Turning point in the occupational market as UK availability falls for the first time in almost three years
UK availability fell to 7.9% in Q3, down from 8.6% in Q2. This was the first fall in nearly three years following the historic low of 3.6% at the end of 2022. Robust demand, a sharp uptick in space under offer and limited speculative development suggest availability will peak in 2025, though ongoing release of secondary space will moderate any sharp contraction.
Total UK take-up was 13.2m sq ft in Q3, which was down 5% on Q2 but 6% higher than a year earlier. Deal execution time continues to be relatively drawn out, but demand is diverse, forward-looking and mostly expansionary. Tenant activity includes supply chain optimisation, new overseas entrants and government-backed growth sectors such as defence and technology. Pre-lets and development sales made up about half of all demand in Q3, which was overwhelmingly focused on new, good quality space.
UK prime annual rental growth slowed again to 3%, the weakest since Q2 2020. In most cases growth was concentrated on lettings for newly completed developments. Incentives remain elevated as landlords seek to support occupancy and headline rent levels. The volume of speculative development starts dropped 36% to 1.8m sq ft, well below the five-year average, which also continues to support prime rents.
In the investment market, debt conditions have materially improved, and pricing is expected to remain firm in H2. Investor underwriting is cautious, but there is increased liquidity in the market, particularly for portfolios, supported by new equity raised through corporate activity and joint ventures.
