Office shortage threat on the horizon

THERE will be a shortage of office space in UK regional markets by 2013 if take-up increases, according to a senior research analyst.

Frances Ketteringham, from property consultancy Jones Lang LaSalle, said supply will continue to tighten following the lack of speculative development, leading to an impending supply gap in three years' time.

There is currently only 40,000 sq ft under construction speculatively

in Leeds with no other starts anticipated.

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Speaking at Jones Lang LaSalle's breakfast briefing in Leeds, she said: "The office development pipeline has been switched off and we anticipate limited developer activity over the next three years.

"We therefore expect supply to continue to tighten in the city. Assuming a return to average levels of Grade A take-up, this suggests there will be an impending supply gap from 2013 in most UK regional markets. Any recovery in the market will, therefore, be driven by supply, as available Grade A space tightens, rather than a growth in demand."

Despite a slight improvement in office take-up in most UK markets in comparison to 2009, leasing activity remains below the long-term average as occupiers remain reluctant to move and small deals dominate the market.

Ms Ketteringham added: "In Leeds, 69 per cent of space let in the first quarter of this year was Grade B accommodation as demand continued to be generated primarily by market churn, with cost remaining high on the corporate agenda."

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In addition, uncertainty over public sector occupancy, particularly given its importance to the Yorkshire employment market, represents a downside risk to any increase in demand in the short term.

One area of the commercial market that is showing signs of activity is investment in prime properties, with institutions leading the way.

Mathew Atkinson, associate director of national investment, said: "We are seeing some commercial property investors moving up the risk curve, not into secondary stock, however, but the definition of prime is now widening."

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