A year of contrasting fortunes for the UK office market
Lambert Smith Hampton’s agency network forecasts contrasting office market fortunes between the capital and the regions in 2017. Prime headline rents are set to rise in 20 of the 52 key UK markets over the course of the year, with a further 19 markets holding at their current level. Meanwhile, reflecting growing concerns in the capital, 12 of Central London’s 16 sub-markets are forecast to see a fall in prime headline rents.
2016 ended with a flourish in the occupational market. UK-wide office take-up in Q4 was the strongest seen in any quarter of 2016, rebounding by 29% from Q3’s level. In similar fashion, the investment market had a solid finish to a subdued 2016, characterised by institutions selling out of Central London and record overseas investment in the regions.
Despite a strong finish to 2016, the year ahead is set to be a challenging one for the Central London. In contrast, the UK regional markets are expected to show much greater resilience to the more uncertain economic environment.
Tony Fisher, national head of office agency for Lambert Smith Hampton, said:
“Although uncertainty is set to continue through the coming year, occupier activity and prime headline rental levels are expected to be resilient in the regional markets during 2017. Good quality supply is tight across the majority of regional markets, while major planned government-led moves will support take-up in the core markets.
“The Central London sub-markets on the other hand are looking exposed. While this partly reflects occupier caution around the Referendum result, arguably of more concern is the perfect storm of a sizeable build up of supply alongside the prospect of a sharp rise in business rates.”
Charlie Lake, Lambert Smith Hampton director of capital markets, said:
“Despite the uncertainty we are seeing in the market, the investment rationale for UK property remains sound. The gap between 10-year gilts and prime yields remains substantial, certainly outside Central London.
“Assets offering long, secure income remain highly sought after. However, less risk averse strategies aimed around driving income growth will be key to maximising returns. While rental growth forecasts have generally been pared back in the wake of the Referendum result, well-informed investors will continue to find asset management opportunities in tightly supplied markets. So far in 2017, a very limited number of opportunities have been brought to market, despite an increasing pool of equity seeking to secure investment opportunities across a broad risk spectrum.”
