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A more moderate leasing performance was evident across the regional CBD office markets during Q1. Leasing volumes reached 1.33 million sq ft over the quarter, which was down on Q4 2017. It should be remembered that the first quarter is often a quieter period for leasing activity and, in fact, Q1 2018 volumes were up 14% on the five-year Q1 average figure. The reliance on the public sector continued across the country, which was fuelled by a further two Government hubs completing in Glasgow and Manchester. Overall, leasing volumes are likely to moderate during 2018 and the record levels are unlikely to be repeated and we expect to see occupiers continuing to push for greater flexibility; in terms of both the physical space and in lease terms.
Supply was stable quarter on quarter with a total vacancy rate of 8.5%.This figure however disguises an acute shortage of grade A space, which has an average vacancy rate of just 1.8%. A lack of speculative development completions has exacerbated the pressure on new supply and the shortage of good quality space will continue to characterise the regional office markets in the short to medium term. Delivery of new builds will be limited and refurbishments are likely to be increasingly viable as developers seek to take advantage of the window of opportunity.