The Big Nine Q Summary. Research. Quarterly review of the regional office occupier markets

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1 Research The Big Nine Quarterly review of the regional office occupier markets One Chamberlain Square, Paradise, Summary The first quarter of 2016 has witnessed the highest level of take-up during Q1 across the Big Nine cities since 2008, amounting to 2.3 million sq ft, 13% above the five-year quarterly average. This continues the strong occupational story of the past two years with Q1 figures characterised by a significant number of larger deals: six over 50,000 sq ft, with Morgan Stanley s 155,000 sq ft pre-let in standing out. The construction market is responding to this demand, with the latest wave of activity initiated by Paradise and 3 Snowhill in and 122 Waterloo street in. Carl Potter, National Head of Offices

2 City centre total take-up 1.47m sq ft +17% above five-year quarterly average Deals to Morgan Stanley and ACCA in doubles quarterly average take-up Key deals in and lift take-up 50% above average Net effective headline rents increase by 7.5% over the year to Out of town total take-up 0.86m sq ft +7% above five-year quarterly average West secures 107,000 sq ft deal to Napier University Take-up well above average in and Headline rents between 21 psf in and psf in Top five city deals () City/property Occupier Sq ft 122 Waterloo Street Morgan Stanley 155,000 1 Chamberlain Square PwC 90,000 Bridgewater House EDF Energy 81,200 Quartermile 4 Cirrus Logic 70, Queen Street ACCA 55,000 Top five out-of-town deals () City/property Occupier Sq ft South Gyle BP Napier University 107,500 Q4, Quorum BP Sitel 47,600 Kirkstall Forge Zenith 45,000 Cavendish House, Sale Styles and Wood 26, Aztec West Hoare Lea 20,300 Headline Rent Big Nine average headline rent (up 3.7% since Q1 2015) Average rent free 20 months (down 16% from 23.8 months at Q1 2015) Net effective headline rent (up 7.5% since Q1 2015) psf Headline rent Net effective rent

3 Q1 The Big Nine Regional office market review Morgan Stanley s deal in was a 155,000 sq ft pre-let at HFD Property Group s 122 Waterloo Street. The scheme started construction at the beginning of the year, with potential to enable further development of the adjacent 215,000 sq ft at 177 Bothwell Street. Any additional Grade A space in will be welcomed as accountancy body ACCA has taken the remaining 55,000 sq ft at BAM s 110 Queen Street, while at 1 West Regent Street only two and a half of the 11 floors remain available. Indigenous professional service firms have driven take-up to the highest Q1 figures on record in (283,000 sq ft). PwC has agreed a 90,000 sq ft pre-let on the top four and a half floors at One Chamberlain Square, Paradise Circus, on a 20 year lease. Meanwhile Pinsent Masons will take 40,500 sq ft at the redeveloped 55 Colmore Row and DAC Beechcroft have moved from BrindleyPlace to Tricorn House in Edgbaston. Confidence in the occupational market is emphasised by M&G Real Estate s decision to fund the largest ever speculative office development outside London; 420,000 sq ft Three Snowhill, expected to complete in The largest deal in the market was 81,200 sq ft to EDF Energy at Bridgewater House, secured on a 15 year lease. Meanwhile two deals on recently refurbished space, 27,000 sq ft to Fraser Nash Consultancy at Narrow Quay House and 15,500 sq ft to JLL at Great George Street, have achieved rents of 27 psf. This is only 1.50 psf below the current headline rent, although Arup are reportedly under offer at 30 psf on a 40,000 sq ft pre-let at Redcliff Wharf, due to start construction this summer. Big Nine take-up City Centre Out-of-town 1,600 1,400 This major letting and expected commitment from the Department of Work and Pensions (50,000 sq ft), Irwin Mitchell (20,000 sq ft) and Money Supermarket (20,000 sq ft) are likely to bolster second quarter figures. The largest deal in city centre was to Sky Betting and Gaming, who have taken two floors (40,000 sq ft) at the recently completed 6 Wellington Place. Another key deal was 24,000 sq ft prelet to accountants RSM Tenon who join PwC at the 200,000 sq ft Central Square scheme, due to complete at the end of this year. In the out-of-town market vehicle leasing company Zenith have agreed a 45,000 sq ft pre-let at the Kirkstall Forge regeneration area. Take-up in city centre (90,000 sq ft) has held up well following the strength of the two previous quarters (each over 100,000 sq ft). During Q1 26,000 sq ft was taken at Walker House including 11,500 sq ft to Brooks Bell and co, while at Mann Island another 11,000 sq ft deal was completed to Seadrill. There is a healthy pipeline of new requirements which should see take-up levels maintained at this higher level of demand. 1,200 1,000 '000 sq ft Take-up across the Big Nine office markets has witnessed the strongest start to the year since Q1 figures were anchored by some very large deals, particularly in the city centre. The largest deal was to Morgan Stanley in, while key deals to PwC in, EDF Energy in and Napier University in West lifted take-up in these cities to well above average. Overall city centre and out-of-town take-up amounted to 2.3 million sq ft, 13% above the five-year quarterly average year quarterly average 5 year quarterly average There were two very large deals in the market. 107,000 sq ft was taken by Napier University at South Gyle Business Park, West and in the city centre American audio chip designer Cirrus Logic took the remaining 70,000 sq ft at Quartermile 4. A number of professional service company lease events are due over the next year in the city centre. With most of the new stock pre-let, some re-gears are expected at least in the short term. Despite two strong quarters in the out-of-town market, a number of large requirements remain. has seen a slower than expected start to the year largely due to Freshfields anticipated 80,000 sq ft commitment at Muse s One New Bailey not completing before the end of the quarter. The largest deal in was a 12,500 sq ft pre-let to Opus Energy Limited at 2 Central Square, which completes next year. However, significant transactions are expected this year with Motor finance company MotoNovo negotiating a 70,000 sq ft deal at the recently completed 130,000 sq ft One Central Square, in a move from Business Park. Also the School of Journalism is expected to complete a 15-year lease on 30,000 sq ft at 2 Central Square. Net effective headline rents increased by an average of 7.5% across the big nine cities over the year to as rent free periods fell to 20 months on a ten year term. However the rate of growth has slowed from the double digit annual growth experienced last year.

4 Key Office Take-up (sq ft) City Centre take-up City Centre 5yr quarterly ave Out-of-town take-up Out-of-town 5yr quarterly ave upon-tyne City Centre Out of town 5 year Quarterly Average 283, , , ,140 5 year Quarterly Average 48,142 91,709 75,172 73,776 29,248 74,306 95,394 21, , , ,196 48, , ,402 86,282 85, ,605 85, , ,282 90,000 80,601 20,000 46, , , , , ,639 29,250 52, ,497

5 In focus: The out-of-town market continues to dominate occupier activity in. Q1 take-up amounted to 143,500 sq ft, 17% above the fiveyear quarterly average. Sitel took the largest deal, 48,000 sq ft at Q4, Quorum Business Park, while Accenture has taken a further 15,000 sq ft at Cobalt Business Park. Availability on these two business parks has fallen considerably over the past eighteen months with a steady level of deals. Elsewhere out-of-town, Litterboss has acquired 12,100 sq ft at Digital House in the Team Valley. Grade A availability in the city centre now stands at 130,000 sq ft. Based on average past take-up rates, this equates to around 1.5 years supply. However, the Stephenson Quarter s 35,000 sq ft Rocket, completed at the end of last year, is rumoured to be under offer. With prime supply diminishing, refurbishments are coming forward: Commercial Estates Group is refurbishing 60,000 sq ft at Cuthbert House and Schroders is undertaking a 10,000 sq ft major refurbishment of Earl Grey House. These refurbishments will be seeking to establish a new level of rent for refurbished stock, which currently stands at psf. Following EY s 22,900 sq ft deal at One City Gate East at the end of last year, headline rents have increased to 22 psf with 12 months rent free on a ten year term. This equates to a net effective rent increase of 14% over the past year. Rental aspirations from developers however are likely to be closer to 24 psf before any further new builds get underway. Tony Wordworth Director Rents and Yields City centre headline rents ( psf) Location Rents ( ) Rent free (mths on ten yr term) Net effective rent* ( ) Average *Including rent free period less three month fit-out. Net effective rent ( ) Q Out-of-town headline rents ( psf) Location Rents ( ) (South) (Solihull) Average Prime city centre yields Location End 2015 Q End Same Same Same Same Same Same Same Same Same

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