UK regional offices research Regional February rore

Transcription

1 UK regional offices research Regional February 2006 rore

2 Contents 03 Executive summary 06 Overview 08 Birmingham 10 Bristol 12 Cardiff 14 Edinburgh 16 Glasgow 18 Leeds 20 Manchester 22 Newcastle 24 Nottingham 26 Services & Definitions 27 Regional office addresses DTZ Contacts

3 Executive summary Availability has risen by 7% but is showing signs of improving. Speculative supply will increase in 2006 in most city centres. Take-up for the period declined by 2% to 383,000 sq m (4.1 million sq ft). Prime headline rents increased, albeit marginally, in five of the nine regional centres surveyed. The value of reported investment activity during the six months to September 2005 totalled 1,006 million, an 8% increase in comparison with the 928 million recorded in the preceding six-month period.

4

5 Introduction The positive trend that has been reported in the last several rore reports has been partially reversed in the current period. Availability rose in the second quarter before falling back again in the third, but higher levels of marketed floorspace will still pose a challenge for some regional markets. The level of take-up marginally declined, which can be related to slowing growth of the economy experienced over the course of Speculative supply is adequate in most cities although out of town activity is relatively low at present and this is probably preventing an adverse movement in rental growth. Peter Leyburn Director - National Coordinator Offices DTZ Debenham Tie Leung

6 Regional offices research Overview This report provides an overview of developments in the UK s main regional office markets in the six-month period between April and September It covers Birmingham, Bristol, Cardiff, Edinburgh, Glasgow, Leeds, Manchester, Newcastle and Nottingham. Availability Availability in the UK s nine major regional markets has not continued to decline, as has been the case between mid-2004 and early Instead, it has increased sharply by 7% to 1.52 million sq m (16.4 million sq ft), generally the result of increasing second hand supply. Only four of the nine cities surveyed experienced a decline in office availability, with Nottingham experiencing the largest fall of 7% in its level of supply. The other five cities were subject to increases that ranged between 7% for Glasgow and 41% for Newcastle. In the latter case the increase was largely the result of a substantial rise in newly built out of town supply. Future supply During the six months to September 2005, the volume of speculative development activity in UK provincial cities has continued to grow. Delivery of speculative development into city centres will be higher in 2005 than in the previous year, and supply will be at a similar level in In overall terms new supply is also likely to increase in 2007, due in particular to increased development in Manchester, Leeds, Edinburgh and Cardiff. But in certain cities there will be gaps in the delivery in supply. Speculative completions will be low in in Bristol, in Glasgow and Newcastle there will be no significant deliveries in In Birmingham there is an increasing likelihood that there will be no speculative supply delivered in In most out of town markets there is a large amount of capacity but little in the way of major commitments of speculative development. Newcastle has recently had significant additions to supply, and in Glasgow, Leeds and Manchester there is some speculative space under construction, but elsewhere there is virtually no speculative development underway. In these markets out of town activity is predominantly restricted to the construction of purpose-built or prelet premises. Take-up Take-up in the six months to the end of September totalled 383,000 sq m (4.1 million sq ft), a decline of 2% compared to the 390,000 sq m (4.2 million sq ft) let between October 2004 and March Cardiff, Glasgow, Newcastle and Nottingham registered an increase in take-up, Newcastle increasing by nearly 250% compared to the previous period due to a major preletting. In the remaining markets the decline activity varied between 21% in Newcastle to a very substantial 43% in Edinburgh. In the latter case there were few sizable transactions and very low demand in the out of town market. Professional services gave way to the financial sector in the six months to end September as the largest single source of demand. However, take-up by business sector continues to be fairly evenly divided between the financial, governmental, corporate and professional sectors, accounting for nearly 60% of the total. The Other category contains serviced offices, a sector which has been steadily expanding in provincial cities in Rents Falling take-up and rising availability in most of the office markets surveyed have had not yet had a material impact on rental growth: prime rents in the city centre remained static in four cities (Birmingham, Cardiff, Glasgow and Leeds) and rose marginally (by 5 per sq m/ 0.50 per sq ft) in the other five (Bristol, Edinburgh, Manchester, Newcastle and Nottingham). Investment The level of investment transactions between April and September has grown by 8%, to a total of 1,006 million, compared to the total transacted in the previous six months. Individual city performance has been volatile, ranging from a 50% fall in Birmingham to a rise from 13 million to 222 million in Leeds. Nevertheless, this moderate overall rise probably underestimates demand, as it is generally concluded that it has been the lack of suitable stock that has restricted growth in the value transacted. Yields have moved sharply in as a result. Compared with the end 2004 they have moved in by an average of 9%, the range across the individual markets changing from between 6-6.5% at the end of 2004 to between 5-6% at the end of September. millions sq m Regional offices availability New Good s/hand Poor s/hand millions sq ft Regional offices take-up millions sq m millions sq ft Regional sources of demand Q Q Q Q % 15% 15% 10% 2% 25% 4% 9% 1% 4% 1% 3% 16% 6% 5% 21% 13% 12% 15% 11% Finance Media Legal Government Corporate Professional Associations Transport IT Other 06

7 Investment activity millions City Investment purchases Investment purchases Q Q Q Q Birmingham Bristol Cardiff Edinburgh Glasgow Leeds Manchester Newcastle Nottingham 4 35 Total 928 1,006 Availability City Availability end Q Availability end Q Sq m (Sq ft) Sq m (Sq ft) % change Birmingham 160,000 (1.72 million) 152,000 (1.62 million) -5 Bristol 95,000 (1.02 million) 109,000 (1.17 million) 15 Cardiff 93,000 (1.00 million) 90,000 (0.97 million) -3 Edinburgh 188,000 (2.02 million) 186,000 (2.00 million) -1 Glasgow 240,000 (2.58 million) 257,000 (2.77 million) 7 Leeds 64,000 (0.69 million) 77,000 (0.83 million) 20 Manchester 330,000 (3.55 million) 357,000 (3.84 million) 8 Newcastle 107,000 (1.15 million) 152,000 (1.62 million) 41 Nottingham 75,000 (0.81 million) 69,000 (0.75 million) -7 Total 1,352,000 (14.54 million) 1,449,000 (15.58 million) 7 Take-up City Take-up Q Q Take-up Q Q Sq m (Sq ft) Sq m (Sq ft) % change Birmingham 34,000 (0.37 million) 41,000 (0.49 million) -26 Bristol 60,500 (0.65 million) 41,000 (0.45 million) -31 Cardiff 19,500 (0.21 million) 21,000 (0.23 million) 10 Edinburgh 25,500 (0.27 million) 32,000 (0.34 million) -43 Glasgow 58,000 (0.63 million) 65,000 (0.70 million) 11 Leeds 59,000 (0.63 million) 41,000 (0.44 million) -30 Manchester 108,000 (1.16 million) 71,000 (0.76 million) -34 Newcastle 17,000 (0.19 million) 60,000 (0.65 million) 242 Nottingham 8,000 (0.09 million) 11,000 (0.12 million) 33 Total 389,500 (4.20 million) 383,000 (4.12 million) -2 07

8 Birmingham Overview Availability has fallen by over 6% over the period. There will be a steady flow of new development into the city centre stock throughout 2006, with the completion of Baskerville House and Temple Point. Take-up of newly built space increased significantly in the city centre. Prime rents remained unchanged with headline rents at 296 per sq m ( per sq ft). The level of investment activity has fallen significantly. Availability Availability has fallen by 6%, to a total of 152,000 sq m (1.6 million sq ft), over the six months to end September. In the city centre availability stands at 95,000 sq m (1.02 million sq ft), and outside marketed space totals 56,000 sq m (0.61million sq ft). Newly built availability has fallen, totalling 44,100 sq m (438,000 sq ft) at end September, reflecting an increase in the amount of take-up of newly built space during the period, notably in the city centre. Future supply There is a steady flow of new development in the city centre. Currently under construction, for completion in 2006, is Targetfollow s Baskerville House at Centenary Square (18,300 sq m (197,000 sq ft)). This will be followed by Abstract Land s development at the Post and Mail site (28,000 sq m (300,000 sq ft)) due during This is expected to leave a gap in speculative supply in 2007, by which time the average volume of newly built take-up of over 18,600 sq m (200,000 sq ft) per annum will have reduced the existing supply of available space significantly. A number of major schemes located on the periphery of the current prime office area are planned. These include the first and second phases of Masshouse Circus development in the Eastside regeneration area, the proposed Irish Quarter redevelopment in Digbeth, and the City Tower development at Arena Central next to Brindleyplace. Together these total around 190,000 sq m (2 million sq ft) of potential development capacity. Phase II of the Mailbox development is also due for completion, in 2008, and will provide approximately 13,935 sq m (150,000 sq ft). Urban Splash are underway with their mixed-use Fort Dunlop development, located three miles outside the city centre at Erdington, scheduled to deliver 28,000 sq m (300,000 sq ft) of office floorspace by Summer Along the M42 corridor, there are two buildings under construction at British Land s Blythe Valley Park totalling 5,000 sq m (54,500 sq ft), due to complete imminently. Birmingham Business Park has further outline planning permission for up to 98,000 sq m (1.05 million sq ft), and there is additional capacity at a number of other business parks within the Solihull area. Take-up Take-up during the first nine months of 2005 has been slightly below the total for the same period in 2004, 55,900 sq m (602,000 sq ft) versus 63,000 sq m (618,000 sq ft). This trend is expected to have continued at a similar level in the fourth quarter. City centre take-up totalled 29,000 sq m (313,000 sq ft) between January and September, compared to 37,000 sq m (398,000 sq ft) for the same period in Birmingham offices availability Birmingham offices prime rents millions sq m 0.20 millions sq ft 2.15 sq m sq ft Q3 New Good s/hand Poor s/hand 08

9 DTZ Contacts No. 1 Colmore Square Birmingham B4 6AJ Tel: Fax: geoff.thomas@dtz.com or david.tonks@dtz.com Contact Geoff Thomas Tel: or David Tonks Tel: Apex House, Birmingham On behalf of Wrenbridge and Palmer Capital Partners, DTZ has been appointed joint agent to market the 5,420 sq m (58,340 sq ft) Grade A headquarters building, situated within easy walking distance of Five Ways, Broad Street and the leisure and restaurant facilities of Edgbaston and the city centre. Conversely, transactions involving newly built floorspace, totalling 18,900 sq m (204,000 sq ft), were considerably higher than in the same period in the previous year (4,090 sq m/44,000 sq ft). A substantial share of these transactions took place at 134 Edmund Street and at Interchange Place, Edmund Street, both of which have been leased largely to financial and legal companies. By contrast, in the rest of Greater Birmingham, take-up has significantly increased compared to the first three quarters of 2004, at 26,850 sq m (289,000 sq ft), compared to 2,050 sq m (220,000 sq ft). This was accompanied by a doubling of the rate of take-up of newly available space, to 12,500 sq m (135,000 sq ft), compared with the first nine months of Whilst the previous six month period was dominated by governmental, professional and IT demand, in the six months to September, the financial and legal sectors have become more important, although non-legal professional firms have remained an important source of demand. Rents Prime rents in the city centre have remained at the same level since 2002, 296 per sq m ( per sq ft). This is the level achieved at 134 Edmund Street, and prime rents are expected to remain static for the remainder of the year. However, a shortage of available newly built stock in the city centre within the next twelve months is expected to increase the level of rent achieved. Out of town prime rents have also remained static, at 210 per sq m ( per sq ft). Investment There was a steep decline in the volume of investment transactions in Birmingham in the six months to end September compared to the previous six-month period, falling from 300 million to 70 million; initial indications suggest that this was a temporary weakness and that the volume of transactions has subsequently increased. Absence of appropriate product on the market explains this fall, and the sale of 134 Edmund Street for 37.5 million to Oppenheim Immobilien KAG, reflecting an initial yield of 5.5%, indicates the appetite for well-let prime properties in the city. This yield for a prime office shows the extent of yield compression over the recent period, having fallen significantly from the 5.75% prevailing at the end of the first quarter. This is exceeded only by Manchester (now at 5%) amongst major provincial cities. Out of town 1 Trinity Park, outside Birmingham International Airport, was sold to a private Irish investor for 13.6 million at a yield of 6.4%, which reflects the seven years unexpired term certain. Birmingham sources of demand 1% Q Q Q Q % 35% Finance Professional 2% 8% Media 6% 26% Legal Associations 27% 2% 1% 7% 5% 6% 25% 25% 2% Government Corporate Transport IT Other Major transactions Address Sq m (sq ft) Tenant Sector 134 Edmund Street 3,250 (35,000) Anthony Collins Legal Blythe Valley Business Park 2,800 (30,000) Ove Arup Professional 134 Edmund Street 1,445 (15,550) Clarke Wilmott Legal 134 Edmund Street 745 (8,000) HBOS Financial Financial 09

10 Bristol Overview Availability in the Bristol area rose slightly in the second quarter but has remained at a similar level in the third. The development pipeline will remain extremely limited until 2007, and possibly beyond. Take-up has fallen in the current period by one third. Prime rents remained unchanged from early in the year. Investment activity has remained at a high level. Availability Availability in the Bristol area has remained stable in the second and third quarters, at around 105,000 sq m (1.17 million sq ft), having risen slightly since the first quarter. Nevertheless, it is still significantly lower than in 2003, when for most of the year availability averaged 130,000 sq m (1.45 million sq ft). In the city centre availability is 72,500 sq m (780,000 sq ft), a 10% increase on the 66,000 sq m (710,000 sq ft) at end March. The supply of newly built floorspace in the city centre, previously very low, will be refreshed by the marketing of Tower Wharf, Cheese Lane. This soon to be completed development by HBG Properties of 6,640 sq m (71,450 sq ft) will bring the total of newly built space to 9,800 sq m (105,500 sq ft). Outside the city availability of 36,800 sq m (396,000 sq ft) at end September is up somewhat from the 29,000 sq m (312,000 sq ft) available six months previously. There is more newly built availability here than in the city centre, the total for end September being 10,220 sq m (110,000 sq ft). The largest unit available outside the city centre is Building 240, Bristol Business Park (1,625 sq m (17,500 sq ft)). Future supply With the imminent completion of Tower Wharf, there will be no significant speculative delivery into the city centre until The three schemes under construction (Building 12 Harbourside, Temple Circus and Three Temple Quay), with a total of 34,000 sq m (366,000 sq ft) for 2007 are prelet, with the exception of 1,860 sq m (20,000 sq ft) in Rokeagle s Three Temple Quay. In 2007 Westmark s 15 Queen Square is scheduled to be delivered: however, this development is small (1,395 sq m/15,000 sq ft). The prospect of substantial newly built supply will depend on whether Hartwell Group s redevelopment of its Garage site (5,480 sq m (59,000 sq ft)) on Victoria Street goes ahead in the near future. Out of town development activity is minimal. There is the fifth phase in the development of small business units by Rokeagle at Eden Office Park, providing 10 units totalling 1,485 sq m (16,000 sq ft) in early February Nothing else is committed. Further development, if and when it happens, is likely to take place on the major business parks in the area (Aztec West, Bristol Business Park and Bristol Parkway), most notably the Plots 900/950/960 at Aztec West where F & C have permission for a further 19,000 sq m (205,000 sq ft). Take-up Take-up in the second quarter fell significantly, almost the lowest quarterly total since the start of 1997, although the volume doubled in the following quarter. Nevertheless, the six month Bristol offices availability Bristol offices prime rents 0.25 millions sq m millions sq ft 2.67 sq m sq ft Q3 New Good s/hand Poor s/hand Total 10

11 DTZ Contacts Queen Square House Queen Square Bristol BS1 4NH Tel: Fax: or Contact Martin Booth Tel: Philip Morton Tel: Nos. 1&2, College Square, Harbourside, Bristol Crest Nicholson has recently submitted an application for detailed planning consent for the development of two buildings that will provide a total of circa 13,750 sq m (148,000 sq ft) fronting Anchor Road. total, at 40,500 sq m (445,000 sq ft), was considerably lower than the 60,500 sq m (650,000 sq ft) registered in the previous period. More broadly, take-up for the first three quarters of 2005, at 63,000 sq m (680,000 sq ft), is only just over half the total in 2004 (109,000 sq m (1.2 million sq ft)). This is, to some extent, the result of an absence of large prelets, a feature of the market in 2003 and There is some indication that out of town take-up is falling: having averaged 30% of total take-up in 2004, in the last six months it has fallen to just over 20%, totalling 9,000 sq m (97,000 sq ft). Transaction sizes were relatively small, the largest being 575 sq m (6,200 sq ft) at Horton Hall, Horton. This was acquired during construction by Stonemartin (which has a limited partnership with Hermes and Norwich Union) as a serviced office centre. The importance of the Stonemartin serviced office transaction appears in the source of demand by business sector as an enlarged Other share of take-up. The corporate and other professional sectors have become more important in this period compared to the last, while the financial and legal sector demand has decreased. Rents After the record 258 per sq m ( 24 per sq ft) set by the letting to Bond Pearce at 3 Temple Quay in February, prime rents have remained stable. between March and September. The prime investment yield moved in from 5.75% to 5.5% in the third quarter, having been at 6% at the end of The largest transaction was the sale by Sydney & London Properties of 100 Tower Street (12,080 sq m/130,000 sq ft), which included a 5,800 sq m (62,500 sq ft) development site, Portwall Tower, to Norwich Property Trust for 79 million. The sale of 32 Queen Square for 6 million to Scottish Widows at 5.5% set the prime yield threshold. The largest transaction in the city centre was the acquisition of Terrace Hill s Temple Circus, Temple Way (8,465 sq m/91,100 sq ft), for 26 million. Investment Investment volume remained at a high level in Bristol, with 146 million being transacted Bristol sources of demand Q Q Q Q % 16% 11% 5% 27% 5% 4% 4% 3% 9% 12% 14% 7% 6% 12% 9% 18% 14% 12% Finance Media Legal Government Corporate Professional Associations Transport IT Other Major transactions Address Sq m (sq ft) Tenant Sector Temple Circus, Temple Way 8,465 (91,100) Stonemartin Other (serviced offices) Freshford House, Redcliffe 2,737 (29,466) OFSTED Government The Core, 40 St Thomas Street 2,701 (29,072) UNITE Association 33 Colston 1,468 (15,800) WSP Group Media 11

12 Cardiff Overview Total availability fell by 7%, but while availability shrank significantly in the city centre, it rose in Cardiff Bay and the out of town market. The development pipeline in the city centre remains weak. Take-up has declined, with the impact falling on the out of town market. Prime rents remained unchanged. Investment activity fell significantly due to shortage of available prime stock. Availability Availability in Cardiff continued to diminish in the second quarter, but rose again slightly in the third, to a total of 90,000 sq m (973,000 sq ft). Overall availability in Cardiff Bay and the out of town market rose by 7.5% to 58,000 sq m (630,000 sq ft) between March and September, but fell in the city centre by 19% to 32,000 sq m (343,000 sq ft). The supply of newly built and refurbished floorspace rose from 21,000 sq m (225,000 sq ft) to 22,800 sq m (246,000 sq ft), mostly in Cardiff Bay or out of town. Newly built and refurbished floorspace available in the city centre remained at a very low level, at only 16,000 sq m (17,245 sq ft). Availability in the city centre is likely to continue to decrease during 2005, given the lack of new stock coming to the market. Future supply There has been a shortage of development sites in the city centre in recent years, and most development has take place in adjoining Cardiff Bay and in out of town locations, most notably Cardiff Business Park and Wentloog. There is large development capacity in these locations, although Cardiff Bay is coming under pressure from the attractiveness of residential development, demand for which is proving to be stronger than office demand at present. Thus, the prospects for office development at the Anchorage (Rightacres), Caspian Point (Grosvenor Waterside) and the Sports Village (Phillips/ HBG) are unclear at present. There is 9,600 sq m (103,000 sq ft) under construction in Cardiff at present, 6,000 sq m (65,000 sq ft) of which is speculative (comprising Phase 2, Fusion Point, which has commenced construction and is expected to be completed by March 2006). Prospects for further significant development in the city centre depend on the timing of the redevelopment of Station Plaza, Central Square (23,200 sq m/250,000 sq ft), which is being master planned by the city council, and MEPC/Rightacres proposed Callahan Square scheme (33,450 sq m /360,000 sq ft). Take-up Take-up has increased by 10% in the last six months, reaching 21,300 sq m (229,000 sq ft), compared to 19,700 sq m (210,000 sq ft) in March. However, take-up for the first nine months of 2005 only totals 26,000 sq m (280,000 sq ft), compared to 34,000 sq m (366,000 sq ft) for the same period in It is unlikely that total take-up for 2005 will exceed 37,000 sq m (400,000 sq ft) as there are few sizable transactions in the pipeline. Cardiff offices availability Cardiff offices prime rents millions sq m 0.15 millions sq ft 1.61 sq m sq ft Q3 New Good s/hand Poor s/hand 12

13 DTZ Contacts Marchmount House Dumfries Place Cardiff CF10 3RJ Tel: Fax: or Contact Rhys James Tel: or Gary Carver Tel: Greenmeadow Springs Business Park, J32 of the M4, Cardiff DTZ, acting as joint agents on Greenmeadow Springs, have agreed further lettings in the first phase of 6,503 sq m (70,000 sq ft), with Barratts the latest high profile occupier to take space (808 sq m/8,700 sq ft). Developers Macob have now submitted a planning application for a further 6,503 sq m (70,000 sq ft). In total the scheme is planned to accommodate 23,225 sq m (250,000 sq ft). Take-up in the markets outside the city centre has been disappointing: the total for the year to September had been a mere 13,000 sq m (139,000 sq ft), compared to 26,600 sq m (285,000 sq ft) in the first three quarters of This may, in part, be attributable to a drop in the number of freehold purchases in the business parks during the last six months. In the city centre, despite the shortage of newly built space, take-up activity has performed well, totalling 13,300 sq m (142,000 sq ft) for the nine months to end September, compared to 7,730 sq m (83,000 sq ft) in the same period in Not surprisingly, considering that it comprised most of the larger transactions, the finance sector took a 40% share in take-up in the six months to end September. Non-legal professional firms and associations were the other major sources of satisfied demand. Rents Prime rents have not moved during 2005 due to the lack of new development in the city centre, but remained stable at 199 per sq m ( per sq ft). In the same manner, it is not expected that rents will increase by the end of 2005 as there will be no new high quality stock available. Investment Investment deals in Cardiff totalled 16.5 million in the second and third quarters, an acute fall compared to the 110 million transacted in the previous period. This is attributable to a shortage of good quality stock available in the city centre. At the same time the increase in the demand for sound investments has continued to place downward pressure on the prime yield, which has moved from 6.5% at the end of 2004 to 5.75% at end September. An out of town transaction at Cardiff Gate business park indicates this trend: a private Irish buyer paid 9.51 million for Peterson House, occupied by the International Baccalaureate Organisation on a term certain to 2017, reflecting an initial yield of 5.8%. Cardiff sources of demand Q Q Q Q % 23% 7% 21% 21% 1% 5% 14% 4% 3% 16% 28% 4% 6% 3% 1% 3% 39% Major transactions Address Sq m (sq ft) Tenant Sector Trafalgar House, Fitzalan Place 2,428 (26,134) NEMO Finance Abacus House, St Mellons Business Park 2,090 (22,500) Hazell Carr Finance St Mary s House, Penarth Road 1,672 (18,000) Arriva Association Friary House, Greyfriars Road 1,300 (14,000) Admiral Finance (Insurance) Archway House, Ty Glas, Llanishen 653 (7,030) College of Psychology Other Finance Media Legal Professional Associations Government Transport Corporate IT Other 13

14 Edinburgh Overview Total availability remained stable, as did the availability of newly built space. There will be no significant completions of speculative development in the city centre until early Take-up in 2005 is considerably weaker than in 2004, and consists primarily of smaller sub-930 sq m (10,000 sq ft) units. Prime rents remained unchanged. Investment activity continued at a healthy level. Availability Despite rising in the second quarter, the overall level of availability in Edinburgh remains more or less at its end March level: 186,000 sq m (2 million sq ft). The level of availability has been volatile since late 2004, generally as a result of the varying amount of poor quality space on the market. However, the level of newly built space has been quite stable over this time period, totalling 77,700 sq m (836,000 sq ft) at the end of September. At end September, the division in availability between the city centre and the out of town market remained stable, with 104,000 sq m (1.12 million sq ft) available in former, and 82,150 sq m (884,000 sq ft) in the latter. But whereas newly built availability in the centre had fallen by 15% to 49,250 sq m (531,000 sq ft) at end September, it had risen by almost 50% to 28,400 sq m (306,000 sq ft) in the out of town market. Supply levels in the city centre have not been increased by new development since the completion of Waverley Gate (18,600 sq m (210,000 sq ft)) in January this year. In addition, there has been no sign of major occupiers vacating existing occupied stock and increasing second hand availability. Future supply After the completion of Redevco s 40 Princes Street (4,410 sq m (47,500 sq ft)), there will be no Grade A speculative offices under construction in the city centre. Another office development is Miller Development s Phase 2 Edinburgh Quay (5,567 sq m/59,923 sq ft), which is to be delivered early in This will be followed later in the year by Phase 1 of the Gladedale Group s Quartermile development at the Royal Infirmary (9,670 sq m/104,000 sq ft), and Lochrin Square (8,360 sq m/90,000 sq ft), where construction is anticipated to commence by early The out of town planning pipeline is substantial with over 1.6 million sq m (17 million sq ft), and there are several locations where significant capacity remains for development, most notably Edinburgh Park. However, relatively high availability among existing schemes makes the prospect of development outside the city centre unlikely for the foreseeable future. Take-up Excluding RBS s impending occupation of its new 32,500 sq m (350,000 sq ft) headquarters at Gogarburn, take-up has remained fairly steady over the last three quarters albeit it is down compared to 2004: 47,500 sq m (511,000 sq ft), compared to 66,000 sq m (701,000 sq ft) in the first nine months of Take-up in the city centre fell by 11% over this period, while the level of transactions in the out of town market fell by 50%, with only one letting of 5,580 sq m (6,400 sq ft) in the third quarter. The amount of newly Edinburgh offices availability Edinburgh offices prime rents 0.25 millions sq m millions sq ft 2.69 sq m sq ft Q3 New Good s/hand Poor s/hand 14

15 DTZ Contacts One Edinburgh Quay 133 Fountainbridge Edinburgh EH3 9QG Tel: Fax: or Contact James Thomson Tel: or Mark Jones Tel: Lochside Avenue, Edinburgh Park On behalf of Aegon UK plc, DTZ have been instructed as sole letting agents to dispose of their interest totalling nearly 7,897 sq m (85,000 sq ft) of Grade A office space. built space transacted has also fallen significantly in both locations. The majority of the market activity has been for floorspace sizes under 465 sq m (5,000 sq ft). There have been few transactions of significant size: the largest over the period were S&N s acquisition of 28 St Andrew Square (4,515 sq m /48,620 sq ft) and Gillespie MacAndrew s purchase of 1-4 Atholl Crescent (1,770 sq m/19,080 sq ft). Take-up for 2005 is unlikely to exceed 65,000 sq m (700,000 sq ft), which is well below the total for 2004 (75,000 sq m/810,000 sq ft) and below the average for the last 10 years. This stems fundamentally from the lack of large transactions, with only nine in excess of 930 sq m (10,000 sq ft) so far this year. Corporate and IT demand has grown in the last six months compared to the previous period, while government has become less important. Media and legal firms have continued to be important as components of demand. Rents Prime rents have remained at 285 per sq m ( per sq ft) for the past three quarters, since the initial letting at Edinburgh Quay in January. Several transactions in the same development in the summer (to the FSA, Saffery Champness and Arc Securities) secured the same rent, thus establishing the development as part of Edinburgh s prime office area. City centre prime rents have not shifted significantly for several years now, and they are unlikely to move in the remainder of the year. Out of town rents, with an absence of transactions in prime buildings, are estimated to be 215 per sq m ( 20 per sq ft). Investment Investment transactions in the six months to the end of September totalled 158 million, similar to the 157 million transacted in the previous period. The most significant purchase in the city centre was the acquisition of the first phase of Miller Development s Edinburgh Quay, Fountainbridge. This mixed-use development was acquired by DB Real Estate for approximately 46 million, reflecting an initial yield of 5.75%. Yields have moved in from 6% at the end of 2004, and at the end of the third quarter were in the order of 5.5%, with indications that they will continue to harden. Outside the city centre the prime yield level may be indicated by Redevco s acquisition of 4-5 Lochside at Edinburgh Business Park. Redevco acquired the building, let to Oracle, from Merrill Lynch Investment Managers for 16.1 million at an initial yield of 6.2%, indicating continued investor confidence in the out of town market. Edinburgh sources of demand Q Q Q Q % 12% 15% 2% 1% 5% 11% 10% 12% 19% 23% 20% 21% 18% 4% 7% 6% Major transactions Address Sq m (sq ft) Tenant Sector 28 St Andrews Square 4,515 (48,620) Scottish & Newcastle Corporate 1-4 & 5 Atholl Crescent 1,770 (19,080) Gillespie McAndrew Legal Edinburgh Quay, Fountainbridge 1,050 (11,300) DTZ Professional Edinburgh Quay, Fountainbridge 790 (8,500) Saffery Champness Professional Quayside House, Edinburgh Quay 670 (7,200) Financial Services Authority Government Finance Media Legal Professional Associations Government Transport Corporate IT Other 15

16 Glasgow Overview Total availability rose by 7%, mainly as a result of an increase in developed floorspace in the out of town market. The development pipeline in the city centre will remain extremely limited until mid Take-up has continued to increase, the third quarter being the highest level reported. Investment activity has increased by 40% and the prime yield has moved in by 0.75% since end Availability Availability rose in the second quarter, and remained at this level at the end of the third, 7% above the total at the end of the first quarter. Overall availability increased only slightly in the city centre but rose by 16% in the out of town market during the period. Agency expectation is that it will fall in the city centre in Q4 but stabilise at the current level in the out of town market. The proportion of newly built space fell slightly in the city centre, from 28% to 26% (37,400 sq m (400,000 sq ft)), despite the Aurora scheme (16,250 sq m/175,000 sq ft), which is due to complete by the end of the year. New space availability remained more or less unchanged in the out of town market, at around 50% of availability (59,000 sq m (638,000 sq ft)). Future supply After the deliveries of the Aurora scheme at Bothwell Street this November, and Arlington s comprehensive refurbishment of 38 Cadogan Street (3,620 sq m (39,000 sq ft)) at the year s end, there will only be one major new development scheduled for completion before mid 2007: Scarborough Development s 110 St Vincent Street (7,710 sq m/83,000 sq ft). Apart from this, Glasgow s development pipeline remains limited, with very few schemes currently scheduled for delivery after the completion of 110 St Vincent Street. However, the developers of 210 Broomielaw (18,600 sq m/200,000 sq ft) are currently out in the market seeking forward funding, No 1 George Square is rumoured to be under offer to a developer, and Wilson Bowden are exploring the possibility that now 6 Atlantic Quay is let, the next phase of the scheme (4 Atlantic Quay, 12,260 sq m/132,000 sq ft) may be started. In addition, Elphinstone is reported to have short listed contractors for St Vincent Street, its 100 million mixed-use tower planned to provide 18,600 sq m (200,000 sq ft) of office Glasgow offices availability Glasgow offices prime rents millions sq m 0.4 millions sq ft 4.30 sq m sq ft Q3 New Good s/hand Poor s/hand 16

17 DTZ Contacts 199 St Vincent Street Glasgow G2 5QD Tel: Fax: or Contact Bill Colville Tel: or Audrey Dobson Tel: Optima Building secures major Government occupier Crown Dilmun s Optima has secured a letting of 7,665 sq m (82,500 sq ft) to Learning & Teaching Scotland and the Scottish Qualifications Authority. The deal is one of the largest lettings in the city centre in recent years. floorspace as well as apartments, retail and leisure space. Take-up Overall take-up has been increasing steadily since 2003 and the third quarter of 2005 has seen the highest recorded level of transactions since 1997, at 44,150 sq m (489,000 sq ft). This was fully reflected in the city centre where 24,300 sq m (262,000 sq ft) was let. However, over the last six months, overall take-up has remained very similar to the previous six months at 54,340 sq m (696,000 sq ft). While take-up was not especially strong in the out of town market, nearly three-quarters of the space transacted was newly built. The largest transaction in the city centre was 7,660 sq m (82,460 sq ft) at Crown Dilmun s Optima scheme in Robertson Street, let to two education authorities, SQA and LTS, and 7,210 sq m (77,630 sq ft) at 6 Atlantic Quay, let to Direct Line. Both of these are a major step forward in establishing Broomielaw as an extension of the city office market core. Out of town, O2 took 10,220 sq m (110,000 sq ft) at Skypark, the greater part of which was prelet. Given the volume of floorspace currently under offer, agents are expecting the healthy level of take-up to continue into the fourth quarter of the year. Compared to the previous six months, demand by business sector was more concentrated: the financial sector, followed by government (largely local in the latter case) and IT took two thirds of the space let, followed by non-legal professional companies with 17% of the space. Rents Prime rents in the city centre have remained stable since the end of the first quarter, at 248 per sq m ( 23 per sq ft). Tenant incentives have stabilised and are expected to fall in the immediate future. Prime out of town business park rents remain at 188 per sq m ( per sq ft). Investment Investment activity in Glasgow has increased, rising from 48 million in the six months to March 2005 to 81 million over the six months to September. The biggest purchases were at West Campbell Street, where an unknown domestic investor acquired 5,355 sq m (57,600 sq ft) from HansaInvest for 18.4 million, and two buildings at Pacific Quay sold for a total of 27.5 million. In addition, there are two major buildings under offer, 6 Atlantic Quay and the Optima Building. The current prime yield is now at 5.5%, having moved in sharply from 6.25% since the beginning of the year. Glasgow sources of demand Q Q Q Q % 13 % 6% 3% 20% 2% 21% 9% 1% 4% 12% 17% 17% 17% 5% 24% 1% 21% Major transactions Address Sq m (sq ft) Tenant Sector Optima, Robertson Street 7,660 (82,460) SQA/LTS Government 6 Atlantic Quay 7,210 (77,630) Direct Line Finance (Insurance) Skypark SP6, Elliot Street 10,220 (110,000) O2 Information Technology Anchor Mills, Paisley 2,510 (27,000) Marcus Deans Serviced Offices Cirrus, Glasgow Airport Business Park 2,415 (26,000) Common Services Agency Government Finance Media Legal Professional Associations Government Transport Corporate IT Other 17

18 Leeds Overview Availability has risen by 20%, mostly in the out of town market. There will be a good supply of speculative floorspace in the city in Take-up fell by 21% in the six months to end September Prime rents have remained static. Investment activity has been high and yields have moved in. Availability Availability in Leeds, after falling to its lowest point since 2001 in the first quarter of 2005, has gradually risen in the second and third quarters, though it is still relatively low compared to the long-term trend, at 77,000 sq m (830,000 sq ft). Availability in the city centre has risen only marginally, to total 47,000 sq m (510,000 sq ft). In the out of town market, however, total availability of accommodation has increased by more than 50%, to reach 30,000 sq m (320,000 sq ft) at the end of September. Availability of city centre newly built supply rose during the early part of 2005 due to the completion of Lateral, a speculative 9,100 sq m (98,000 sq ft) development to the south of the city centre at Sweet Street. However, Lateral is now under offer to government agencies, which has restricted supply of newly built stock in the city centre to only 8,000 sq m (86,000 sq ft). Supply of newly built space in the out of town markets has declined over the nine months to end September, due to a number of prominent pre-lets at Thorpe Park, White Rose and Leeds Valley Park. Future supply Due for completion in the fourth quarter are Building 2 of the first phase of Hermes/ St James Securities Wellington Place scheme (11,000 sq m/119,000 sq ft) and Phase 2 City Walk, Sweet Street, a Simon Estate s development, of 5,950 sq m (64,000 sq ft). In 2006, four schemes totalling nearly 46,500 sq m (500,000 sq ft) are due for completion, of which just over half is still available. The development pipeline in the city centre is large, and dominated by mixed-use schemes that reflect the increasing demand for city centre residential supply. The two main development locations are on the west side of the traditional core, where the expansion of the Wellington Place development alone could provide up to 140,000 sq m (1.5 million sq ft) of office space. At the end of September there was 0.14 million sq m (1.5 million sq ft) under construction in Leeds, but only 19,200 sq m (207,000 sq ft) was being constructed outside the city centre market. Most of the latter is accounted for by two speculative buildings in the second phase of Akeler s Leeds Valley Park at Rothwell, due for delivery in the Spring. Take-up Take-up in both city centre and out of town during 2005 to the end of September was initially buoyant, with some significant pre-lets being secured. However, following the Spring, demand weakened, reflected in the 21% fall in the six months to September when compared to the previous period, from 59,000 sq m Leeds offices availability Leeds offices prime rents millions sq m 0.14 millions sq ft 1.51 millions sq m 300 millions sq ft Q3 New Good s/hand Poor s/hand 18

19 DTZ Contacts 2 The Embankment Sovereign Street Leeds LS1 4BP Tel: Fax: adam.cockroft@dtz.com or duncan.senior@dtz.com Contact Adam Cockroft Tel: or Duncan Senior Tel: , 3150 & 3175 Thorpe Park, Leeds Thorpe Park (Leeds) Ltd has now commenced the next phase of a speculative build programme which will provide three buildings of 2,109 sq m (22,710 sq ft), 2,487 sq m (26,780 sq ft) and 2,786 sq m (30,000 sq. ft), marking the completion of the scheme s Southern Sector. Completion is anticipated by June (634,000 sq ft) compared to 41,000 sq m (442,000 sq ft). Take-up has fallen more acutely in the city centre since Spring from 30,000 sq m (320,000 sq ft) to 19,500 sq m (210,000 sq ft). However, with several substantial transactions expected to conclude before the end of the year, city centre take-up in 2005 is expected to perform above the five year average. In the out of town market, take-up was below the 2004 level; 25,300 sq m (272,000 sq ft) in the first nine months of 2005 against 29,300 sq m (315,000 sq ft) the previous year, although enquiries in the out of town market remain strong. Take-up in Leeds was dominated by the corporate and financial sectors in the six months to end September. Within the Other sector three-quarters of total take-up was accounted for by MWB s acquisition of two buildings for serviced office operations and Republic, a call centre operator, taking 2,090 sq m (22,500 sq ft) at Thorpe Park. Rents Over the nine months to September prime rents have continued to remain static at 248 per sq m ( 23 per sq ft), which has in fact been the headline rent for some 2 1 /2 years. However, during this period quoting rents have increased to 269 per sq m ( 25 per sq ft), a level that has reportedly been achieved on recent pre-lets, albeit ones with legal completion anticipated in Summer This apart, headline rents for newly built accommodation in the city centre are expected to remain static to the end of Investment During 2005 investment yields have moved in dramatically within the city centre. On a number of occasions investment sales have been concluded at a sub-6% level, compared to 6.5% at the end of This is primarily due to the strength of the general increase in demand for stock from the investor market coupled with a lack of suitable stock, and not demonstrably underpinned by rental growth. Following on, yields are expected to remain relatively static at the end of 2005, with prime city centre accommodation commanding between 5.5% and 5.75%, assuming that they are rack-rented. This strength in demand has been reflected in the total of 222 million transacted in the six months to the end of September. The largest transaction was the sale of a large (23,250 sq m (250,000 sq ft)) mixed retail and office building with planning permission for additional space at West Riding House, Albion Street for 70 million, acquired by private Irish investors for an overall yield of 5.3%. Leeds sources of demand Q Q Q Q % 2% 17% 22% 15% 23% 6% 2% 1% 4% 1% 8% 9% 17% 8% 40% 24% Major transactions Address Sq m (sq ft) Tenant Sector Vantage Building, Wellington Street 2,590 (27,700) MWB Other West One, Lisbon Street 2,325 (25,030) Keypoint Other 2100 Century Way, Thorpe Park 2,090 (21,500) Republic Other Plot 2175, Thorpe Park 1,976 (21,265) Hewletts Corporate City Exchange, Albion Street 1,535 (16,500) Employment Tribunal Services Government Finance Media Legal Professional Associations Government Transport Corporate IT Other 19

20 Manchester Overview Total availability rose 8%, mainly as a result of occupiers vacating premises to move to new buildings in the city centre. After a period of shortage, the development pipeline is expected to deliver increased supply from 2006 onwards. City Centre take-up has continued at a high level, echoing 2004 s performance. Prime rents increased, but only slightly. Investment activity continued to increase. Availability Availability increased in the second quarter but declined slightly in the third, totalling 357,000 sq m (3.85 million sq ft) at the end of September. The increase was largely accounted for by a rise in the amount of poor second hand space, made available by occupiers moving to newer premises in the city, although some of these buildings are expected to be withdrawn for refurbishment in the foreseeable future. The level of newly built supply remains very low in the city centre, at less than 1,860 sq m (20,000 sq ft). This is partly because the amount of supply delivered in the first nine months of the year was relatively low, comprising 14,000 sq m (150,000 sq ft) of refurbishments in four medium-sized developments. Newly built supply has remained substantial in the out of town market, at 34,600 sq m (372,000 sq ft), though this has declined by 8% between end March and end September. Future supply At 98,000 sq m (1.06 million sq ft), the total of new supply has fallen by 12% in the six months since the end of March. While 51,000 sq m (575,000 sq ft) of this is due for delivery in 2006, only 28,000 sq m (300,000 sq ft) is still available. This speculative supply is predominantly comprised of refurbishments, apart from ASK Developments Bauhaus@Rosetti (4,740 sq m (51,000 sq ft)) and CTP Developments Aurora, Princess Street (5,300 sq m (57,000 sq ft)). Speculative supply is expected to rise considerably in 2007, to as much as 65,000 sq m (750,000 sq ft), although much of the expected supply has yet to start construction. Major committed speculative schemes include Langtree Developments 40 Spring Gardens (9,400 sq m (101,000 sq ft)), Argent s 3 Piccadilly Place (17,700 sq m (190,000 sq ft)), and 4 Hardman Square (4,550 sq m/49,000 sq ft). After several years of fairly strong supply, very little has been completed in the out of town market in At present there are no conventional office buildings under construction on a speculative basis. Take-up After a record-breaking year in 2004, when nearly 175,000 sq m (1.9 million sq ft) was let, 2005 is also expected to be strong, though not quite as strong as in the previous year. Take-up for the first nine months totalled 112,000 sq m (1.2 million sq ft), about 10% less than in the same period in Take-up in the city centre for the first nine months of 2005 (64,500 sq m/694,000 sq ft) was about 20% less than in the same period in However, with several substantial transactions expected to conclude before the end of the year, city centre take-up in 2005 is expected to Manchester offices availability Manchester offices prime rents millions sq m 0.6 millions sq ft 6.45 sq m sq ft Q3 New Good s/hand Poor s/hand 20