Across the UK commercial property market, the picture is one of improving sentiment with office occupiers becoming increasingly more optimistic, reports property agents JLL.
Whilst sentiment is improving, the volume of new commercial space being started in the UK regions is only now starting to increase and is still significantly behind the position before the credit crisis.
As a consequence, Chris Hiatt, a director at JLL, said all regional markets are now experiencing a Grade A shortage which is likely to lead to increased pre-letting activity in some cities but has also been a driving force for the commitment to speculative development.
Mr Hiatt said: “As at mid-2014 there is 3.1 million sq ft of speculative space under construction across the Big 8 UK cities, up 35% year-on-year.
“In Newcastle however, other than the Stephenson Quarter, there are no significant city centre office developments in the pipeline.
“This contraction in Grade A supply combined with growing competition for the best quality available space has seen a turning point in the UK’s regional markets with incentives moving in and a subsequent increase in rents for offices.
“According to JLL's research prime rents in five UK cities, Thames Valley, Manchester, Edinburgh and Cardiff have now surpassed 2008 levels, with London not far behind.
“Occupiers are also becoming more discerning over the quality and efficiency of space they occupy.
“Government legislation under the UK Energy Act 2011 is due to render the occupation of many buildings illegal in 2018 if they do not comply with minimum standards. So, the pressure is on to improve the energy performance of existing office stock and future proof against building obsolescence in the longer term.”
According to JLL, companies are also turning to the workplace to find the key to improving employee and business productivity.
The growing ‘talent war’ amongst businesses to recruit and retain the best staff means that the workplace is changing too; environments that offer flexible, mobile or collaborative working are proving increasingly popular.
Closer to home, market conditions are impacting the availability of good quality office space for occupiers in Newcastle who are in turn looking to get the best value from their office environments.
Mr Hiatt said: “Footloose investment remains extremely competitive across the UK as a whole and with that brings urgency for the Newcastle and the North East to offer the best quality working environment.
“North Newcastle’s Quorum and Cobalt are two schemes which present first class alternatives to the city centre location, both for regional companies looking to expand and national investors choosing to locate or relocate their premises.
“On average, it takes two years for a new office scheme to go through planning and be built and whilst there are big chunks of available space in the Newcastle area this will continue to be eroded.
“The amount of new office development needs to accelerate to ensure Newcastle can continue to a viable choice for businesses and ensure the longer term recovery in the region is not hampered.”