City Office Market Showing Renewed Consistency

The Belfast office market is continuing to show greater levels of consistency now that working patterns have become more established, even on a hybrid basis. Occupiers are now happy to make decisions regarding their workspace whether that is to grow, contract or stay the same.

There is no doubt that the ‘flight to quality’ is continuing with occupiers wanting to provide their staff with the best available space. This not only has a positive impact on time spent in the office but helps with staff collaboration and recruitment.

In terms of leasing activity, there is a distinct trend towards ‘best in class’ space whether this is on a traditional lease basis or a managed/serviced basis. There is also an increasing trend of traditional landlords fitting and furnishing office space but letting it on a more traditional lease as opposed to a managed/serviced model in order to bridge the gap between serviced offices and traditional leases.

There is an increased supply in serviced/managed office space with rents increasing both across the leased and serviced models for the best available space.

General activity in the office sector has increased, with 100,000 sq ft being let in Q1 2024. This is effectively what would have been an average quarter pre pandemic. In recent months there has been a distinct increase in enquiries and live requirements which will lead to further new lettings as the year progresses.

Occupiers are focused on the quality of the environment they provide for their staff and how the ESG credentials of a building can help them hit their own targets, particularly from an environmental standpoint. With this in mind, the majority of letting activity is focused on new or newly refurbished space which typically has an A or B EPC rating.

We are now regularly asked by new and existing tenants about the availability of ‘Green Energy Tariffs’ for electricity supplies within our managed buildings. Additionally, tenants will want to see a ‘pathway to improvement’ to show that the landlord is actively engaged in trying to improve the ESG credentials going forward. There is an appreciation that an ‘A’ rating today does not necessarily mean that the rating will remain the same for a 5 or 10 year lease as technology improves and regulations tighten. This has been evidenced by two further lettings at the Vantage on Great Victoria Street which benefits from an A EPC rating and is directly opposite the access to Grand Central station.

It may seem strange to say that rents are increasing for ‘best on class’ buildings given the level of pessimism surrounding the office sector in recent times, but it is clear that tenants value high quality environments and staff amenities and are willing to pay strong rents for the right space.

Headline rents for these buildings had previously been well established at £23.00 – £24.00 per sq ft on a regular basis but there is now evidence of deals in excess of £25.00 and more for premium floors.

I think generally there is a consensus that there is ‘loads of available office space’ and to some extent that is true with around 900,000 sq ft of space available today. But when tenants actually start to examine the quality and location of space their ‘real’ options are much less.

A significant amount of the available space is older stock which either is in a less desirable location does not provide high quality tenant amenities or does not match their expectations. Many of these buildings are likely to be repurposed for other uses such as residential accommodation.

The availability of desirable space that meets current occupier demand is close to 600,000 sq ft which is effectively 18- 24 months of supply if demand continues at the levels we are seeing.

The traditional lease and serviced market are becoming blurred with the availability of fitted space on a traditional lease but it is clear that occupiers are seeking the best available space and landlords are being rewarded for the quality of finish within their buildings.