Best performing office markets
The 2015 edition of the company’s annual Office Market Report revealed that Greater Manchester was the best performing city of the six largest office markets outside London, having seen a record 2.1m sq ft of take-up in 2014 – the largest volume in the market since 2001.
However, while there are six speculative schemes currently underway in the city of more than 100,000 sq ft each, supply pressures in the short and medium term are likely to see headline rents hit £35 per sq ft before the years is out.
Investor and developer sentiment strong
Josh Levy, associate director in office agency in LSH’s Manchester office, said: “During the last cycle we saw headline rents of around £28.50 per sq ft in this cycle we are already seeing between £30-31 being achieved through pre lets.
“The general investor and developer sentiment in the market remains strong and we are seeing landlords looking at asset management solutions to attract occupiers and in one prime space in the city centre we are currently seeing £33.50 being quoted.
“Confidence in the market is going to continue and there is a belief that rental growth will continue across Grade A and also in buildings providing substantially refurbished space where demand also remains strong.”
Office to residential
The research also found that nationally more than 11m sq ft of office space has been earmarked for alternative uses since the relaxation of planning permission rules almost two years ago - an area equivalent to all of the office floorspace in Reading.
Permitted Development Rights (PDR) allows offices to be converted into residential use in England without planning permission and with the PDR scheduled to expire in May 2016, the authors found that the amount of office space leaving the market accelerated last year, with 6.8m sq ft of space being allocated for conversion - an area equivalent to 45% of Manchester city centre total office market.
Take-up highest level since 2001
The Office Market Report also reveals that take-up in 2014 reached 27.5m sq ft, the highest level since 2001. This has been achieved despite a trend by occupiers to use space more sparingly through the introduction of initiatives such as agile working practices. Office availability fell by 4% to 51.1m sq ft over the year, even though the market reported a 19% increase in speculative development.
Tony Fisher, national head of office agency at Lambert Smith Hampton, said: “Unsurprisingly, London has been a focal point for projects to convert offices into other uses, particularly outer London, where residential values dwarf those of offices.
“We’re seeing the overall quantum of office space entering into a gradual downward trend. This is not necessarily as bad as it initially sounds - it should support the general improvement in the quality of the country’s stock of offices and boost long term prospects for rental growth. In managing this change it is vital that planning policy is used to protect and enhance the established office cores across the UK’s markets.”