TMT to the fore in Manchester city centre
Manchester city centre is likely to witness its strongest ever annual take-up in 2018 at 1.7m sq ft thanks to several headline grabbing deals, including Booking.com’s 225,000 sq ft pre-let at Enterprise City. Further sizeable deals are expected to land in the coming weeks.
The undisputed star performer is the Technology, Media and Telecoms (TMT) sector, which accounted for 35% of city centre deals in the year to Q3. Strong organic growth from SMEs has driven further transactions.
Development activity in Manchester city centre is booming - accounting for 70% of total space under construction across the entire Northern Powerhouse area. Since the start of 2018, the volume of space under construction has surged to 1.3m sq ft led by new-build speculative starts at the 166,000 sq ft 100 Embankment and 187,000 sq ft Two New Bailey in Salford Central. Eight refurbishments totalling 700,000 sq ft are underway.
Take-up to hit 1m sq ft in South Manchester
The report reveals a hive of occupier activity in South Manchester, where take-up of 685,000 sq ft in the first three quarters of 2018 surpassed the 2017 annual total. The final quarter is expected to see this figure hit 1m sq ft, which is 75% up on the ten-year average. Take-up from finance, banking and insurance companies was responsible for 33% of deals over the 12 months to Q3 2018 - led by Royal London’s acquisition of a 100,000 sq ft freehold at Park House, Alderley Park - followed by TMT with 24%.
Availability has continued to reduce across South Manchester over the last 12 months, standing at 848,000 sq ft at the end of Q3. This reflects a lack of speculative development and elevated market activity. Demand has driven development, with construction underway at Two Stockport Exchange, a 60,000 sq ft office set for completion in 2020.
Healthy churn across Warrington and Salford Quays
It has been a steady year for Salford Quays and Old Trafford, where take-up totalled 280,000 sq ft in the first three quarters of 2018 and annual take-up is expected to be around 330,000 sq ft.
It is a similar picture in Warrington, where take-up to Q3 of 281,000 sq ft reflects healthy churn with 2018 expected to exceed 2017 take-up levels.
Robust year for Liverpool
The report shows that Liverpool has enjoyed a robust 2018, with the first three-quarters the year seeing take-up of 422,000 sq ft including The Royal College of Physicians’ 80,000 sq ft pre-let at The Spine, Paddington Village in The Knowledge Quarter. The Professional Services sector has been the most active sector over the 12 months to Q3 with 33% of deals.
At 1.8m sq ft, availability of office space in Liverpool is the highest among Northern Powerhouse regions – equivalent to 3.6 years of supply based on average take-up. Despite this overall volume, grade A space is tight with only 50,000 sq ft available. Following minimal speculative development over recent years, the report notes that some exciting projects are now in the pipeline.
Rental growth forecast for Manchester city centre
The report states that Manchester city centre’s prime headline rent will rise from £34.00 to £36.00 per sq ft before year-end. Rents have remained static across South Manchester, Liverpool and Salford Quays while Warrington has edged up from £20.00 to £21.00 per sq ft.
Josh Levy, Director of Office Advisory – Manchester at LSH, said: “The Manchester market is a hive of activity. Record annual take-up is a certainty for 2018, a raft of developments are in the pipeline and new sub-markets are rapidly emerging, where the character and setting of buildings is arguably more important than specification in attracting demand.
“South Manchester continues to experience exceptional activity, given its strong credentials such as staff availability, connectivity and competitive costs compared with the city centre. The exciting developments at Airport City will further spur activity over the next few years.
“Following five years of buoyant activity, exciting times lie ahead for the Liverpool office market with The Spine underway and the long-anticipated regeneration plans at Pall Mall kick-starting. In the meantime, the acute scarcity of grade A supply could restrict take-up as no new build schemes will be delivered until the end of 2020.”
Highest quarterly investment deals since credit crunch
2018 is also primed to be a record-breaking year for the North West office investment market, with the highest number of quarterly deals since the credit crunch recorded in Q3. In total, 64 deals were completed between January and September compared with 67 for the whole of 2017, with notable transactions including Legal & General’s purchase of India Buildings in Liverpool for £125m (Q1), Lime Property Fund’s purchase of Two New Bailey Square in Salford for £113m (Q1) and Dimah Capital’s purchase of Manchester Business Park for £54m (Q3).
Strong levels of demand have led to prime office yields in Manchester moving closer towards their 2007 lows of 4.75%. As a result, investors have begun seeking out value-add opportunities which has impacted on overall investment volumes; £734.3m of assets were transacted across the North West to Q3, compared with £1.01bn in the same period during 2017.
Ben Roberts, Director of Capital Markets – North West at LSH, commented: “It has been a robust year for office investment transactions - although investment volumes have fallen, the number of deals has risen.
“There has been a good spread of activity across the North West compared to previous years with only 36% of transactions in Manchester. In particular, there has been a strong appetite for out-of-town offices as investors search for better returns. This is evidenced by Dimah Capital’s purchase of Manchester Business Park and Squarestone’s acquisition of Manchester Green both of which are at Manchester Airport.
“There remains a focus on quality, long let deals as can be seen in Legal & General’s purchase of India Buildings in Liverpool, Aviva Investors’ forward funding of Two New Bailey, Salford and BP Pension Fund’s acquisition of the Preston Brook Contact Centre in Daresbury.”