UK Office Market Report Q4 2013

OnPoint
UK Office Market Outlook

Q4 2013
Revival in Regional
Office Market
A revival in the UK economy during 2013 has been mirrored in
activity levels across the Big 8 regional office markets.
The intensification of the Grade A supply shortage is driving a more
active development market.
Prime rents increased by 3.8% over 2013, with an average of 2.2%
per annum forecast over the period 2014-17, led by the Western
Corridor.
Summary
Summary statistics*
2012
2013
Change (Y-o-Y)
12 month
outlook
Take-up (000s sq ft)
5,342
7,531
+36%
Vacancy Rate (%)
12.6%
11.3%
-130bps
Average Weighted Prime Rent ( psf)
27.65
28.70
+3.8%
U/C Spec (000s sq ft)
1,321
2,078
+57%
*Includes Birmingham, Bristol, Cardiff, Leeds, Manchester, Western Corridor, Edinburgh and Glasgow
UK office rental clock
London West End
Rental Growth
Slowing
Rents
Falling
Rental Growth
Accelerating
Rents
Bottoming Out
London City
West London, Manchester, Edinburgh
Thames Valley
Glasgow
Birmingham, Bristol, Cardiff

Leeds
For information on the Central London market, please see the Jones Lang LaSalle Central London Market Report
OnPoint UK Office Market Outlook Q4 2013 | 3
UK Outlook
Highlights
Occupier take-up totalled 7.5 million sq ft in 2013, up 36%
compared to 2012.
Continued shortage of Grade A supply in most markets
Rising confidence and an uptick in pre-letting activity boosts
development starts.
Investors look to the regional cities and secondary property as
prime product becomes scarce.
Rising confidence in UK economy
2013 saw a revival in fortunes for the UK economy that is set to
continue into 2014. After several years of lacklustre performance,
the economy recovered strongly in 2013 with the pace of growth
accelerating through the year. GDP growth of 0.7% was recorded in
Q4, bringing overall growth for the year to 1.9%, the strongest rate
since 2007. On the back of this improvement, the economy is expected
to grow by 2.9% this year - faster than any other major European
economy - against its previous forecast of 1.9%. Bristol, Manchester
and the South East region are all expected to outperform the UK
average for growth in 2014.
Figure 1: GVA growth across the UK
4%
Revival in office markets outside of

London in 2013
The professional services sector was responsible for some notable
deals, particularly in Leeds and Glasgow, with the legal and accounting
sub-sectors actively acquiring space. 2013 also witnessed an uptick
in activity within the banking & finance sector. In 2012 the banking
& finance sector was responsible for just 13 deals over 10,000 sq ft
(295,000 sq ft) across the Big 6. In 2013 this increased to 21 deals and
569,500 sq ft. Notable transactions include the acquisition of 83,000 sq
ft by Sainsburys Bank at 3 Lochside Avenue, Edinburgh. The Yorkshire
Building Society was also responsible for the largest deal in Leeds in
2013, taking 76,413 sq ft at Broad Gate, The Headrow.
Volumes in 2013 were boosted by a return of larger lettings with the
number of deals over 10,000 sq ft up substantially. Across the Big
6 markets alone, deals over 10,000 sq ft increased from 56 in 2012
to 79 in 2013. In Glasgow, Scottish Power signed a deal to build a
new 14 storey headquarters building on St Vincent Street totalling
220,000 sq ft. Deutsche Bank also brought a boost to the Birmingham
office market after it signed up to take 134,000 sq ft of space at 5
Brindleyplace. The Western Corridor saw the largest deal of the year
with BMW consolidating its subsidiaries into one office complex of over
300,000 sq ft at Nokias former campus, in Farnborough.
Return of larger deals boosts volumes
3%
2%
Figure 2: Big 8 office take-up 2003-2013
1%
9,000
0%
5 year average
8,000
-1%
6,000
Bristol
Manchester
South
East
2013
UK
Edinburgh Birmingham
2014
Leeds
Glasgow
Cardiff
2015
Source: Oxford Economics
Strong increase in take-up

Office markets outside of London recovered strongly in 2013. Take-up
across the core eight markets outside of London totalled 7.5 million sq
ft, up 36% compared to 2012 and well ahead of the five and ten year
average levels. Markets which have seen a particular turnaround in
fortunes include Leeds, which recorded take-up of almost 800,000 sq
ft, almost double the level achieved in 2012. Elsewhere, Glasgow and
the Western Corridor also witnessed substantial growth in volumes with
leasing activity up 96% and 48% respectively.
4 | OnPoint UK Office Market Outlook Q4 2013
000s sq ft
-2%
7,000
5,000
4,000
3,000
2,000
1,000
0
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Source: Jones Lang LaSalle

Big 8: Birmingham, Bristol, Cardiff, Leeds, Manchester, Edinburgh, Glasgow & Western Corridor
This momentum is expected to continue into 2014 as occupational

requirements come to a head. There are a number of substantial active
requirements as well as pent up demand, as a result of short term
regears, which could come back to the market in 2014. There are also
a number of significant lease events in the next 2-3 years which should
drive occupational markets forward. In 2014 alone we track around 2.5
million sq ft of structural events across the key English cities outside
of London (Birmingham, Bristol, Leeds, Manchester) While some
occupiers may seek to preserve flexibility by regearing on shorter

leases, improved business confidence will encourage other occupiers
to acquire new space.
Further contraction in Grade A supply
The need for occupiers to act on office space requirements will
become more pressing in 2014 due to further intensification of Grade A
shortages in the major cities outside of London. We are now beginning
to see a real shortage of Grade A office space in most locations, with
the shortage particularly acute in the Western Corridor, Edinburgh
and Leeds.
In the Western Corridor Grade A vacancy rates are at their lowest level
since 2001. Leeds saw a significant contraction in Grade A supply in
2013 with the Grade A vacancy rate falling from 3.8% at the end of
2012 to just 1.9% at the end of 2013. Similarly in Edinburgh city centre,
the new build Grade A vacancy rate is just 0.9%.
Intensification of Grade A supply shortages

will encourage development activity
With Grade A supply continuing to contract in most locations we expect
occupiers, particularly those with larger requirements, to consider
pre-let options. The lack of Grade A space is already driving a much
more active development market than has been the case in recent
years. At the end of 2013 there was over 2 million sq ft of space
under construction on a speculative basis, up 57% compared to the
equivalent period in 2012.
Of the total space currently under construction, around half is within the
Western Corridor market alone. In Glasgow, construction commenced
on 485,000 sq ft of much needed new Grade A office space in 2013.
In Leeds, pre-let commitments from KPMG at Sovereign Square
and Shulmans at Wellington Place helped to kick start development
activity and have provided the stimulus to other schemes; and in Bristol
184,000 sq ft of speculative space is now under construction in 3
schemes.
Rents and rental expectations

While there is still further to go before occupational markets have fully
recovered the limited Grade A supply drove rental growth of 3.8% in the
UK Regional Office Rental Index over the year to end-2013. Average
weighted prime rents stood at 28.70 at the end of Q4 as increases
in the Western Corridor, Edinburgh, Manchester and Glasgow
supported growth.
The lack of Grade A supply will continue to drive rents for the very best
space. On aggregate, we forecast growth of 2.2% per annum over
2014-2017 in the major UK cities. The Western Corridor is predicted
to outperform this, with growth of 4.2% per annum over the same
period. Turning to the secondary market, rental growth is expected to
be far more limited, although some growth is anticipated. Jones Lang
LaSalles forecasts of IPD data indicate rental growth to a lesser extent
of just 1.5% per annum over 2014-2017 for UK Offices.
Investment volumes and yields
Recovery in the investment market has moved ahead of the
occupational market as Investor demand has spread from London
to the South East and beyond to the core regional cities. The sheer
weight of money now targeting the Western Corridor and prime
regional cities has driven yields inwards in most locations over the
course of 2013. Prime yields in the Western Corridor moved in to
5.70% at the end of 2013, from 6.25% a year earlier. Yields also moved
in by as much as 50 basis points (compared to end 2012) in Leeds,
Birmingham and Manchester to 6.00%. We expect yields to trend
keener over the course of 2014.
Figure 4: UK prime weighted office yields index
9%
8%
7%
6%
5%
4%
Figure 3: Big 8 speculative development activity
3%
4,000
4Q03
4Q04
4Q05
3,500
000s sq ft
4Q07
4Q08
UK incl. London
3,000
4Q09
4Q10
4Q11
4Q12
4Q13
UK excl. London
2,500
2,000
1,500
1,000
500
0
4Q06
2008
2009
Completed
Likely Spec Start
2010
U/C
2011
2012
2013
Definite Spec Start

Likely Spec Start
2014
2015
2016
Investment volumes in the core eight markets outside of London

totalled 3.5 billion in 2013, almost three times the level achieved
in 2012. A significant proportion of this was targeted at the Western
Corridor, which accounted for over 60% of the total. That said 2013
has seen greater interest in the regional cities from a wide range
of sources. There is a considerable weight of money competing for
limited investment product in London and the South East. Investors are
increasingly looking to the Western Corridor and key regional cities in
search of better returns.
Birmingham
Vacancy Rate (%)
12.6%
Prime Rent ( psf)
28.50
Investment market
2013
Change
Y-o-Y
12 month
outlook
Investment Vol. (m)
206
Prime Yield (%)
6.00%
Market overview
Leasing volumes in 2013 exceed five and ten year average.
Availability now at its lowest level since 2008.
Prime rents stable, with slight growth anticipated in net effective
rents in 2014.
Take-up totalled c150,000 sq ft in the fourth quarter, bringing the
2013 year-end total to just over 664,000 sq ft. Leasing volumes
were 10% ahead of the 10 year average (605,000 sq ft). Volumes
were boosted by the acquisition of 134,000 sq ft at 5 Brindleyplace
by Deutsche Bank in the second quarter. This was the most
substantial deal in 2013, however there were a further eleven deals
over 10,000 sq ft, an improvement on 2012.
Sentiment in the occupational market has gradually improved
throughout 2013, however corporates remain relatively cautious
with deals still protracted. In some instances a lack of confidence
continues to prevent some deals from crossing the line and we
continue to see some occupiers opting to renew or regear leases.
Overall supply has fallen substantially over 2013 as a result of
increased take-up and the removal of outdated stock for alternative
uses. Vacancy rates currently stand at 12.6%, with Grade A vacancy
rates in the region of just 2.6%.
At present there is sufficient Grade A supply in the market to meet
demand. However it would take only a couple of substantial deals
for this to change. The market remains broadly tenant favourable
with prime rents stable at 28.50 per sq ft. Incentives remain
generous although we expect these to move inwards over 2014 as
supply tightens.
Recovery in the investment market has been more rapid, with the
sheer weight of money now targeting the regions driving down
pricing. Prime office yields moved in 50 basis points over the course
of 2013 and are currently at 6.00% but trending keener. The most
significant deal in Q4 involved the sale of One Snowhill to Union
Investment for 125 million, reflecting a NIY of 6.20%.
1,000
900
800
700
600
500
400
300
200
100
0
2008
2009
2011
Take-up
2012
2013
5 year average
Figure 6: Supply and vacancy rates

20%
3500
3000
16%
2500
12%
2000
1500
8%
1000
4%
500
0
2008
2009
2010
2011
Supply (lhs)
2012
2013
0%
Vacancy rate (rhs)
Figure 7: Prime rents and rental growth

5%
34
0%
32
-5%
30
-10%
28
-15%
26
-20%
2008
2009
2010
2011
Rental growth (y-on-y) (lhs)
2012
2013
Prime rent (rhs)
Figure 8: Prime yields

8%
7%
6%
5%
4%
2008
2009
Prime yields
Source all Charts: Jones Lang LaSalle
2010
2010
2011
10 year average
2012
2013
20 year average
24
per sq ft
664
Figure 5: Take-up
000s sq ft
Y-o-Y
2013
000s sq ft
Change
12 month
outlook
Summary statistics
Bristol
Y-o-Y
12 month
outlook
505
Vacancy Rate (%)
9.8%
Prime Rent ( psf)
27.50
184
Investment market
2013
Change
Y-o-Y
12 month
outlook
Investment Vol. (m)
121
Prime Yield (%)
6.50%
Market overview
City centre take-up exceeds the 5-year average.
Development activity addresses the Grade A shortage.
Rental growth forecast during 2014.
Bristol experienced a strong 2013 with total take-up for the year
reaching 504,500 sq ft, some 19% higher than the 5-year average
of 425,200 sq ft. However, a closer look shows the city centre
only saw a handful of Grade A transactions over the whole year.
The largest deal during 2013 was Imperial Tobaccos move into its
owner-occupied new headquarters (85,000 sq ft), although this is
a grey area of take-up as Imperial Tobacco already owned the site.
Looking ahead to 2014, sentiment in the market is improving with
the organic growth of existing occupiers showing strength in the
local economy.
Overall supply in Bristol has fallen significantly over the course of
2013 with the vacancy rate coming in by 150 basis points to stand
at 9.8%. The Grade A vacancy rate is just 1.7% but with 184,000
sq ft under construction on a speculative basis the shortage may
be eased slightly, although latent demand could soon absorb this.
The Bristol market is undergoing a period of structural change with
up to 1 million sq ft of planning applications for student housing or
residential uses submitted during 2013; this has been reflected in
a revision to our total stock figure at end-2013. The introduction of
Controlled Parking Zones during 2014 will also add a new dynamic
to the market with businesses on the periphery of the city centre
likely to be most impacted.
Prime rents in the city centre remain stable at 27.50 per sq ft with
up to three months rent free for each year of lease commitment.
Bristols investment market recorded a strong year with a total of
121.2 million invested, almost half of this in Q4 when Portwall
Place was sold for 51.5 million. Prime yields stood at 6.50% at
end-2013, moving in by 25 basis points over the course of the year
and will move in further during 2014.
Figure 9: Take-up
800
600
400
200
2008
2009
2010
2011
Take-up
2012
2013
5 year average

12%
2,000
10%
1,600
8%
1,200
6%
800
4%
400
0
2%
2008
2009
2010
2011
Supply (lhs)
2012
2013
0%
Vacancy rate (rhs)

30
8%
28
4%
26
0%
24
-4%
-8%
per sq ft
Change
000s sq ft
2013
000s sq ft
Summary statistics
22
2008
2009
2010
2011
2012
2013
20
Prime rent (rhs)

8%
7%
6%
5%
4%
2008
2009
Prime yields
2010
2011
2012
2013
10 year average
Cardiff
Figure 13: Take-up
Y-o-Y
248
500
Vacancy Rate (%)
9.0%
400
Prime Rent ( psf)
22.00
76
Investment market
2013
Change
Y-o-Y
12 month
outlook
Investment Vol. (m)
70
6.50%
Prime Yield (%)
Market overview
Subdued take-up below the 5-year average.
Market needs to address Grade A supply pinch point through
refurbishment opportunities .
Potential for growth in prime rents during 2014.
Take-up levels were relatively subdued in Cardiff during 2013 with a
total of 248,400 sq ft transacted, compared to a 5-year average of
305,700 sq ft. Key Grade A transactions included ITV and the Life
Science Hub (Welsh Government), collectively acquiring 23,000 sq
ft at 3 Assembly Square. Although a drop in take-up, the outlook
for 2014 is more positive with a number of large requirements
remaining active, including the BBC (140,000 sq ft), Legal &
General (up to 100,000 sq ft), Geldards (40,000 sq ft), Morgan Cole
(35,000 sq ft) and the AA (up to 30,000 sq ft).
Total supply reduced over 2013 with the overall vacancy rate falling
by 90 basis points to 9.0%. The supply of new Grade A space
has diminished substantially with only 37,000 sq ft available in 2
schemes at end-2013. There is only 76,000 sq ft under construction
on a speculative basis (Capital Quarter, Phase 2), which is due
to complete in Q2 2014. It is essential that the market maximises
refurbishment opportunities to bridge the gap in Grade A supply as
the Welsh Governments and Cardiff Council/Rightacres/JR Smarts
respective schemes will not bring new office stock to the market
until 2015/2016.
Prime rents in the city centre remain at 21 to 22 per sq ft with
rent free incentives tightening from the previous 24 month level for
a typical 10-year term. With headline rents of 22 per sq ft achieved
during 2013, there is room for some rental growth.
The largest investment transaction during 2013 was the sale of
Helmont House for 25.5m. During Q4 the key transaction was the
sale of Hodge House by Aberdeen Asset Management to Legal &
General Property for 18.8m. Activity levels are certainly increasing,
with large investments such as Crickhowell House and Willcox
House under offer to foreign funds. Prime yields at year-end were
in the region of 6.50%, but with limited activity in the prime sector,
and are expected to move in during 2014 in response to increased
investor demand for regional office products.
000s sq ft
600
300
200
100
0
2008
2009
2011
2012
2013
5 year average

1,400
14%
1,200
12%
1,000
10%
800
8%
600
6%
400
4%
200
2%
2008
2009
2010
2011
Supply (lhs)
2012
2013
0%
Vacancy rate (rhs)

24
10%
8%
22
6%
20
4%
18
2%
0%
2008
2009
2010
2011
2012
2013
Prime rent (rhs)

9%
8%
7%
6%
5%
4%
2008
2009
Prime yields
2010
Take-up
000s sq ft
2013
2010
2011
10 year average
2012
2013
16
per sq ft
Change
12 month
outlook
Summary statistics
Leeds
Vacancy Rate (%)
7.5%
Prime Rent ( psf)
25.00
118
Investment market
2013
Change
Y-o-Y
12 month
outlook
Investment Vol. (m)
145
Prime Yield (%)
6.00%
Market overview
Leasing volumes reach highest level in more than ten years.
Grade A supply well below average levels.
Improved optimism encourages development activity.
2013 was a bumper year for the Leeds office market, with take-up
volumes of almost 800,000 sq ft. Leasing volumes were almost
double the level achieved in 2012, and exceeded both 10 and 15
year average levels. Volumes were boosted by a clutch of pre-lets
and by a substantial increase in the number of larger deals. Leeds
outpaced all other markets in the Big 6 with the greatest number
and volume of deals over 10,000 sq ft in 2013. There were 18 deals
over 10,000 sq ft equating to over 510,000 sq ft, compared with just
7 deals in 2012 (191,000 sq ft). Leeds City Council was responsible
for the largest deal in the fourth quarter, acquiring a further 50,000
sq ft at Merrion House. The professional service sector was also
active in Q4 with KPMG acquiring 28,271 sq ft at Broad Gate, The
Headrow and accountants Hentons, taking 22,627 sq ft at 118
North Street.
Overall vacancy rates are now at their lowest level since 2006 and
well below average levels. Grade A supply is particularly constrained
with vacancy rates falling to less than 2.0%. The lack of Grade
A supply has driven pre-letting activity in Leeds over 2013, with
commitments from KPMG at Sovereign Square and Shulmans at
Wellington Place. This has kick started much needed development
activity and has provided the stimulus to other schemes. There is
currently 118,000 sq ft under construction on a speculative basis, all
of which is scheduled to complete in 2014.
Prime rents were static over 2013 at 25.00 per sq ft. Incentives
remain in the region of up to 30 months rent free based on a 10
year term. Looking ahead we anticipate modest rental growth over
the course of 2014 with incentives reducing.
City centre investment volumes improved significantly over 2013.
In the fourth quarter key investment deals include the sale of
Sovereign House for circa 20 million, reflecting a NIY of 7.82%.
CBREGi also purchased 2 The Embankment for 7.3 million
(9.5% NIY).
900
800
700
600
500
400
300
200
100
0
2008
2009
2010
2011
Take-up
2012
2013
5 year average

1,600
14%
1,400
12%
1,200
10%
1,000
8%
800
6%
600
4%
400
2%
200
0
2008
2009
2010
2011
Supply (lhs)
2012
2013
0%
Vacancy rate (rhs)

27
10%
26
8%
25
6%
24
4%
23
2%
0%
per sq ft
798
Figure 17: Take-up
000s sq ft
Y-o-Y
2013
000s sq ft
Change
12 month
outlook
Summary statistics
22
2008
2009
2010
2011
2012
2013
21
Prime rent (rhs)

8%
7%
6%
5%
4%
2008
2009
Prime yields
2010
2011
10 year average
2012
2013
20 year average
Manchester
Figure 21: Take-up
Y-o-Y
860
1,200
Vacancy Rate (%)
9.1%
1,000
Prime Rent ( psf)
31.00
205
Investment market
2013
Change
Y-o-Y
12 month
outlook
Investment Vol. (m)
353
Prime Yield (%)
6.00%
Market overview
Leasing volumes broadly in line with average levels.
Overall supply down 9% year on year.
Prime rents edge upwards to 31.00 per sq ft.
A strong end to the year resulted in leasing volumes of 860,000
sq ft in 2013. This was broadly in line with average levels and
9% above 2012 levels. Activity was dominated by a number of
larger deals with 16 deals over 10,000 sq ft, totalling 306,000 sq
ft (37% total take-up). The most significant deal in Q4 involved
the acquisition of 20,000 sq ft at 3 Picadilly Place by engineering
firm Arup. Conveyancer myhomemove, acquired c.20,000 sq ft at
Linley House. Barclays bank is also under offer on 80,000 sq ft at
4 Piccadilly place in a deal which is likely to complete in Q1 2014.
Activity continues to be driven by a broad sectoral base although
there have been a number of notable deals from within the service
and professional services subsector.
Supply continued to fall, with vacancy rates edging down to just
9.1%, compared to an average of around 10.0%. The vast majority
of available supply is of Grade B quality. Grade A vacancy rates
are now in the region of 2.7% in the city centre. Despite the
contraction in Grade A space, there has been very little change to
the development pipeline this year with no new starts recorded.
One St Peters square remains the only scheme under construction
delivering 268,000 sq ft of new Grade A space in 2014. We could
well see another spurt of development activity in 2014, although this
is likely to be underpinned by pre-lets.
Prime rents increased to 31.00 per sq ft in the fourth quarter, up
3.3% compared to the equivalent period in 2012. Incentives are
in the region of around 30 months rent free on a 10 year term for
existing space and are expected to gradually move inwards over the
course of 2014.
In the investment market volumes totalled 353 million in 2013,
more than three times the level seen in 2012. There were 6 notable
transactions in Q4 one of which was the sale of Vantage Point for
19.9 million to Lothbury Property Trust, reflecting a NIY of 6%.
We anticipate continued interest from investors in the regional office
market as investors become priced out of London and the
South East.
000s sq ft
1,400
800
600
400
200
0
2008
2009
2010
2011
Take-up
2012
2013
5 year average
000s sq ft
2013
3,000
14%
2,500
12%
10%
2,000
8%
1,500
6%
1,000
4%
500
0
2%
2008
2009
2010
2011
Supply (lhs)
2012
2013
0%
Vacancy rate (rhs)

16%
32
12%
30
8%
28
4%
26
0%
24
-4%
22
-8%
2008
2009
2010
2011
2012
2013
Prime rent (rhs)

8%
7%
6%
5%
4%
2008
2009
Prime yields
2010
2011
10 year average
2012
2013
20 year average
20
per sq ft
Change
12 month
outlook
Summary statistics
Edinburgh
Vacancy Rate (%)
7.1%
Prime Rent ( psf)
29.50
Investment market
2013
Change
Y-o-Y
12 month
outlook
Investment Vol. (m)
298
Prime Yield (%)
6.00%
Market overview
Leasing activity comfortably exceeds 10 year average levels.
New Grade A supply is severely constrained.
Prime rents increase to 29.50 per sq ft.
Take-up volumes in the Edinburgh office market exceeded 770,000
sq ft in 2013, the greatest level of activity since 2007 and 5% ahead
of the 10 year average level (740,000 sq ft). The number of larger
deals was fairly consistent with the previous year, with 11 deals in
excess of 10,000 sq ft, equating to 357,500 sq ft or around 46% of
the total take-up. 2013 saw the return of the financial sector with the
most significant deal of 2013 involving the acquistion of 83,000 sq
ft by Sainsburys Bank at 3 Lochside Avenue. Other notable deals
include Bank of New York Mellons acquisition of 54,600 sq ft at
Capital House. Optimisim in the occupational market has improved
over 2013 however there remains some uncertainty with regards to
current requirements with a limited number of big enquiries.
Overall availability fell slightly over 2013, reflecting a vacancy
rate of 7.1% at the end of Q4. New Grade A space is particularly
constrained within the city centre where vacancy rates have now
dropped below 1.0%. There is currently nothing under construction
in the Edinburgh Office market, however developers are gearing up
for the next wave of activity with work likely to start at several high
profile developments in 2014. This will be key to ensuring that the
market continues to provide a good level of choice for corporates
going forward.
Prime rents increased to 29.50 at the end of 2013, driven by the
lack of new Grade A supply within the city centre. Looking ahead to
2014 we expect to see further growth in prime rents as the supply of
quality office space continues to tighten.
In the investment market one of the most significant deals of the
year was Prupims purchase of 2-4 Waterloo place for 46 million,
reflecting a NIY of c.7.3%. GLL also purchased Calton Square
for 56.75 million in the third quarter. As a result of this renewed
investor interest, prime yields moved inwards by 25 bps over the
course of the year. Quarter 4 saw a number of significant deals
totalling c75 million including Interpoint (Aviva Investors), 3-5
Morrison Street (AXA Real Estate) and Excel House (CBREGi ).
900
800
700
600
500
400
300
200
100
0
2008
2009
2010
2011
Take-up
2012
2013
5 year average

2,500
10%
2,000
8%
1,500
6%
1,000
4%
500
2%
2008
2009
2010
2011
Supply (lhs)
2012
2013
0%
Vacancy rate (rhs)

30
10%
8%
29
6%
28
4%
2%
27
0%
per sq ft
774
Figure 25: Take-up
000s sq ft
Y-o-Y
2013
000s sq ft
Change
12 month
outlook
Summary statistics
26
-2%
25
-4%
-6%
2008
2009
2010
2011
2012
2013
24
Prime rent (rhs)

8%
7%
6%
5%
4%
2008
2009
Prime yields
2010
2011
10 year average
2012
2013
20 year average
Glasgow
Figure 29: Take-up
Y-o-Y
701
Vacancy Rate (%)
10.7%
Prime Rent ( psf)
28.00
460
300
Investment market
2013
Change
Y-o-Y
12 month
outlook
200
Investment Vol. (m)
222
Prime Yield (%)
6.00%
Market overview
Strong end to 2013 results in the best year for take-up volumes
since 2007.
Availability falls by 9% year-on-year.
Prime rents edge up to 28.00 per sq ft.
Take-up in the Glasgow office market exceeded 348,000 sq ft in
Q4, bringing the 2013 year-end total to just over 701,000 sq ft.
Volumes were boosted by two significant pre-lets in the final quarter
of the year. Scottish Power signed a deal to build a new 14 storey
headquarter building on St Vincent Street totalling 220,000 sq
ft. Legal firm Brodies, also acquired 24,449 sq ft of space at 110
Queen Street, which is currently under construction and will deliver
165,000 sq ft in 2015. While these two deals alone account for
around 35% of total take-up, even if these deals are stripped out,
volumes are well in excess of the 5 year average.
Overall supply continued to fall in 2013, with vacancy rates edging
down to 10.7%, compared to 11.8% at the end of 2012. While this
is still slightly ahead of the 10 year average, there is limited supply
of the right quality of space. Grade A vacancy rates are now at
their lowest level since 2008 and there is limited supply of quality
Grade B stock within the right locations. This has stimulated activity
in the development market with a total of 485,000 sq ft currently
under construction of which 460,000 remains available. This is the
most substantial amount of space currently under construction on a
speculative basis across the Big 6 and underlines the need for good
quality space in the city centre.
700
600
000s sq ft
800
500
400
100
0
2009
2010
2011
2012
2013
5 year average

14%
2,000
12%
1,600
10%
1,200
8%
6%
800
4%
400
0
2%
2008
2009
2010
2011
Supply (lhs)
2012
2013
0%
Vacancy rate (rhs)

30
6%
4%
28
2%
0%
26
-2%
24
-4%
-6%
22
-8%
-10%
2008
2009
2010
2011
2012
2013
Prime rent (rhs)

8%
Prime rents edged upwards to 28.00 at the end of 2013 as the

market begins to rebalance itself and demand prospects improve.
We expect greater optimism moving into 2014 with incentives
beginning to gradually move inwards over the course of the year.
7%
Investor appetite for regional office assets picked up in 2013, with

investor interest driving prime yields inwards by 25 basis points to
6.00%. Israeli investor CLAL Insurance purchased 150 Broomielaw
for 42 million, reflecting a NIY of 6.35%. M&G also reached a
deal with Scottish Power in excess of 100 million to fund the
development of the utilities companys headquarters.
5%
2008
Take-up
000s sq ft
2013
6%
4%
2008
2009
Prime yields
2010
2011
10 year average
2012
2013
20 year average
20
per sq ft
Change
12 month
outlook
Summary statistics
Western Corridor
Figure 33: Take-up
Y-o-Y
2,960
3,000
Vacancy Rate (%)
13.9%
2,500
Prime Rent ( psf)
29.75
1,035
Investment market
2013
Change
Y-o-Y
12 month
outlook
Investment Vol. (m)
2,138
Prime Yield (%)
5.70%
Market overview
Annual take-up reaches highest level since 2008.
Grade A supply shortage continues although developer
confidence is returning.
Exceptional investment volumes achieved during 2013 with an
increasingly international purchaser profile.
000s sq ft
3,500
2,000
1,500
1,000
500
0
2008
2009
2010
2011
Take-up
2012
2013
5 year average

14,000
16%
12,000
14%
12%
10,000
000s sq ft
2013
10%
8,000
8%
6,000
6%
4,000
Total take up in the Western Corridor was 3 million sq ft in 2013,

exceeding the five year average of 2 million sq ft. Take up during
2013 was characterised by a number of larger deals from a diverse
range of occupiers including BMW, BP, Rackspace and Reading
Borough Council. However, during Q4 occupier activity was
dominated by smaller deals with only 3 transactions over 50,000 sq
ft: Bechtel (75,000 sq ft) at First Central, Park Royal; Honda (69,825
sq ft) at Reflex, Bracknell and Abbott Laboratories (53,000 sq ft)
at Vanwall Business Park, Maidenhead. At end-2013 there was
3 million sq ft of named active demand circulating in the Western
Corridor, providing a solid base going into 2014. Service sector
industries account for 48% of requirements by floorspace.
Overall supply in the Western Corridor has remained largely static
over 2013, with the 12.3 million sq ft available at year-end reflecting
a 5% fall on end-2012. However, there continues to be a shortage
of Grade A space with the West London Grade A vacancy rate
at just 3.3%. The equivalent rate for the Thames Valley remains
consistently higher at 7.5% but has fallen by 80 basis points over
the course of the year as new supply is taken-up. Development
activity is returning to the market and at end-2013 there was 1.0
million sq ft under construction on a speculative basis, of which 75%
is due to complete during 2014.
The Western Corridor saw solid rental growth over 2013, led by the
West London sub market. The Western Corridor prime average rent
increased by 5.0% y-on-y, and is forecast to increase by an average
of 4.2% per annum over the period 2014-17.
Investment volumes in 2013 reached a high of 2,138 million,
boosted by the sale of Chiswick Park at the end of Q4 (780m) and
IQ Winnersh (250m) earlier in the year. Prime yields tightened over
the course of the year, moving in by 55 basis points to 5.70%. There
is evidence in the London Boroughs of deals at sharper levels with a
mixed-use element.
4%
2,000
0
2%
2008
2009
2010
2011
Supply (lhs)
2012
2013
0%
Vacancy rate (rhs)

30
6
4
28
2
0
26
-2
-4
24
-6
-8
per sq ft
Change
12 month
outlook
Summary statistics
22
-10
-12
2008
2009
2010
2011
2012
2013
20
Prime rent (rhs)

8%
7%
6%
5%
4%
2008
2009
2010
2011
2012
2013
Thames Valley prime yields
TV 10 year average
West London prime yields
WL 10 year average
Definitions
Take-up
Floor space acquired for occupation by lease, prelease, freehold or long leasehold sale in the City Centre (unless otherwise stated). All deals are
included with the exception of Western Corridor and Bristol where 5,000 sq ft and 1,000 sq ft thresholds are applied respectively. Cardiff Take-up
includes City Centre and Cardiff Bay.
Supply
Floorspace on the market and available for occupation. It includes space that is under offer.
Under Construction
Speculative development of new building or substantial refurbishment where construction activity is ongoing.
Demand
New enquiries logged on a quarterly basis, over 20,000 sq ft for London and the South East and over 10,000 sq ft for the regional markets
Prime Rent
The Jones Lang LaSalle view of the highest rent achievable for a hypothetical 10,000 sq ft unit of Grade A space in a prime location, without any
adjustment for incentives.
Business Sectors
Broad business sectors are classified as:
Banking & Finance: Banks and other financial institutions
Professional Services: Accountants, legal, management consultants etc
Service Industries: Advertising and PR, broadcasting, internet services, printing and publishing, software houses and data processing,
telecommunications services, transport, retail, leisure etc
Manufacturing Industries: Pharmaceuticals, computer hardware, electronics, construction, mining, engineering, food and drink etc
Public Administration & Institutions: Central and local government, institutions, charities, quangos, health and social etc
Investment Volumes
Investment volumes include city centre investment volumes, quoted in GBP (grossed up)
Business contacts
Jeremy Richards
National Offices
Bristol
+44 (0)117 930 5745
jeremy.richards@eu.jll.com
Angus Minford
Director
National Offices
+44 (0)20 7087 5350
angus.minford@eu.jll.com
Leasing contacts
Jonathan Carmalt
Director
Birmingham
+44 (0)121 214 9935
jonathan.carmalt@eu.jll.com
Ian Wills
Director
Bristol
+44 (0)117 930 5746
ian.wills@eu.jll.com
Rhydian Morris
Director
Cardiff
+44 (0)29 2072 6002
rhydian.morris@eu.jll.com
Cameron Stott
Director
Edinburgh
+44 (0)131 301 6715
cameron.stott@eu.jll.com
Andrew Pearce
Director
Exeter
+44 (0)139 242 9302
andrew.pearce@eu.jll.com
Mike Buchan
Director
Glasgow
+44 (0)141 567 6623
mike.buchan@eu.jll.com
Jeff Pearey
Director
Leeds
+44 (0)113 261 6236
jeff.pearey@eu.jll.com
Chris Mulcahy
Director
Manchester
+44 (0)161 238 6228
chris.mulcahy@eu.jll.com
Matthew Smith
Director
Nottingham
+44 (0)115 908 2123
matthew.smith@eu.jll.com
Jason Webb
Director
Southampton
+44 (0)23 8038 5611
jason.webb@eu.jll.com
James Finnis
Director
Western Corridor
+44 (0)20 8283 2534
james.finnis@eu.jll.com
Chris Hiatt
National Offices
London West End
+44 (0)20 7399 5323
chris.hiatt@eu.jll.com
Investment Contacts
Mark Wilson
Director
National Offices
+44 (0)20 7399 5874
mark.wilson@eu.jll.com
Simon Merry
Director
North West
+44 (0)161 238 6213
simon.merry@eu.jll.com
Ben Kelly
Director
Midlands
+44 (0)121 634 6527
ben.kelly@eu.jll.com
Olly Paine
Director
South West
+44 (0)117 930 5718
oliver.paine@eu.jll.com
Ross Burns
Director
Glasgow
+44 (0)141 567 6625
ross.burns@eu.jll.com
Andrew Summersgill
Director
North East
+44 (0)113 235 5209
andrew.summersgill@eu.jll.com
Chris Macfarlane
Director
Edinburgh
+44 (0)131 243 2201
chris.macfarlane@eu.jll.com
Colin Finlayson
Director
Edinburgh
+44 (0)131 301 6721
colin.finlayson@eu.jll.com
Justin Millett
Director
Cardiff
+44 (0)292 072 6006
justin.millett@eu.jll.com
Research Contacts
Karen Williamson
Associate Director
UK Research
+44 (0)20 3147 1197
karen.williamson@eu.jll.com
Vicky Heath
Associate Director
UK Research
+44 (0)117 930 5738
vicky.heath@eu.jll.com
UK Office Market Outlook Q4 2013

On Point reports from Jones Lang LaSalle include quarterly and annual highlights of real estate activity,
performance and specialised surveys and forecasts that uncover emerging trends.
www.jll.co.uk
COPYRIGHT JONES LANG LASALLE IP, INC. 2014. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by
any means without prior written consent of Jones Lang LaSalle. It is based on material that we believe to be reliable. Whilst every effort has been made to
ensure its accuracy, we cannot offer any warranty that it contains no factual errors. We would like to be told of any such errors in order to correct them.

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OnPoint

UK Office Market Outlook

Take-up (000s sq ft)

Vacancy Rate (%)

Average Weighted Prime Rent ( psf)

U/C Spec (000s sq ft)

UK office rental clock

London West End

Birmingham, Bristol, Cardiff

OnPoint UK Office Market Outlook Q4 2013 | 3

Revival in office markets outside of

Return of larger deals boosts volumes

Figure 2: Big 8 office take-up 2003-2013

Source: Oxford Economics

Strong increase in take-up

4 | OnPoint UK Office Market Outlook Q4 2013

Source: Jones Lang LaSalle

This momentum is expected to continue into 2014 as occupational

occupiers may seek to preserve flexibility by regearing on shorter

Intensification of Grade A supply shortages

Rents and rental expectations

Figure 3: Big 8 speculative development activity

Source: Jones Lang LaSalle

Source: Jones Lang LaSalle

Definite Spec Start

Investment volumes in the core eight markets outside of London

OnPoint UK Office Market Outlook Q4 2013 | 5

Vacancy Rate (%)

Prime Rent ( psf)

Investment Vol. (m)

Prime Yield (%)

U/C Spec (000s sq ft)

Figure 6: Supply and vacancy rates

Vacancy rate (rhs)

Figure 7: Prime rents and rental growth

Rental growth (y-on-y) (lhs)

Prime rent (rhs)

Figure 8: Prime yields

Source all Charts: Jones Lang LaSalle

6 | OnPoint UK Office Market Outlook Q4 2013

Take-up (000s sq ft)

Take-up (000s sq ft)

Vacancy Rate (%)

Prime Rent ( psf)

U/C Spec (000s sq ft)

Investment Vol. (m)

Prime Yield (%)

Figure 10: Supply and vacancy rates

Vacancy rate (rhs)

Figure 11: Prime rents and rental growth

Rental growth (y-on-y) (lhs)

Prime rent (rhs)

Figure 12: Prime yields

Source all Charts: Jones Lang LaSalle

OnPoint UK Office Market Outlook Q4 2013 | 7

Vacancy Rate (%)

Prime Rent ( psf)

Investment Vol. (m)

U/C Spec (000s sq ft)

Prime Yield (%)

Take-up (000s sq ft)

Figure 14: Supply and vacancy rates

Vacancy rate (rhs)

Figure 15: Prime rents and rental growth