit sizes. A lack of supply, compounded by a slowdown in construction starts on site (which are still being held back by high inflation and the rise in the cost of debt) has meant that rents have remained strong and, in some locations, have continued to rise. There has been demand for modern speculative units such as the 172,000 sq ft speculative unit at Prospero, Ansty and refurbished second-hand space such as the former 662,197 sq ft GAP warehouse at Central Park in Rugby. In Birmingham itself, the market is keen to see at what level the GKN site in Erdington has now been put under offer and to see where land values have re-settled.
7.8%
Data sources: Carter Jonas, Experian, Bristol Office Agents Society, RCA, CoStar, EG Radius
9.1%
6%
£42.50 psf
£28.50 psf
66,050 sq ft
The Bristol city centre office market has witnessed a decline in demand in the first half of 2023 compared to the same period in 2022, as occupiers are still responding to changes that have arisen post-covid. The shortage of skilled workers combined with ESG targets for occupiers has meant that there is a noticeably polarised market, with the best grade A stock being sought after at rental levels of £42.50 per sq ft. However, grade B and below, or any stock with an EPC band below C is proving more of a challenge. A number of major developments in the city centre are approaching completion over the next six months. Schemes yet to start, such as St Mary Le Port are being slow to come out of the blocks. This may be a reflection of a hesitant market. The out-of-town market has similarly seen subdued demand in terms of take-up statistics. This masks a more positive story, however, with lots of activity from within the aerospace and defence sector that should give rise to an improved take-up data in the second half of the year. The top of the market in rental terms is 1000 Aztec West which is due to complete in late summer and will deliver 80,000 sq ft of prime new stock at a headline rent of £28.50 per sq ft. “Zero Carbon” in construction and operation is becoming a strong draw for occupiers keen to adhere to sustainability standards. This is likely to give rise to rather more refurbishments coming forward both in the city and out of town, where the structural frame can be retained.
The Chocolate Factory EQ Lysander House 10 Victoria Street Draycott House, Almondsbury Business Centre
IVC HSBC Practice Plus Group XPS Pension Consulting Brandon Trust
16,931 11,054 8.818 7,040 5,531
OOT CC OOT CC OOT
Imperial Park & Fife Central Retail Park Halo 90 Victoria Street
Capreon/ESAS Properties Tesco Pension Fund Swiss Life Asset Managers
Realty Income Corporation CBRE IM RO Real Estate
Retail Office Office
£9.00 psf
Prime industrial rent Q1
427,860 sq ft
Industrial take up Q1
It has been a tough first half of the year for industrial property in Bristol and across the wider South West region. Bristol’s industrial take-up in H1 2023 totalled 902,000 sq ft, a drop of 37% for the same period in 2022. This decline has been caused mainly by a lack of mid and big-box deals, with only one deal over 100,000 sq ft in H1 2023. However, there is a continual lack of supply of units below 50,000 sq ft, where the majority of demand sits currently. Prime rents stand at around £9.00 per sq ft for units of circa 10,000 sq ft and £8.50 for units of circa 20,000 sq ft and above.
Patchway 8 Cabot Park Whitby Road Trading Estate Weston Industrial Estate Stover Trading Estate
Bikar Aerospace Metals ByBox Albion Technology MCT Reman Evereo
44,778 25,156 23,467 19,522 13,391
New Lease New Lease New Lease New Lease New Lease
Data sources: Carter Jonas, IAS, CoStar, EG Radius, RCA
Offices
3.7%
6.2%
Industrial
1,200
800
400
200
20%
52%
49%
-26%
50,802 sq ft
£175 million £72.3 million £7.75 Million
Confidential 5.6% 7.8%
-10%
-19%
600
*The investment volumes include office, industrial and retail
34,370 sq ft
Data sources: Carter Jonas, RCA, Costar
The market for high-quality offices in Cambridge continues to perform well. CB1 and the city's science parks remain at the centre of activity with strong rental growth, whereas secondary offices continue to suffer from low demand and static rents.
The most significant new letting so far this calendar year was Samsung, which took 33,624 sq ft at One Cambridge Square, Cambridge North. The serviced accommodation sector continues to thrive as occupiers with a hybrid working structure are attracted to the flexibility this model offers. Indeed, the most notable letting over the past quarter was serviced accommodation provider Mantle taking 22,596 sq ft at 95 Regent Street as an assignment at a rent of £40 per sq ft on the ground floor and £32 per sq ft on the upper floors.
Take-up figures are therefore likely to remain muted and the lack of supply will put further pressure on rents in available buildings, as evidenced by the recent letting to Charm Therapeutics, who leased 13,500 sq ft at Babraham Research Campus at a new record of £71.50 per sq ft on a GIA basis.
Granta Park Babraham Research Campus Eastbrook House The Works, Unity Campus Cambourne Business Park
Sphere Fluidics Charm Therapeutics Rand Maxion Therapeutics Rakon
13,713 13,569 12,000 8,750 4,877
OOT OOT CC OOT OOT
Dales Manor Business Park Coral Park Trading Estate 5 Harding Way
Warehouse REIT BlackRock JCAM
Canmoor Asset Management Railpen Investments Confidential
£27.25 million £16.9 million £7.4 million
Lighting Park Royston Gateway Tower Close Broad Lane Industrial Estate
PA Consulting Services Ltd Confidential Castrol Classic Oils Enhance86 Limited
126,689 33,961 31,968 8,814
New Lease New Lease New Lease New Lease
Data sources: Carter Jonas, CoStar, Egi, CoStar
The quantum of demand for lab accommodation in Cambridge has been well-reported over the last few years. A shortage of stock continues to hamper occupiers’ ability to expand or enter the market. A number of lab schemes are starting to break ground and Building A2 at Unity Campus is close to completion, having been pre-let to Domainex.Just above 50% of the space underway is hybrid, while offices account for 35% of the total. However, the majority will not deliver until the end of 2024 and well into 2025.
Confidential Confidential 7.40%
4.5%
4.9%
5.25%
251,074 sq ft
£12.50 psf
Seller (S) & Buyer (B)
3.6%
7.6%
£55.00 psf
Northern fringe
£37.50 psf
133,167 sq ft
Labs
£70.00 psf
1200
1000
Northern Fringe
60%
40%
71%
80%
Activity in the industrial market is dictated by a lack of supply. Take-up in Q2 2023 totalled 251,074 sq ft, up 71% quarter on quarter and 80% 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.
Data sources: Carter Jonas, RCA, EG Radius, CoStar
The office market in Leeds has continued to perform strongly in 2023 with a total city centre take-up of 412,756 sq ft recorded at the half-year point, reflecting a 53% increase compared with the same 6-month period in 2022.
Prime rents have continued to rise with several deals concluded at £36 per sq ft. With the majority of occupiers focused on a flight to quality with occupiers looking to secure best in-class premises. This is typified by the letting to Lloyds Banking Group at MEPC’s Wellington Place at the beginning of the year.
Although there are several buildings under development or renovation such as City Square House and West One, we anticipate that the supply of Grade A space will remain constrained and that more stringent MEES (Minimum Energy Efficiency Standards) will put pressure on the suitability of secondary stock.
West Gate 3 White Rose Office Park 26 Whitehall Road The Gateway
HMCTS Leeds Community Health Care NHS Mott MacDonald BAM White Rose Education
26,328 18,836 15,591 11,076 9,486
CC OOT CC CC CC
Lockwood Court & Euroway Trading Estate 1 Whitehall Quay Birstall 140
AEW UK REIT Confidential XL Joinery
Investcorp Securities Consolidated Property Group Arrow Capital Partners/Cerebrus European Capital Advisors
Industrial Office Industrial
Leeds's industrial and logistics market has continued to perform well despite wider economic challenges. Whilst we have experienced a slight dampening of occupier demand, the supply of new logistics/distribution units remains extremely tight across the region which should put further pressure on vacancies.
With rising interest rates, softening of prime yields, and the costs of construction remaining high, little new speculative development is being undertaken. This will only exacerbate the supply/demand imbalance, once schemes under construction reach practical completion later this year. We are also seeing limited land sale transactions since the estimated 30%+ reduction in values, as developers seek to reassess the implications of the return, cost of finance and construction costs on their appraisals.
Wakefield 41 Cooperworks 2 Cooperworks 2 Wide Ln Meltham Mills
XPO Logistics WH Malcom Sigma Retail Solutions Wood Logistics and Lifting Motorworks
211,364 69,000 56,569 24,073 8,326
6.5%
8.8%
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.
£16.1 million £12 million £10.35 million
6.20% 8.4% 7.25%
2.1%
2.9%
£8.00 psf
489,286 sq ft
£37 psf
£24.75 psf
Granary Building
1400
1600
1800
146,042 sq ft
45%
17%
32%
49,825 sq ft
We anticipate that prime rents will plateau, and the steady rental growth experienced over the last 18-24 months will slow over the coming months.
-4%
-48%
Data sources: Carter Jonas, Experian, RCA, CoStar, EG Radius
£62.50 psf
Science parks
43,889 sq ft
The office market has remained subdued over the past quarter with a take-up of 43,889 sq ft, but thanks to a strong first quarter the H1 take-up totalled 226,962 sq ft, 27% above the 5-year H1 average. There is limited stock available, so those occupiers searching have few options, and there is continued upward pressure on rents. Nowhere is this more in focus than in the city centre, where Lothbury has agreed a letting of c.20,000 sq ft to the hydrogen and hydrogen infrastructure supplier Ryze Hydrogen at North Bailey House at a new record rental of £62.50 per sq ft. The lab market has limited stock immediately available and, whilst the funding market has dampened occupier appetite, there is no new purpose-built stock available until the 97,000 sq ft Iversen Building at The Oxford Science Park is delivered later this year. Mission Street’s 65,000 sq ft Inventa building on Botley Road will also provide new lab space when complete. More space is expected to complete in 2024 of which just under 5% is offices, while the rest of the space is split between hybrid and lab space. We expect some activity to return later this year.
North Bailey House Friars Entry Oxford Science Park Swailes Superlabs Park Central
Ryze Hydrogen New City College ETIM Milvus Advance Habitat Energy
24,143 7,746 7,000 6,000 4,408
CC CC OOT CC OOT
Activity in the industrial market is mixed, with limited available buildings and a complete dearth of freehold stock. Take-up has picked up in the first half of 2023 but remains below the 5-year average, while the lack of available stock has put upward pressure on rents, which are now sitting at £15.00 per sq ft. Strong interest is reported in four new build schemes, Catalyst at Bicester, Rycotte 40 in Thame, Gateway, and Tungsten Park in Witney. IM PLC are now under construction with Nova, a 43,000 sq ft MedTech/R&D building in Oxford with similar buildings proposed at Harwell. Carter Jonas is about to launch a small unit scheme in Eynsham just to the West of Oxford where strong demand is anticipated.
£15.00 psf
307,405 sq ft
Central M40 Axis J9 Tungsten Park Windrush Park Ferry Mills
Wiliams Advanced Engineering Origin Doors and Windows Rimac Oxford Products Saville Art
198,750 64,737 20,088 12,000 5,230
4.3%
9.4%
5.5%
Banbury 200 Hinshelwood Building Chalker Way, Banbury
Buccleuch Property / Wrenbridge British Airways Pension Scheme / Canmoor Asset Management DTZ Investors
IM Properties Confidential Schroders
Industrial Office Office
£21.5 million £10.25 million £9.1 million
Confidential Confidential 4.60%
5.9%
5.2%
Science Parks
-76%
-46%
-17%
-8%