Improving sentiment impacted by uncertainty
Yields reverse course
Regional office investment volumes reached £641 million in Q1 2026, which represented a 1% increase on Q1 2025 but 29% below the five-year average for the first quarter of the year. The increase in turnover can be attributed to two transactions recorded over £50 million. Notably, the largest transaction recorded was BNY acquiring its own regional headquarters at 4 Angel Square, Manchester, for £114 million, reflecting a yield of 6.86%. The building comprises 200,000 sq ft and represented the largest office investment transaction across the Big Six Regional cities in the last two years.
The other deal over £50 million was Melford Capital purchasing Waverley Gate, Edinburgh, for £77.3 million, reflecting a yield of 8.52%. This was the investor’s third acquisition across the regional office market in the last 18 months, with lower entry pricing proving attractive in a highly fragmented market.
The prime regional office yield hardened by 25 basis points (bps) in February to stand at 6.50% – the lowest level in 28 months – reflecting the positive momentum present at the start of the year. The uncertainty, however, arising from the conflict in Iran has resulted in UK 10 Year Gilt rates rising and inflation forecasts being revised upwards. This market reaction has partly slowed the momentum that was building. Consequently, investor sentiment has been impacted, and the prime regional office yield has now softened to stand at 6.75% at the end of May.
An increase in prime stock being brought to the market
Investment volumes have been suppressed in recent years, partly due to a lack of prime stock being brought to the market. There have, however, been two notable assets launched in recent months that will help support the recovery of investment turnover across the market. 3 Chamberlain Square, Birmingham, is being marketed by Federated Hermes for £123.2 million, reflecting a yield of 6.50%, the 191,000 sq ft scheme – completed in 2025 – is fully let.
Thames Tower in Reading is being launched by Spelthorne Council for £83.9 million, reflecting a yield of 8.00%. The building was redeveloped in 2017 and represents the most prime town centre asset launched in the current cycle across the South East region.
Prime headline rents across the Big Six markets are forecast to rise by, on average, 12% in the next two years, highlighting the pace of rental growth.
Simon Preece, Director, Commercial Research
There has been £767 million of assets placed under offer across the regional office market this year, which highlights the appeal of the market. This followed an uptick in investment volumes in 2025, where a 23% increase year-on-year was recorded. Notably, the opportunity to achieve core plus or value-add returns for core buildings at current pricing is helping to stimulate activity.
Investor sentiment has been supported by robust occupational market dynamics. Prime headline rents across the Big Six markets are forecast to rise by, on average, 12% in the next two years, highlighting the pace of rental growth. The development pipeline remains constrained, which is underpinning these above-average levels of rental growth. Only two regional markets, Leeds and Manchester, have new build schemes actively under construction scheduled for completion after 2026.
The rise of the owner-occupier
Historically, owner-occupiers were a relatively small segment of the buyer pool. There has, however, been a shift in this dynamic in recent years, which has accelerated in the last 18 months. According to MSCI, regional office values have fallen by 39% since 2019, and this has created an opportunity to acquire assets at discounted prices. Certain occupiers have recognised this market dynamic and have been able to strengthen their balance sheet. This trend has been reflected when reviewing investment volumes by purchaser, with owner-occupiers being the most active investors in 2025, accounting for 35% of investment volumes.
This trend has continued into 2026, with this investor cohort accounting for 30% of investment activity as of the end of May. Notably, Lloyds Bank acquired 10 Canons Way, Bristol, for £65 million, reflecting a yield of 8.2%. The aforementioned 4 Angel Square, Manchester transaction – where BNY acquired its Manchester headquarters for £114 million – is another example of a significant owner-occupier purchase. There have been examples of other occupiers also acquiring their office buildings, including Adanola, Crew Clothing and Princes Group.
The scale of rental growth, notably in the Big Six regional cities, has resulted in occupiers facing significant rental uplifts when relocating. Average prime rents have increased by 29% over the past five years. While most occupiers are prepared to pay premium rents, occupiers who acquire their own buildings will avoid these rental increases. Furthermore, yield compression is expected over the medium to long term, which could provide future beneficial sale-and-leaseback opportunities for owner-occupiers. These trends are combining to help support the increase in owner-occupier investment activity.
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