The Greater Manchester office market showed signs of improvement during 2010, according to our latest Greater Manchester Office Market Review 2010.
Manchester’s three sub markets up 45% from last year
Take-up in the three major sub-markets of Manchester City Centre, South Manchester and Salford Quays are predicted to reach almost 2m sq ft by the year end. Compared to a figure of 1.3m sq ft in 2009, it reflects a sharp increase of more than 45%.
Demand for larger floor spaces
Lettings to the end of Q3 amounted to 1.55m sq ft, two-thirds of which was attributable to the City Centre. While this figure is somewhat distorted by The Co-operative Group’s signing of 328,000 sq ft of space at its new BREEAM ‘Outstanding’ building on Miller Street, the increase is also driven by a demand for larger floor plates.
Take-up increased 37%
Total take-up of grade A stock also rose significantly in the three combined markets, from 267,126 sq ft in 2009 (Q3) to 693,565 sq ft at the end of Q3 2010. Even discounting The Co-operative Group’s transaction, grade A activity still represents a 37% increase from the same period last year.
City Centre availability equates to 2.5 years’ supply
No new developments are expected to complete for at least two years. It is alarming that city centre availability equates to just 2.5 years supply, based on the five-year average annual take-up figure of 300,000 sq ft. Consequently, incentive packages will begin to harden and net effective rents increase as the limited Grade A supply is gradually absorbed.
Market conditions also dictate that landlords, who have invested in high quality refurbishments of their grade B buildings, will benefit significantly. They will not have to compete with heavily incentivised grade A stock as in previous years.
Grade B buildings will struggle to attract occupiers
Grade B buildings, which have seen limited investment, will continue to struggle to compete for lettings, and the pressure will remain to keep rents at a discounted level over the coming 12 months.
Public sector less affected
The contraction of the public sector will have an impact on the growth of future take-up levels, although unlikely to be of major significance. This is demonstrated by the high levels of take-up recorded in 2010 despite reduced activity from the public sector. However, it should be noted that future supply levels could increase from the public sector fuelled by the downsizing of government.
Investment activity remains subdued
Despite the city centre having witnessed an improvement in transaction values during the first half of the year, there has been limited investment activity from across the rest of the sector. The average investment yield in the UK property market rose for the first time in 18 months in Q3 2010, potentially signalling the beginning of a period of uncertainty within the investment market.